Mortgage Loan Compliance

Residential MBS Working Group (MBS Fraud Task Force)

2012-01-30T08:22:00.001-08:00

As of last week the Residential Mortgage-Backed Securities Working Group tasked with investigating mortgage fraud is official. The new office is part of the Administrations Financial Fraud Enforcement Task Force (FFETF) and was first announced by President Obama in his State of the Union speech last Tuesday.

US Attorney General Eric Holder said that the goal of the group will be to hold accountable any institutions that violated the law; to compensate victims and help provide relief for homeowners struggling from the collapse of the housing market, caused in part by this wrongdoing and to help turn the page "on this destructive period in our nation's history."

At the press conference last week Attorney General Holder along with Housing and Urban Development (HUD) Secretary Shaun Donovan, Securities and Exchange Commission (SEC) Director of Enforcement Robert Khuzami and New York Attorney General Eric T. Schneiderman, outlined the mechanics of the working group which will bring together the Department of Justice (DOJ), several state attorneys general and other federal entities to investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities.

Schneiderman said, "In coordination with our federal partners, our office will continue its steadfast commitment to holding those responsible for the mortgage crisis accountable, providing meaningful relief for homeowners commensurate with the scale of the misconduct, and getting our economy moving again. The American people deserve a thorough investigation into the global financial meltdown to ensure nothing like it ever happens again, and today's announcement is a major step in the right direction."

The group will consist of at least 55 DOJ attorneys, analysts, agents, and investigators from around the country including the 15 civil and criminal attorneys and 10 FBI agents already employed in the FFETF unit. This team will join existing state and federal resources investigating similar misconduct under those authorities.

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Fannie and Freddie Principal Reductions Would Cost Taxpayer $100 Billion

2012-01-24T08:38:00.000-08:00

The Federal Housing Finance Agency said that as of June 30, Fannie Mae and Freddie Mac guaranteed nearly 3 million mortgages on single family homes that are underwater, or worth less than the loans they secure.

Nearly 80 percent of the Fannie Mae and Freddie Mac borrowers with negative equity were current on their payments, said FHFA Acting Director Edward J. DeMarco.

"FHFA estimates that principal forgiveness for all of these mortgages would require funding of almost $100 billion," according to DeMarco in a Jan. 20 letter the FHFA posted on its website today.

DeMarco, whose agency was created by Congress to minimize losses at Fannie Mae and Freddie Mac and is independent of President Barack Obama's administration, has maintained that principal forgiveness would increase the size of the government's bailout of the companies, which have cost taxpayers more than $153 billion since they were taken under government control in 2008.

The agency compared the cost of principal forgiveness to the companies' current practice of forbearance, which allows delinquent borrowers to defer payments.

"Given that any money spent on this endeavor would ultimately come from taxpayers and given that our analysis does not indicate a preservation of assets for Fannie Mae and Freddie Mac (FMCC) substantial enough to offset costs, an expenditure of this nature at this time would, in my judgment, require congressional action," he said.

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Mortgage Loan Compliance | FHA’s New $50 Billion Dollar Bailout

2012-01-04T10:28:00.001-08:00

The FHA doesn't issue mortgages, but instead insures lenders against defaults. However in November 2011, an independent audit of FHA's finances found that losses from mortgage defaults had depleted the agency's reserve fund to 0.24%, or $2.6 billion, during fiscal 2011. This leaves the agency well below the Congressionally-mandated 2% level. (The ratio measures the net worth of the reserve fund compared with the value of the loans FHA has insured.) In 2006, the reserve fund stood at 7%.

According to the report, the percentage of loans in the FHA's portfolio with three missed payments or more rose to 9.3% in November, up from 8.4% in August.

At the time, the agency's auditor warned that if home prices continued to drop, FHA could run through the remainder of its reserves, forcing it to either seek a bailout from the Treasury Department or further increase the premiums it charges borrowers. Such a bailout could cost billions.

Joseph Gyourko, a Real Estate Professor at the University of Pennsylvania's Wharton School and author of a report entitled "Is FHA the Next Big Housing Bailout?.", argues that the FHA is so undercapitalized that it would need at least $50 billion, even if the housing markets don't deteriorate further. But even by more conservative measures, the agency would need at least $20 billion to meet the capital requirements mandated by Congress.

"It's highly likely that the FHA will need a taxpayer bailout over the next three to five years," said Gyourko.

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Mortgage Loan Compliance | Homeowners Who Fight Foreclosure Stay Longer

2011-12-28T08:29:00.000-08:00

Nationwide, the average time it takes to process a foreclosure - from the first missed payment to the final foreclosure auction - has climbed to 674 days from 253 days just four years ago, according to LPS Applied Analytics. It takes much longer in states like Florida, where the process averages 1,027 days, nearly 3 years. In D.C., foreclosure averages 1,053 days and delinquent borrowers in New York often stay in their homes for an average of 906 days.

Delinquent borrowers who face foreclosure are learning that they can stay in their homes for years, as long as they're willing to put up a fight. Among the strategies: Challenging the bank's actions, waiting to file paperwork right up until the deadline, requesting the lender dig up original paperwork or, in some extreme cases, declaring bankruptcy.

