A recent class action lawsuit filed on behalf of thousands of homeowners in New York against Wells Fargo alleges that while the bank received $25 billion in government bailout funds it failed to make a good faith effort to help borrowers avoid foreclosure in compliance with the federal government’s Home Affordable Modification Program (HAMP). The complaint, filed in the US District Court for the Eastern District of New York, accuses Wells of breach of contract, fraudulent inducement, unjust enrichment and violations of consumer protection laws. The lawsuit is one of several cases across the country alleging similar misconduct against banks.
HAMP was launched in 2009 as part of the federal government’s initiative to ease the foreclosure crisis. In exchange for receiving federal bailout funds, Wells Fargo was obligated to participate in HAMP, which precluded the initiation of foreclosure actions against struggling borrowers without first evaluating their eligibility for assistance. Continue Reading
Evidence is mounting that the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) are taking a renewed interest in investigating possible redlining—the practice of lenders charging certain groups more for products, or altogether excluding minorities within certain geographic areas.
There has been a substantial increase in recent months of warnings by government officials to lenders about redlining, a lending practice that has been prohibited for decades. The CFPB and DOJ are evidently using slightly different screening methodologies than other regulators, and those differing methodologies are somewhat broader than the norm, which is leading to a larger number of findings of redlining. Regulators, however, assert that there is a different explanation for why they are finding more instances of redlining. Their view is that lenders, forced to scale back the availability of credit in the aftermath of the financial crisis, are resorting to the practice as a means of limiting the pool of borrowers to whom they might extend credit. Continue Reading
Quicken Loans, the nation’s largest Federal Housing Administration (FHA)-backed mortgage lender, filed suit on Friday, April 17 in the United States District Court in Detroit against the United States Department of Justice (DOJ) and the Department of Housing and Urban Development (HUD). In the suit, Quicken alleged that it is a target of a probe in “which the DOJ is ‘investigating’ and pressuring large, high-profile lenders into publicly ‘admitting’ wrongdoing.” Quicken says the government threatened to file a lawsuit against it unless the company paid damages based on a sampling of its loans backed by the FHA. The government wanted payment of damages to be coupled with an admission by Quicken that its lending practices were “significantly flawed,” and that it had committed wrongdoing.
The company says that the public statements the government wanted it to make were blatantly false. Quicken also asserts that, before filing its lawsuit, it had already provided the DOJ with more than 85,000 documents, including 55,000 emails. In addition, the DOJ, without filing any lawsuit against Quicken, has conducted hundreds of hours of depositions from numerous Quicken team members. Three years later, the DOJ inquiry has (according to Quicken) resulted in the threat of a federal lawsuit based on “faulty analysis of a miniscule number of cherry-picked mortgages from the nearly 250,000 FHA loans the company has closed since 2007.”
According to FHA statistics, Quicken has originated the government agency’s best performing loan portfolio. The FHA’s publicly available data appears to establish that Quicken has the lowest “compare ratio” — the default rate of a single lender compared to FHA’s total mortgage portfolio — in recent years. Continue Reading
On Sunday, May 3, 2015, I will serve as a panelist at the Mortgage Bankers Association’s Legal Issues & Regulatory Compliance Conference at the Sheraton Chicago Hotel & Towers in Chicago, IL.
More than 800 attorneys, compliance officers, company executives and government relations associates will convene to discuss the latest regulatory, supervisory, enforcement and litigation issues within the mortgage industry, including TILA RESPA Integrated Disclosure (TRID) and the Home Mortgage Disclosure Act (HMDA).
I will be a panelist for the session “Fair Lending and Other Significant Litigation,” and will be discussing such issues as fair lending and disparate impact claims, residential mortgage-backed securities lawsuits, and mortgage buyback litigation.
Click here to learn more about MBA’s Legal Issues & Regulatory Compliance Conference.
Bank of America recently moved to dismiss a lawsuit filed by Ambac Assurance Corp. in New York state court, alleging $600 million in damages for fraudulent inducement in connection with payments it made under policies insuring faulty residential mortgage-backed securities issued by Countrywide. In its complaint filed at the end of 2014, Ambac claims that it insured securities in eight RMBS trusts worth $1.68 billion at the height of the housing boom from 2005 to 2007, in reliance on Countrywide securities offerings that contained false and misleading information. Ambac contends it would have never insured the transactions had it known Countrywide failed to follow strong underwriting guidelines as it claimed. The bond insurer filed a similar lawsuit against Bank of America in 2010 which is still ongoing.
BofA Launches Stones From its Glass House
In its motion seeking dismissal, Bank of America denigrates Ambac’s lawsuit as a “sophisticated monoline insurer’s hindsight effort to shift blame for its own recklessness.” Bank of America goes on to state that Ambac, having sued every major participant in the RMBS market it did business with in the years leading up to the collapse of the housing market, is now “unwilling to accept the consequences of its own losing bets.” In its heated argument for dismissal, Bank of America is also critical of Ambac for having “access to offering documents rife with relevant disclosures” and that it was “incumbent on an insurer of its size and sophistication” to conduct its own due diligence. Continue Reading
BofA’s “hustling” attempt to overturn a $1.27 billion judgment against it and Countrywide—along with the individual defendant identified in the next paragraph, the “Defendants”—in the U.S. District Court for the Southern District of New York for fraud in the sale of loans to Fannie Mae and Freddie Mac has proved unavailing.
