Buybacks, Disparate Lending, Indemnifications; Flagstar's CFPB Fine
How did we arrive at the end of the 3rd quarter so quickly? It has been filled with legal news about the financial services sector right up to the very end. Former Federal Reserve Chairman Ben Bernanke and ex-Treasury secretaries Henry Paulson and Timothy Geithner have been called to testify at the U.S. Federal Court of Claims in a lawsuit brought by Maurice "Hank" Greenberg's Starr International, the largest shareholder of American International Group. The suit claims an unconstitutional "taking" of property when the government assumed 80% of the insurer's stock. The fun never ends.
Philip R. Stein (Bilzin Sumberg Baena Price & Axelrod LLP) wrote a piece for American Banker on fighting buybacks. Mr. Stein will be presenting a free webinar on October 9 (available for re-broadcast thereafter) on the CFPB's attempts to expand its authority, and how lenders can best defend against CFPB investigations and enforcement actions. Anyone interested in registering for the webinar should email Phil Stein.
Speaking of the intersection between legal and lending, home loans to minorities are at a 14-year low. Is it because fewer actually qualify, or because of discrimination or disparate lending? It is a touch subject, and things might become touchier. "The Supreme Court is weighing whether to hear an appeal from Texas officials who argue that intent to discriminate must be proven and that the "disparate impact" standard is too loose an interpretation of the landmark 1968 law that prohibited discrimination in housing.
"Lenders continue to accelerate their efforts to wrap up repurchase activity on legacy loans. Notably, AMLG has seen Bank of America ramp up its efforts in shaking down the correspondent lenders in an effort to collect as much of their losses as they are able to." So wrote the American Law Group in its latest newsletter, although it does not appear to be on its website which is unfortunate as it is quite lengthy and hard to do justice in this commentary. "Although it has not yet been clearly ascertained what the effect of the $16.65B settlement will have on originators, AMLG expects that this settlement, in addition with the prior settlements with the GSEs, will force Bank of America to more aggressively come down on the originators to recuperate its damages." In addition, "On another note, there have also been several other recent developments both in and out of court having the potential to materially affect those repurchase and make-whole defense and resolution strategies that are being presently employed in a number of key jurisdictions. Included in the recent rash of filings by RFC, LBHI in its bankruptcy case in New York, as well as the significant number of lawsuits being filed by LBHI, RFC, Flagstar, Franklin American, BB&T, US Bank, FDIC on behalf of IndyMac, are their ever changing litigation strategies. The battle, which has been won in many states by originators and lenders, has been over the applicable statute of limitations which is a defense that swiftly ends litigation. The issue is whether the statute runs from sale of the allegedly defective loans, as that is when the breach of representations and warranties occurred, or when the lender suffered an actual and appreciable loss. Because cases have come down in various states in favor of originators regarding the statute of limitations for breach of contract claims, lenders are shifting arguments, now asserting that the statute of limitations should be assessed in its indemnification claims."
Continuing in this litigious vein, there is a website dedicated to the lawsuits revolving around Freddie Mac and Fannie Mae. You may recall that the FHFA launched 18 lawsuits in 2011 over about $200 billion in mortgage-backed securities. HSBC, Nomura and Royal Bank of Scotland Group Plc are the remaining banks being sued by the regulator. Other banks have settled ahead of trial, enabling the FHFA to recover $17.3 billion.
Lastly, Ben Slayton publishes Mortgage Compliance Magazine, just to help companies stay out of future lawsuits. Talk about a timely periodical!
The Federal Deposit Insurance Corporation announced a settlement with Merrick Bank, South Jordan, Utah, for unfair and deceptive practices related to marketing and servicing of credit card "add-on products," in violation of Section 5 of the Federal Trade Commission (FTC) Act. "This action results from a review of the Bank's credit card products by the FDIC. As part of the settlement, the Bank stipulated to the issuance of a Consent Order, Order for Restitution, and Order to Pay Civil Money Penalty (collectively, FDIC Order). The FDIC Order requires the Bank to pay a civil money penalty (CMP) of $1.1 million, and restitution of approximately $15 million to harmed consumers. Consumers who are eligible for relief under the settlement are not required to take any action to receive compensation."
As expected, the CFPB targeted Flagstar Bank for its latest penalty. As you might recall, Flagstar mentioned the possible action a month or two ago in its quarterly report. So although not a surprise, I am sure it still hurts. "Flagstar must pay $27.5 million to consumers whose loans were being serviced by Flagstar and who were subject to its unlawful practices. At least $20 million of this amount will go to victims of foreclosure. Flagstar must also engage in outreach to affected borrowers who were not foreclosed on and offer them loss mitigation options. Flagstar must halt the foreclosure process, if one is happening, during this outreach and qualification process. Flagstar also is barred from acquiring servicing rights for default loan portfolios until it demonstrates that it is able to comply with the laws that protect consumers during the loss mitigation process. In addition, Flagstar will make a $10 million payment to the Bureau's Civil Penalty Fund."