Many of these homeowners are staying in their homes based on a technicality. There is rarely any dispute over whether or not they have stopped paying their mortgage, said David Dunn, a partner at law firm Hogan Lovells in New York, who represents banks and other financial institutions in foreclosure cases.

"In my experience, they never say, 'I'm not delinquent' or 'I want to pay my bill but I'm confused over who to send it to,' or 'oh my God, you mean I didn't pay my mortgage?' They're not in technical default. They're in default because they're not paying," he said.

Ironically enough, the banks have given delinquent borrowers some of the ammunition they need to delay the foreclosure process. When the Robo-Signing scandals revealed that bank employees signed paperwork attesting to facts they had no personal knowledge of. Now, borrowers are routinely challenging that paperwork.

Sometimes just asking the bank to produce the paperwork that shows it is the legal holder of the mortgage note can stall a repossession, said attorney Robert Brown. Since mortgages are often transferred electronically through MERS, the official paperwork often gets misplaced.

In some of the more extreme cases, borrowers will file for bankruptcy in order to block a foreclosure. In these instances, courts order creditors to cease their collection activities immediately. Home auctions can be postponed as the bankruptcy plays out, which can take months.

David Berenbaum of the National Community Reinvestment Coalition (NCRC), a community activism group, disputes any contention that owners are gaming the system for free rent and hurting the housing market. "Most people do everything in their power to maintain these homes," he said. "They take in relatives, get second jobs and even rent out rooms." What really needs to be done, he said, is for lenders to work harder to find solutions that allow delinquent borrowers who can afford to make reasonable mortgage payments to keep their homes.

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Mortgage Loan Compliance | CA Attorney General Sues Mortgage Giants

2011-12-20T20:16:00.001-08:00

The California Attorney General Kamala Harris has filed a lawsuit against Fannie Mae and Freddie Mac over mortgage and foreclosure problems. The suit comes after Fannie and Freddie's regulator, the Federal Housing Finance Agency, blocked Harris's inquiry into the mortgages and foreclosed properties the Government Sponsored Entities (GSE’s) own in California.

In the lawsuits she filed Harris says that Fannie and Freddie hold extensive information that is critical to her investigation. She notes that between 2007 and June 2011 over 768,000 homes have been foreclosed in California and says those foreclosed homes caused numerous problems in her state including criminal activity like prostitution and drug trafficking.

Fannie and Freddie play and central role in the mortgage and foreclosure issues in California, she says in her suit. As a result, Harris requested answers to questions she says are critical to protecting the health, safety and welfare of the state's residents.

But instead of complying, Harris says in her complaint, Fannie and Freddie have failed and refused to provide any information her office requested.

In September Harris pulled her state of out a nationwide foreclosure probe of some of the nation’s biggest banks over their shady foreclosure practices. That investigation was assembled by the country’s attorneys generals nearly a year ago to look into fraudulent foreclosure practices by banks. Harris backed out of the settlement because “the the nation’s five largest mortgage servicers were not offering California homeowners relief commensurate to what people in the state had suffered.”

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Mortgage Loan Compliance | Mass AG Gets Serious and Sues Five Lenders

2011-12-01T15:44:00.000-08:00

The Massachusetts Attorney General, Martha Coakley, has filed a lawsuit against five large U.S. banks accusing them of deceptive foreclosure practices, a signal of ebbing confidence that a multi-state agreement can be worked out.

The Massachusetts lawsuit, filed in state court in Boston, accuses Bank of America Corp, JPMorgan Chase & Co Inc, Citigroup Inc, Wells Fargo & Co and GMAC of deceptive foreclosure practices, such as using robo-signers and false documents.

For more than a year, state and federal officials have been negotiating a deal in which banks would pay billions of dollars in fines - to go toward housing relief - in exchange for legal protection against future suits.

"Our suit alleges that the banks have charted a destructive path by cutting corners and rushing to foreclose on homeowners without following the rule of law," Coakley said in a statement.

The attorney general in Iowa, Tom Miller, who is leading the negotiations for the states, said in a statement they hope to reach a settlement "soon." He also said Coakley had indicated she is still open to joining the settlement.

"We're optimistic that we'll settle on terms that will be in the interests of Massachusetts," Miller said.

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Mortgage Loan Compliance | OCC Consent Order Update

2011-11-28T10:11:00.001-08:00

The Office of Comptroller of the Currency (OCC) has reported on the actions taken by 12 servicers to comply with consent order issued in April to correct deficient and unsafe or unsound foreclosure processes and actions taken related to the independent foreclosure review announced by OCC, the Federal Reserve, and the Office of Thrift Supervision earlier this month. The twelve servicers covered by the OCC and OTC's portion of the action are Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank, Wells Fargo, Aurora Bank, FSB; EverBank (and the thrift holding company, EverBank Financial Corp.); OneWest Bank, FSB (and its holding company IMB HoldCo LLC); and Sovereign Bank.