Judge Jed Rakoff of the Southern District of New York recently rejected the Defendants’ motion for a judgment in their favor or in the alternative, for a new trial. The judge characterized the Defendants’ attempt to meet their burden as one that they “utterly failed” to meet and stated that the evidence of material misrepresentations supporting the verdict was “overwhelming.” Indeed, Judge Rakoff viewed the Defendants “continuing contention that there was insufficient evidence of a material misrepresentation to support the jury’s verdict” as one that “border[ed] on the frivolous.”
This lawsuit involved numerous accusations of fraud by the U.S. Department of Justice against Countrywide, which was acquired by Bank of America in 2008, and one of Countrywide’s officers, Rebecca Mairone, a creator of Countrywide’s “High Speed Swim Lane” program, also called HSSL or “Hustle,” which was the culprit for huge quantities of poor quality loans originated by Countrywide, and the focus of the lawsuit. That program emphasized speed of loan originations over quality and rewarded staff based on volume of loans. It reportedly removed the processes responsible for safeguarding loan quality and preventing fraud by eliminating underwriter review even from many high risk loans, assigning critical underwriting tasks to loan processors who were previously considered unqualified even to answer borrower questions. The program also eliminated previously mandated checklists that provided instructions on how to perform these underwriting tasks, and did away with the review of loans prior to sale to ensure that all conditions on the loan’s approval were satisfied prior to funding. Moreover, in furtherance of the program’s goal, compensation to those involved in the loan origination process was revamped to provide performance bonuses solely based on the volume of loans. Countrywide was also accused of concealing quality control reports on Hustle loans—reports that demonstrated high rates of fraud and other material defects plaguing the loans. Countrywide reportedly concealed this program from Fannie Mae and Freddie Mac when it sold the GSEs loans that it knew were not of investment quality. Continue Reading
2015 is leaving Standard and Poor’s (S&P) quite a bit poorer. Yesterday, the major credit rating agency agreed to pay $1.375 billion to resolve lawsuits brought against it by the U.S. Department of Justice and attorney generals from 19 states and the District of Columbia regarding S&P’s pre-crisis ratings of mortgage-backed securitizations (MBS) and collateralized debt obligations (CDO). Those lawsuits, the first of which were initiated in 2013, allege that between 2004 and 2007, S&P misrepresented the stringency and objectivity of its ratings—that those ratings were plagued by conflicts of interest that incentivized S&P to artificially inflate the ratings in order to appease the issuers that paid millions of dollars for its services. Consequently, a large number of the MBS and nearly every CDO rated by S&P at that time failed, creating billions of dollars-worth of investor losses.
The “Big Three” ratings agencies (S&P, Moody’s, and Fitch) who have taken considerable public fire for their perceived role in the 2008 mortgage crisis week’s settlements, had previously remained largely unscathed in connection with their activities from that period. The settlement announced this morning constitutes the biggest settlement ever paid by a credit ratings agency. It comes on the heels of the $125 million settlement S&P reached yesterday with the California Public Employees’ Retirement System over the allegedly inflated grades S&P assigned three structured investment vehicles comprised of CDOs, RMBS, and securitized home equity loans. The collapse of those vehicles in 2007 and 2008 cost their retiree investors approximately $1 billion. Continue Reading
The House of Representatives passed legislation that could loosen some of the restrictions imposed by Dodd-Frank on big banks. The bill, Promoting Job Creation and Reducing Small Businesses Burden Act, passed by a margin of 271-154, and contained the following measures:
- Delay implementation of the “Volcker Rule” until 2019.
- Exempt some private equity firms from registering with the Securities and Exchange Commission.
- Loosen regulations on derivatives.
- Permit some small, publicly traded companies to omit historical financial data from their financial filings. Continue Reading
The U.S. Supreme Court recently held in Jesinoski v. Countrywide Home Loans, Inc. that borrowers exercising their right to rescind mortgages under the Truth in Lending Act (“TILA”) only need to provide written notice to creditors within three years of the loan being issued, instead of bringing a lawsuit within that period. The high court concluded that TILA only states “when the right to rescind must be exercised, but says nothing about how that right is exercised.”
TILA vests borrowers with the right to rescind certain loans up to three years after the loans were issued, where borrowers do not receive mandated disclosures. Specifically, the Act’s unequivocal terms provide that a borrower “shall have the right to rescind … by notifying the creditor … of his intention to do so.” However, since homeowners’ rights were expanded under TILA in 1980, courts have interpreted the statute differently and confusion has resulted in determining how borrowers must procedurally “notify the creditor” of their intention to rescind loans. Continue Reading
An increasing number of banks, mortgage lenders, auto finance companies and other financial services industry participants are dealing with inquiries, investigations and actual or threatened legal claims from the Consumer Financial Protection Bureau (CFPB) and other enforcement agencies related to the fairness of their lending, servicing and collection practices. Noting that growing trend, a banking industry commentator recently published an article asking a fundamental question: Should banks push back?” The answer, I believe, is an emphatic “yes.”
Imagine you are a compliance officer at a bank or mortgage company. You take pride in the policies and protocols that your institution has in place regarding its lending practices. You know that your company personnel do a very good job adhering to the applicable procedures, and you know that instances in which rules are violated are dealt with and corrected, swiftly and appropriately, at your company. Continue Reading