Also recall that recently the CFPB and OCC have ordered US Bank to pay nearly $59 million in restitution and civil money penalties to settle allegations around identity theft products billed by a third party related to 420,000 consumer accounts. Consumers were reportedly billed for products but did not receive the full benefit of what they purchased.
The CFPB has published a notice stating that as part of its Owning a Home project, it plans to seek approval from the Office of Management and Budget to conduct a field study of the project. The project consists of a various online tools and resources developed by the CFPB to help consumers make decisions about mortgages. Comments are due by November 25, 2014.
According to the CFPB, the purpose of the field study is to evaluate and improve its Owning a Home project. Among the issues as to which the CFPB seeks to gain insight through the study are whether and how the project impacts consumers and which consumer segments or profiles benefit most from the project. To conduct the field study, the CFPB plans to recruit prospective homebuyers and assign them to one of two study groups: those exposed to the project (treatment group) and those not exposed (control group). The CFPB then plans to survey both groups as they go through the mortgage shopping process, track the treatment group's usage of Owning a Home tools and resources, and compare the two groups' attitudes, behaviors and outcomes.
While we're on the CFPB, Ballard Spahr's Barbara Mishkin writes, "In May 2013, we reported that the CFPB's amicus program scored a victory when the U.S. Court of Appeals for the Second Circuit ruled that the sale of a single-floor condominium unit in a multistory building was subject to the disclosure and reporting requirements of the Interstate Land Sales Full Disclosure Act (ILSFDA). At the court's invitation, the CFPB had filed a letter brief supporting the consumer/appellee's position that the ILSFDA covered such sales. Now, it is condominium unit developers who have scored a victory with the Senate's unanimous approval of H.R. 2600 on September 18, 2014, following the bill's similar unanimous passage in the House last year. While not exempting condominium unit sales from the ILSFDA's antifraud requirements, the bill exempts condominium unit developers from the requirement to register their projects under the ILSFDA and provide federal property reports to purchasers. Barring a veto by President Obama, the new exemption will take effect approximately six months from now. For more on the bill, see our legal alert."
It is hard to argue that the U.S. economy is not showing many positive signs, and that rates are being held in check by unrest overseas. Yesterday, for example, we began the day with stories of protests in Hong Kong, causing a flight to the dollar (and dollar denominated assets) and this was viewed as more important than the news here showing consumer spending rebounded in August as further job gains encouraged households to loosen their purse strings. (Personal Incomes rose .3% in August, while Personal spending rose .5%. The PCE Core rate - the inflation measure the Fed prefers to use - rose 1.5% year-over-year, below their 2% target rate.)
On top of that, recently Freddie Mac's Chief Economist told the New England Mortgage Banking Conference that 2015 could be the best year for home sales since 2007. Freddie is forecasting mortgage rates to be around 5% by the end of 2015 - apparently due to strength in our economy. Yet Pending Sales of U.S. Existing Homes Fell 1% in August, and declined 4.1% year over year, following a 2.8% annual decline in July. August marked the 11th month of year-over-year decreases. The NAR chief economist said contract signings are holding steady and fewer distressed sales and less investor activity is likely behind August's modest decline. According to NAR's Profile of Home Buyers and Sellers, 81 percent of first-time buyers in 2013 who financed their purchase obtained a conventional or FHA loan.
The news continues today with the July S&P/Case Shiller read on house price indices, seen improved from the prior -0.20%, September's Chicago Purchasing Manager's Survey, and September Consumer Confidence. In the early going rates have crept higher - probably due to less unrest overseas (a bad thing?). The 10-yr T-note closed Monday at 2.49% and this morning we're back at 2.52% and agency MBS prices are worse about .125.
Jobs
On the jobs side, RPM Mortgage is looking for a Vice President of Business Development in Southern California to rapidly expand their growing footprint in the Southland. The candidate, to be based in Los Angeles, will help RPM's Business Development Team grow the company's Southern California production by $1.5 billion over the next 12 months and must have established Residential Mortgage Loan Originator relationships. RPM, "a premier independently owned residential mortgage lender, is a retail-only mortgage platform with more than 800 loan agents and employees is unmatched in the industry with their NEW Nexus proprietary marketing system." RPM is headquartered in Alamo California. Contact Brett Dillenberg Managing Partner; Southern California or Cindy Ertman EVP; National Sales Manager, for a confidential conversation and visit RPM to learn more about their commitment to a culture of "Can Do-Will Do."
And AmeriSave Mortgage Corporation is seeking experienced licensed Loan Officers to join the team at two new call centers in Orange County, CA and Troy, MI as well as its existing call center in Atlanta, GA. "AmeriSave has an industry leading loan submission platform, competitive pricing and enjoys a high rate of repeat business. Loan Officers are provided with high quality leads, great compensation and excellent operational support. The ideal candidate will have a minimum of 3 successful years originating loans in a call center environment and have licenses in good standing in multiple states." Apply online at AmeriSaveCareers or contact Robert Wilkes, National Recruiter.