Tuesday's report, Interim Status Report: Foreclosure-Related Consent Orders identifies the independent consultants retained by the servicers to conduct file reviews (under the direction of OCC) for borrowers requesting redress. According to the report, work is underway on actions to comply with the consent orders with efforts to correct deficiencies in foreclosure processes management oversight, and internal audit the most advanced. An integrated claims processor has begun mailing letters to borrowers who were in any stage of foreclosure between January 1, 2009 and December 31, 2010 to inform them of the process for requesting reviews of their cases if they believe they suffered financial injury through servicer misfeasance. Outreach will also be made to borrowers using such methods as mass media advertising in national publication such as People, and TV guide, online marketing, social media marketing, media news coverage, and outreach to community groups.

In addition to the reviews of borrow claims, a "look-back" review will be undertaken, sampling to identify files for a review which is intended to further identify servicer deficiencies, errors, or misrepresentations that may have caused financial injury. This review will look at such information as whether the foreclosing party had properly documented ownership or was otherwise a proper party to the action; whether a foreclosure may have taken place while a modification was underway, or whether fees were improperly charged. Results of the sampling may lead to more in depth reviews.

Under the consent order servicers were required to submit plans for correcting deficiencies in a number of servicing areas, address their use of MERS, manage third parties, and correct other operational difficulties. Those plans have been submitted at various times over the last few months. Plans to correct servicing deficiencies include such measures ensuring that loss mitigation staff routinely communicate with staff processing foreclosures; that deadlines for responding to communication from borrowers and for making loan modifications requests be met; that there is a reliable single point of contact for each borrower and that be identified in writing; and that staff is trained adequately to handle delinquencies, loss mitigation and loan modifications. Other factors included in the plan include procedures and controls to ensure that a loan is protected from "dual tracking", i.e., that a loan approved for modification is pulled from foreclosure proceedings; and that payments are promptly and properly credited;

Plans addressing oversight of third-party service establish processes for appropriate due diligence in evaluating the qualifications of potential third-party service providers before entering into new contractual arrangements, provide for regular, periodic reviews of third-party service providers and assessment of their performance based on qualitative standards for competence, completeness, and legal compliance rather than standards based solely on the volume of foreclosures processed or the speed of processing. Additionally, the plans provide for the secure custody and accuracy of records transferred to these third parties during the foreclosure process.

Other plans ensure appropriate oversight and controls of servicer activities with respect to MERS and compliance with MERSCORP's membership rules, terms, and conditions These plans include enhancing controls and standardizing processes for executing mortgage assignments by MERS certifying officers, improving processes for controlling data quality, and establishing periodic-in some cases daily-reconciliations of key reports and data to ensure compliance with MERS requirements and prompt resolution of discrepancies.

Other plans address improving the management information systems that support servicing and foreclosure processing, assessing risks posed by servicer operations, and setting up compliance committees responsible for the development and implementation of compliance programs, action plans, policies and procedures, and strengthened operating processes to correct the deficiencies cited by the enforcement actions

While much of the work to correct identified weaknesses in policies, operating procedures, control functions and audit processes will be substantially complete in the first part of 2012, other longer term initiatives will continue through the balance of 2012. Actions and progress vary by servicer. OCC examiners continue to provide ongoing oversight of activities to ensure compliance with the consent orders.

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Mortgage Loan Compliance | Foreclosure Activity On The Rise

2011-11-11T07:44:00.000-08:00

One in every 563 homes received a foreclosure related filing last month but the distribution of these filings was enormous. In Nevada, which, for the 58th straight month, leads the nation in foreclosure activity, one in every 180 housing units was affected; in Mississippi one in 4,007, Vermont one in 12,570, and in the District of Columbia one in 25,921.

While Nevada still leads the nation in foreclosure activity there was a 34 percent decrease in activity from the previous month, driven by a 75 percent drop in new default notices. This was probably the result of a new law that requires lenders to sign an affidavit with key information about the foreclosure and record it in public records.

Other states with a high level of activity were California with one in every 243 housing units receiving a notice, a 17 percent monthly increase; Arizona with one in every 259 units involved and an 18 percent monthly increase, and Florida with a spike in both default notices and scheduled options that bounced it back up to a 12 month high and to fourth place from sixth in September. One in 268 housing units was the subject of a filing.

• Notice of Default (NOD) and Lis Pendens (LIS). This is the first legal notification from a lender that the borrower on a mortgage loan has defaulted under the terms of their mortgage and the lender intends to foreclose unless the loan is brought current.

• Auction - Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS): if the borrower does not catch up on their payments the lender will file a notice of sale (the lender intends to sell the property). This notice is published in local paper and contains information pertaining to the date, time and subject property address.

• Real Estate Owned or REO properties: "REO" stands for "real estate owned" and typically refers to the inventory of real estate that banks and mortgage companies have foreclosed on and subsequently purchased through the foreclosure auction if there was no offer higher than the minimum bid.

"The October foreclosure numbers continue to show strong signs that foreclosure activity is coming out of the rain delay we've been in for the past year as lenders corrected foreclosure paperwork and processing problems," said James Saccacio, chief executive officer of RealtyTrac. "However, recent state court rulings and new state laws keep changing the rules of the foreclosure game on the fly, creating more uncertainty in the housing market and threatening to prolong the road to a robust real estate recovery."

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Mortgage Loan Compliance | Bankruptcy Options You May Not Know You Had

2011-11-04T13:40:00.001-07:00

A bankruptcy can immediately stop any action against your home, but it can be more than just a lifeline. Bankruptcy (federal) Court also allows you to challenge standing or sue the lender for violating your rights as well. The following are some of the typical types of cases that may get filed in a Bankruptcy Adversary Proceeding. These are just a few grounds to consider when filing bankruptcy:

(1) Rescind your Loan under Truth in Lending Law (TILA). Ex. you rescind your loan prior to filing bankruptcy, and then list property as unsecured on your schedules and then filing the adversary proceeding.

(2) Fair Credit reporting Act (FCRA) credit reporting violations;

(3) Violations of Fair Debt Collections Practices Act (FDCPA);

(4) Violations of State Unfair and Deceptive Business Practices Statute (Like pre-filing mortgage rescue scams);

(5) Pursuing violations stemming from filing false and fraudulent proof of claim (ex. creditor has no proof of secured status yet asserts they are a secured creditor using false affidavits);

(6) Filing lawsuit for violation of RESPA (ex. QWR violations seeking attorney fees and actual damages, or damages for unauthorized fees charged);

(7) Lawsuit challenging the extent, validity, or priority of alleged liens (proving your “creditor” is not a legitimate creditor, or is not secured creditor).

In many cases, you may have grounds to assert legal challenges that could either lead to settlement, or to an award of actual damages, costs, attorney fees, and other damages. Please keep in mind you mortgage is a legally binding contract. You should always consult a Attorney when dealing with legal matters.

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Mortgage Loan Compliance | AG Sues MERS For Deceptive Practices, Will You?

2011-11-01T12:20:00.001-07:00

On October 28, 2011 Delaware Attorney General Beau Biden sued the MERS (Mortgage Electronic Registration System). The suit charges that the parent corporation MERSCORP and MERS have repeatedly violated the state's Deceptive Trade Practices Act.

MERS was created for the purpose of reducing recording costs and the inefficiencies of transferring ownership of residential mortgages among mortgage brokers, lenders, Fannie Mae and Freddie Mac, the secondary market system and investors. The concept was to record the initial loan documents in the name of MERS and retain that record even as paper documents were passed along from originator to subsequent holders of the debt.

AG Biden's suit charges that MERS "engaged and continues to engage in deceptive trade practices that sow confusion among homeowners, investors, and other stakeholders in the mortgage finance system, seriously damaging the integrity of the land records that are central to Delaware's real property system and leading to improper foreclosure practices."

Listed below were three broad categories of the deception outlined:

• MERS, through its private mortgage registry knowingly obscures important information or provides inaccurate information to borrowers. The opacity of the registration database makes it difficult for consumers to know of or challenge inaccuracies in the MERS System which harms borrowers when MERS forecloses on borrowers in its own name, thus impairing a borrower's ability to raise defenses and hampering the ability to seek out the owner of the loan to pursue relief.

• MERS often acts as an agent without authority from its proper principal and is often unaware of the proper identity of that principal. Where the name of the owner of the mortgage loan recorded in the MERS system is not accurate, MERS often takes action on behalf of the purported owner without authority.

• MERS is effectively a "front" organization that has created a systemically important mortgage registry which does not properly oversee or enforce its own rules on participating members. Rather than maintaining an adequate staff, it works through a network of over 20,000 deputized non-employee corporate officers who act without meaningful oversight. It is this network that was behind the robo-signing of foreclosure documents.

Over the years loan documents became separated from the loans themselves and as more banks consolidated, big mortgage companies began to fail, and foreclosures ramped up, more and more loan transfers were not properly recorded on the MERS system and documents were actually lost. This has led, not only to improper foreclosure procedures but even instances where properties were foreclosed where there was no outstanding mortgage. MERS is currently the repository for about 65 million mortgages.

Biden is reported as saying that “American has historically had a robust recordation system where people could walk into the proper registry and "see, read, and touch" documents revealing who had a security interest in property.

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Mortgage Loan Compliance | Is The HARP Program Dead From Start

2011-10-25T09:15:00.000-07:00

Today 11 million people, basically one in four homeowners with a mortgage owe more than their home is worth. These "underwater" borrowers have virtually no shot at refinancing.

The Obama administration is hoping at least 1 million of these borrowers will take advantage of its refinancing program under more lenient rules unveiled Monday. Homeowners who are current on their payments will be eligible to refinance no matter how much their home's value has dropped.

Still, it's unclear how many borrowers will benefit. Lenders will remain under no obligation to refinance a mortgage they hold.

The Federal Housing Finance Agency announced that it is making a series of changes to the Home Affordable Refinance Program (HARP). The changes are intended to allow even more underwater homeowners refinance under HARP. The biggest change is the elimination of the 125% Loan To Value ceiling on HARP loans. This means that theoretically, a borrower can refinance no matter how far they are underwater.

Some of the proposed changes include:

• Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;

• Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;

• Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;

• Eliminating the need for a new property appraisal where there is a reliable AVM

• (automated valuation model) estimate provided by the Enterprises; and

• Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.

Only those who have a job and are current on their Freddie Mac- or Fannie Mae-owned mortgages are eligible for the new program. Those who have already refinanced with HARP are not eligible.

Edward Demarco, the Acting Director of the FHFA commented:

"We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach. Building on the industry's experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the Enterprises. Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets".

Fannie Mae and Freddie Mac will issue guidance on the HARP updates to lenders and servicers by November 15, 2011. At that time we should have additional clarity on the eligibility requirements for the new version of HARP. It is possible that these changes could take effect as soon as December 2011.

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Mortgage Loan Compliance | The Failure of Private Mortgage Insurance

2011-10-23T14:48:00.001-07:00

Insurance regulators in Arizona have seized the main subsidiary of private mortgage insurer PMI Group Inc., which will begin paying claims at just 50 percent.

A statement on PMI's website says a court order, signed by an Arizona Superior Court judge on Thursday, gives Arizona's Department of Insurance full possession and control of the subsidiary. Beginning Monday, PMI says claims will be paid at just 50 percent, in lieu of a moratorium on claim payments. Meanwhile, PMI said it will "continue to support our customers' ongoing policy servicing needs, and loss mitigation programs."

The seizure follows heavy losses at PMI since the housing market bubble burst. Two months ago, state regulators ordered the Arizona-based subsidiary, PMI Mortgage Insurance Co., to stop selling new policies after it came under scrutiny because it didn't have enough money on hand to meet the requirements of regulations in that state.

Private mortgage insurance protects lenders from losses if a homeowner defaults and the lender doesn't recoup costs through foreclosure. The insurance costs the borrower a monthly fee, typically a set percentage of the total mortgage loan. Like other mortgage insurers, PMI has been able to sell profitable policies in recent years, but the gains from those sales hasn't outpaced losses from policies sold before the housing market collapsed. As flagging home prices have strapped borrowers, the company has had to pay more claims.

PMI's CEO, L. Stephen Smith, told analysts in early August that that company has seen a sharp rise in the number of previously denied claims that banks appealed and were able to get reinstated by producing better documents to back up them up.

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Mortgage Loan Compliance | OCC Requires Review of 4.5M Foreclosures

2011-10-18T11:05:00.000-07:00

The Office of the Comptroller of the Currency (OCC) is calling for independent reviews of almost 4.5 million loans.

According to the OCC, Bank Foreclosure Examiners will review the self-assessments, corrective actions, and any determinations of financial harm and related remediation in the next quarterly review or examination of the bank.

This applies to such major banks as Bank of America, JPMorgan Chase, Citigroup, Ally Financial, among others, and could affect as many as 4.5 million loans that faced foreclosure action.

As the leading provider of Residential Audits, Mortgage Loan Compliance delivers a solid foundation of information that discovers the errors and legal violations in your loan.

Many Homeowners, Housing Counseling Agency, Mediators, Bankruptcy and Litigation Attorneys have used our audits as defenses to foreclosure and statutory damages that can greatly exceed the value of the loan. At Mortgage Loan Compliance we specialize and strictly focus on loan and title compliance.

Get The Facts, Audit Your Loan, Sue Your Lender and Protect Your Rights!

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Mortgage Loan Compliance | New Rule – Banks Benefit To Client

2011-10-11T11:59:00.001-07:00

The Federal Deposit Insurance Corp. backed a draft rule barring banks from trading for their own profit instead of their clients on a 3-0 vote. The ban on so-called proprietary trading was required under the financial overhaul law.

For years, banks had bet on risky investments with their own money. But when those bets go bad and banks fail, taxpayers could be forced to bail them out. That's what happened during the 2008 financial crisis.

The Federal Reserve has also approved a draft of the so-called Volcker Rule, named after former Fed Chairman Paul Volcker. The Securities and Exchange Commission must still vote on it, and then the public has until January 13 to comment. The rule is expected to take effect next year after a final vote by all three regulators.

Under the draft, banks must hold investments for more than 60 days. Regulators determined that was enough time to limit speculative trading.

The banking industry said Tuesday the rule is too complex to work and will put U.S. financial firms at a competitive disadvantage to those in other countries.

"How can banks comply with a rule that complicated, and how can regulators effectively administer it in a way that doesn't make it harder for banks to serve their customers and further weaken the broader economy?" Frank Keating, head of the American Bankers Association, said in a statement.

The rule also would limit banks' investments in hedge funds and private equity funds, which are lightly regulated investment pools. Banks wouldn't be allowed to own more than 3 percent of such a fund. In addition, a bank's investments in such a fund couldn't exceed 3 percent of its capital.

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Mortgage Loan Compliance | “Robo-Signing” Since 2003 or Sooner

2011-10-04T08:43:00.001-07:00

Fannie and its sister company, Freddie Mac, own or guarantee about half of U.S. mortgages. That equals nearly 31 million loans worth more than $5 trillion. And they account for nearly all new mortgages. According to a new government watchdog report Fannie Mae knew about allegations of improper foreclosure practices by law firms in 2003 but did not act to stop them.

Similar allegations are now the subject of a probe by state attorneys general into how lenders and law firms ignored proper procedures to handle a crush of foreclosure paperwork.

An unnamed shareholder warned Fannie Mae of alleged foreclosure abuses in 2003, the inspector general for the agency that regulates Fannie says in a report being released Tuesday.

Fannie Mae responded by hiring a law firm to investigate the claims in 2005. The law firm reported in 2006 that it had found foreclosure attorneys in Florida "routinely filing false pleadings and affidavits."

Fannie officials said they told a government official about the law firm's findings in 2006. That unnamed official, who now works for Fannie's regulator, the Federal Housing Finance Agency, said he couldn't recall the conversation, the report says.

Fannie began using a network of attorneys in 1997 to help handle foreclosures, evictions and bankruptcies. In 2008, the network grew to 140 law firms. And the number of foreclosures in Fannie's portfolio reached historic highs. Foreclosures more than doubled from 2007 to 2008. They grew 50 percent in 2009.

In June 2010, FHFA officials went to Florida to study the foreclosure crisis. They found that the mortgage industry was overwhelmed by foreclosures; that the average foreclosure processing time had grown from 150 days to more than 400 days; that lenders were beset by flawed documentation; and that law firms weren't devoting enough time to cases.

The worst practices, known collectively as "robo-signing," led some lenders to suspend foreclosures last fall. And it led to an ongoing investigation by all 50 state attorneys general.

Several states, including California, Delaware and New York, oppose a proposed settlement with the lenders. They complain that the lenders would receive unfair immunity from civil litigation under the deal.

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Mortgage Loan Compliance | “Ill-Housed” – New Foreclosure Proposals

2011-09-06T11:53:00.000-07:00

A recently proposed alternative that might help address the foreclosure backlog while helping delinquent borrowers would allow homes in foreclosure to be sold to private investors; the current occupants, while losing title to the properties, would remain in the homes as tenants.

Since investigations into the foreclosure process have found many irregularities the number of homes in this foreclosure glut has grown to truly astonishing proportions. A June 2011 report from Lender Processing Services, which incorporates data on more than 52 million home loans, shows that more than 4 million loans are in some stage of foreclosure or either 90+ days (seriously) delinquent. Loans in foreclosure are on average 587 days delinquent, and 35% of these borrowers have not made a payment in two or more years.

The new foreclosure proposal program would require cooperation between private investors, servicers, realtors, and rental managers. This approach would lean heavily on local resources, particularly with both administering the property sales and managing the homes as rental properties.

The government's role should be limited to setting up the parameters of the programs, including incentives for all parties (including the homeowners/renters) to participate. In this light, policy makers would be left with the unattractive alternative of either ignoring the foreclosure back-log which remains a huge drag on home prices and consumer confidence or passively watching a surge in home repossessions that leave millions of families, in FDR's words, "ill-housed."

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Mortgage Loan Compliance | Is The U.S. Govt Going To Sue Your Lender

2011-09-01T22:15:00.001-07:00

The New York Times reported on Thursday that the agency that oversees mortgage markets is preparing to file suit against more than a dozen big banks, accusing them of misrepresenting the quality of mortgages they packaged and sold during the housing bubble.

The Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae and Freddie Mac, is expected to file suit against Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among other banks, the Times reported, citing three unidentified individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks last year. They could be filed as early as Friday, the Times said, but if not filed Friday it said the suits would come on Tuesday.

The government will argue the banks, which pooled the mortgages and sold them as securities to investors, failed to perform due diligence required under securities law and missed evidence that borrowers' incomes were falsified or inflated, the Times reported.
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Mortgage Loan Compliance | The Emperor’s New Investor – BofA and Buffet

2011-08-25T10:23:00.001-07:00

Bank of America’s stock had plunged 52 percent in the past year on concerns over the bank's mortgage problems and worries that it would have to sell large amounts of stock to shore up its balance sheet. Warren Buffett's Berkshire Hathaway announced today that it would invest $5 billion in Bank of America Corp., giving a much-needed vote of confidence in the struggling bank.

Much of BofA's problem stems from the 2008 purchase of Countrywide Financial Corp., then the largest U.S. mortgage lender. Bank of America has been under heavy pressure from investors for selling them securities based on bad mortgages that later lost value.

Bank of America has paid a total of $12.7 billion earlier this year to settle claims that it sold investors faulty mortgage investments. Investors have become worried that the bank would have to pay out even more to settle future claims.

Investors' confidence in the bank took another blow this month as its mortgage headaches got even worse. On Aug. 8, American International Group Inc. sued Bank of America for more than $10 billion, saying the bank deceived AIG by selling it overvalued mortgage-backed securities.

Berkshire also holds investments in several other banks. One of Berkshire's biggest stock investments is a 16 percent stake in Wells Fargo. Buffet also holds stakes in US Bancorp, M&T Bank Corp. and the Bank of New York Mellon Co.

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Mortgage Loan Compliance | FDIC Sued For $10 Billion In Bad Loans

2011-08-24T08:55:00.001-07:00

Washington Mutual Bank was seized by the Office of Thrift Supervision in September 2008 in the biggest bank failure in U.S. history. The FDIC was then appointed receiver and immediately sold the bank to JPMorgan Chase & Co for $1.9 billion.

Now a federal judge has ruled that the Federal Deposit Insurance Corp must face a $10 billion lawsuit tied to the failure of Washington Mutual Bank. The judge refused the FDIC’s request to dismiss the lawsuit files by Deutsche Bank National Trust Co over bad mortgages that were securitized by Washington Mutual.

The Deutsche Bank unit filed its lawsuit in 2009 arguing that loans that were pooled into mortgage bonds did not meet the underwriting standards that had been promised by WaMu, causing investors to lose billions of dollars.

A Senate committee report this year said WaMu’s mortgage securitization was “polluting the financial system” with bad home loans and partly to blame for the 2008 financial crisis.

The FDIC argued it should be dismissed from the lawsuit and Deutsche Bank should bring its claims against JPMorgan, which assumed WaMu’s liabilities as well as assets.
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Mortgage Loan Compliance | Insurer Sues Goldman Sachs For Bad Loans

2011-08-16T21:41:00.001-07:00

Monday in New York State Supreme Court a subsidiary of Allstate Insurance Co. sued Goldman Sachs Group Inc., saying that Goldman's characterizations of the investments were "revealed to the public by the numerous governmental investigations into Goldman's role in the market's collapse."

Allstate Corp. is suing Goldman claiming the broker fraudulently sold it more than $123 million in mortgage-backed securities in 2006 and 2007, before the housing market collapse sent the investments' value plunging.

The insurer claims in a lawsuit filed in New York that the documents Goldman provided at the time "contained untrue statements and omitted material facts" about the mortgages underlying the investments.

"Goldman knew these types of securities were, to use Goldman's own words,”junk,” “dogs,” “crap” and “lemons,” according to the complaint.

The lawsuit alleges Goldman violated state laws against fraud and negligent misrepresentation, and it seeks unspecified damages from Goldman and certain affiliates.
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Mortgage Loan Compliance | NCUA Sues Goldman Sachs For Bad Loans

2011-08-09T16:55:00.000-07:00

Buyers of mortgage-backed securities, mostly banks, pension funds and other big investors, made money from the investments if the underlying debt was paid off. But as homeowners started falling behind on their mortgages and defaulted in droves in 2007, the securities failed and their buyers lost billions.

Today the National Credit Union Administration (NCUA) sued Goldman Sachs & Co. for more than $491 million in damages over losses incurred by two failed credit unions that purchased mortgage-backed securities underwritten by the investment bank.

The complaint filed in U.S. District Court in Los Angeles is the latest lawsuit brought by the federal regulatory agency against a major bank as it seeks to recover billions in losses related to risky mortgage-backed securities that brought down credit unions in recent years.

In the complaint, which also names as defendants several issuers of mortgage-backed securities, regulators claim that the documents used in offering the securities contained untrue statements or omissions as to how risky the investments were.

U.S. Central Federal Credit Union in Lenexa, Kan., and Western Corporate Federal Credit Union in San Dimas, Calif., purchased the mortgage-backed securities, believing the risk of loss was minimal because virtually all of the securities had a triple-A rating. However, these loans represented a substantial risk of losses, the NCUA claims. And when the investments' market value plummeted, the two largest U.S. credit unions failed.

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Mortgage Loan Compliance | AIG Sues BofA For $10 Billion In Bad Loans

2011-08-08T10:57:00.000-07:00

American International Group Inc. has said Bank of America and two companies that were later purchased up by the bank, Countrywide and Merrill Lynch, sold the insurance company $28 billion in securities backed by home mortgages between 2005 and 2007, at the height of the housing boom.

AIG said Monday it sued Bank of America Corp. for more than $10 billion, saying the bank cheated it by selling residential mortgage-backed securities that were overvalued. It said it looked at more than 260,000 of the underlying mortgages, and found that the bank's "stated metrics" for 40 percent of the securities were false.

Bank of America denied the allegations, saying AIG "recklessly" chased investments with high returns, and was big and sophisticated enough to know the risks.
Banks have been hit by a series of suits over misrepresentations of mortgage-based securities.

In one case, a borrower said she had been the owner of a construction business for 25 years, which would have made her 10 years old when she took ownership, AIG said.

Bank of America spokesman Lawrence Grayson said the blame lies with AIG.

"AIG recklessly chased high yields and profits throughout the mortgage and structured finance markets. It is the very definition of an informed, seasoned investor, with losses solely attributable to its own excesses and errors," Grayson said.

AIG spokesman Mark Herr shot back: "It is disappointing but unsurprising that Bank of America continues to attempt to blame others for its own misconduct. Investors, no matter how sophisticated, were entitled to rely on its numerous written representations about the securities it sold."

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Mortgage Loan Compliance | FHFA Sues Lender After Forensic Audit

2011-08-02T08:17:00.000-07:00

On July 27, 2011, in U.S. District court for the Southern District of New York, the Federal Housing Finance Agency (FHFA) brought suit against UBS Americas Inc., several of its subsidiaries, and four former executive officers charging violations of securities laws in the sale of private label residential mortgage-backed securities (MBS) to government sponsored enterprises (GSEs) Freddie Mac and Fannie Mae. FHFA sued as conservator of the GSEs and seeks a jury trial in an attempt to recover losses and damages on behalf of the GSEs that occurred as a result of their investment in the UBS securities.

A forensic audit of 966 randomly selected loans from two of the pools at issue found that approximately 78 percent were not underwritten in conformance with guidelines. The underwriting guidelines that were violated were those designed to assess the likelihood that loans would be repaid. The forensic review revealed the following types of breaches:

1. Failure to test the reasonableness of the borrowers' stated income relative to their line of work, leading to material misrepresentation of income. The forensic review found multiple instances in which income appeared unreasonable yet there was no indication the originator attempted to confirm that income.

2. Failure to investigate multiple submissions from the same borrower of applications showing increasing stated incomes. In each instance the stated income on the original application did not meet underwriting guidelines, but subsequent applications at higher income levels did. Forensic review confirmed that the later applications misrepresented that income and that underwriters did not investigate the discrepancies.

3. Failure to confirm the intended owner occupancy of the property despite indications that the property was intended as an investment. In some cases the loans were underwritten as owner-occupied properties even though the borrower stated they intended the property to be as second home or investment. Additionally, the Prospectus Supplements materially understated the proportions of the loans that were not owner occupied.

4. Failure to properly calculate the borrower's outstanding debt, resulting in a debt-to-income (DTI) ratio that exceeded underwriting guidelines. When properly calculated, 32 percent of the 996 loans in the random sample for forensic review contained DTI ratios that exceeded applicable guidelines.

5. Failure to investigate credit report information that indicated potential misrepresentation of borrower debt. The forensic review revealed numerous instances where multiple credit inquiries on borrower credit reports should have put underwriters on notice for potential misrepresentations of debt obligations, but underwriters did not investigate.

The lawsuit alleges that the underwriters of the underlying mortgages systematically disregarded their respective underwriting guidelines in order to increase production and profits and that the Defendants failed to conduct adequate due diligence on the mortgage loan files and mortgaged properties prior to or during the securitization process. A number of banks and mortgage companies originated the loans in question including Fremont Mortgage, Wells Fargo Bank, Countrywide Home Loans, IndyMac, and Provident Funding Associates.

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Mortgage Loan Compliance | Lehman Brothers Alleged Fraud: Sufficient

2011-07-27T08:41:00.000-07:00

Former Lehman Brothers Holdings Inc executives, directors, auditors and underwriters on Wednesday lost their bid to dismiss an investor lawsuit seeking to hold them responsible for losses tied to the investment bank's collapse.

In a 106-page ruling, U.S. District Judge Lewis Kaplan in Manhattan said the plaintiffs, which includes individuals, pension funds, and companies, sufficiently alleged that Lehman materially misled them about its accounting and their ability to manage risk before filing bankruptcy on September 15, 2008.

Kaplan said "it is entirely plausible" that the "misleading picture" Lehman portrayed about its financial conditions inflated its stock price, and resulted in investor losses.

The complaint "adequately alleges misstatements and omissions that overstated Lehman's financial strength, misstated and understated the extent to which it was leveraged, misstated its risk management practices, and understated its exposure to Alt-A and commercial real estate assets," Kaplan wrote.

The investors had bought some of the more than $31 billion of equity and debt that Lehman had issued under a 2006 shelf registration statement and subsequent filings. Among the defendants who failed to win dismissal are former Lehman Chief Executive Richard Fuld, and former auditor Ernst & Young.

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Mortgage Loan Compliance | Robo-Cops Want Answers on Robo-Signing

2011-07-19T16:18:00.000-07:00

On Monday the Associated Press reported that county officials in Massachusetts, North Carolina and Michigan said they have received thousands of mortgage documents with questionable signatures since last fall. Questionable signatures or forged signatures and false affidavits, also called robo-signing, led to a temporary halt to foreclosures earlier this year. Even though banks and foreclosure processers promised to stop the practice it is still a widespread problem.

Lawmakers and enforcement agencies called for hearings and further investigation today after learning that the illegal practices are continuing. County officials who are responsible for keeping land records, including property deeds, say that they have received thousands of robo-signed documents filed in their offices since October.

"Wall Street and some in Washington want us to believe that robo-signing is a thing of the past," said Sen. Sherrod Brown, D-Ohio. "But the same risky practices that put our economy on the brink of collapse continue to infect the housing market." Sen. Brown, Chair of the Financial Institutions and Consumer Protection Subcommittee, said the subcommittee will hold a hearing on the robo-signing issue.

Rep. Maxine Waters, D-Calif., a senior member of the House Committee on Financial Services said the lenders who continue the practice "need to be investigated and prosecuted." She told The Associated Press that she believed regulators should step in and that the absence of stronger regulation is "the reason why the system broke down in the first place." She said the county officials' findings show lenders will not stop practices like robo-signing on their own.

"They have complete disregard for the damage they have already caused and have no intention of changing their ways," said Waters, who also called for more hearings on the issue.

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