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Mortgage Crisis Watch

Business and legal issues affecting: loan repurchases | mortgage-backed securities | mortgage insurance

Federal Judges Refuse to Permit “Shotgun” Style Mortgage-Buyback Lawsuits Filed by Lehman Brothers

By Philip R. Stein and Jeremy C. Sahn on Posted in Mortgage Repurchase, Too Big to Fail

Lehman unsuccessfully attempted to consolidate repurchase claims

Earlier this year, a United States District Court judge for the Southern District of Florida (Judge James Lawrence King) severed and dismissed 7 out of 8 mortgage repurchase claims filed by Lehman Brothers Holdings, Inc. against a residential mortgage originator because Lehman was attempting to demand the repurchase of 8 separate loans in a single complaint. Initially, the claims had been asserted in a single count and dismissed as an impermissible “shotgun” style complaint—an unclear mass of allegations. When Lehman attempted to re-file, the court later ruled that the lack of commonality in circumstances surrounding the origination of separate loans “makes them all but impossible to be adjudicated together.”

Recognizing that each individual loan was unique with respect to the location and date of the loan, the identity of the borrower, and the home being purchased, compounded by the varying proof Lehman would need to show to establish each claim, the Florida court required that the 7 dismissed claims be re-filed in completely separate lawsuits. The 8th claim was later dismissed as well for lack of jurisdiction in the federal court. Continue Reading

Lehman Reaching Beyond the Grave

By Robert Siegel on Posted in Too Big to Fail

Lehman is demanding millions of dollars from non-profits

As widely reported, in the latest Lehman bankruptcy “fundraiser,” managers of the Lehman estate are now demanding millions of dollars from non-profit retirement homes, colleges and hospitals.  Lehman claims that it was somehow “shortchanged” by multiple non-profit organizations that were forced to pay to exit derivatives that were unwound as a result of Lehman’s filing for Chapter 11 protection.

Before the financial crisis, governments and non-profits purchased derivatives known as interest-rate swaps, which had the potential to lower the cost of borrowing. But after Lehman filed for bankruptcy, the market for some of the municipal bonds that was tied to the swaps collapsed, and nonprofits and local and state governments had to pay more than $4 billion to Wall Street banks to exit the swaps.

You might reasonably question whether the nonprofits and governmental agencies were made aware of the risks by Lehman and its Wall Street brethren when entering into these transactions. But what Lehman questions is why the nonprofits and local and state governments paid “only” $4 billion. Continue Reading

Loan Modification and the Failure to Mitigate Damages

By Anthony Narula and Philip R. Stein on Posted in Fannie Mae/Freddie Mac, Mortgage Repurchase


Freddie Mac Streamlined Modification

Freddie Mac has announced the immediate implementation of its Streamlined Modification program, a no-document modification program offered to severely delinquent borrowers.  The implementation of the program, originally set to begin July 1, came six weeks earlier than expected in an effort to expedite financial relief for potentially thousands of distressed families.

Under the program, servicers are required to evaluate and send to eligible borrowers a Streamlined Modification letter and Trial Period Plan Notice.  To be eligible, a borrower must be at least 90 days, but no more than 720 days, delinquent on mortgages that are at least 12 months old and meet certain other criteria.  Borrowers who receive solicitation letters can simply elect to submit the modified payment to begin the trial period without submitting a response package.  Borrowers who successfully complete the trial period may enter into a permanent modification.

The Streamlined Modification enables servicers to modify a borrower’s mortgage by adjusting interest rates, extending payment terms to 40 years, and providing principal forbearance for certain underwater borrowers.

In a press release Freddie Mac announced the date change was made because it is “focused on adding momentum to the housing recovery by giving distressed borrowers more options to avoid foreclosure.”

Both Freddie Mac and Fannie Mae are aligned on streamlined modification under the Servicing Alignment Initiative. Continue Reading

Bank of America Settles Class Action Brought By Mortgage Investors

By Philip R. Stein and Sacha Boegem on Posted in Legislation/Regulation, Too Big to Fail

$40 Billion Settlement

Bank of America  has agreed to settle a class-action lawsuit brought by investors who claimed they were misled by its Countrywide unit into buying risky mortgage securities. Bank of America acquired Countrywide Financial, a California-based lender, in July 2008 for $2.5 billion, but analysts have put the effective cost at more than $40 billion, taking into account the post-purchase lawsuits, loan buybacks and write-downs.

According to attorneys for the plaintiffs, the settlement is to date the largest consensual resolution of a federal securities class-action case over mortgage-backed securities. Bank of America won court approval for a $315 million settlement of a similar lawsuit against its Merrill Lynch unit last May.

This settlement of Countrywide liabilities resolves three lawsuits and requires the approval of U.S. District Court Judge Mariana Pfaelzer in Los Angeles. The lawsuits were brought by the Maine State Retirement System and other pension funds who allege they were provided false or misleading information about the quality of the Countrywide loan pools they were investing in. Continue Reading

TBTF Servicing: Another Issue for Originators to Consider

By Robert Siegel on Posted in Mortgage Repurchase, Too Big to Fail

Shocking Statistics from Foreclosure Review

As widely reported recently, close to 1.2 million borrowers (about 30% of the more than 3.9 million households that faced foreclosure proceedings by the 11 leading financial institutions in 2009 and 2010), had to battle purported wrongful seizures of these properties.

These battles were frequently waged despite the borrowers not having defaulted on their loans, being protected against foreclosure under federal law, or having been in good-standing under bank-approved plans to either restructure their mortgage loans or temporarily delay required payments.

More than 244,000 of those borrowers eventually lost their homes. Nearly 700 borrowers who faced foreclosure proceedings had never defaulted on their loans. More than 28,000 were protected under bankruptcy laws, while approximately 1,100 had been meeting the obligations under loan modification plans.

Perhaps most disturbingly, some 1,600 borrowers that were serving this notion and were protected by the Service Members Civil Relief Act of 2003, appear to have lost their homes at the hands of their mortgage loan servicers. A full breakdown of the statistics is attached here. Continue Reading

Big Banks Fail 2012 Fannie Mae Star Program

By Philip R. Stein on Posted in Fannie Mae/Freddie Mac, Too Big to Fail

Fannie’s Star Program reveals big banks failed to meet minimum mortgage servicer performance requirements

According to a report released Tuesday by Fannie Mae, the big banks who love to act like “injured innocents” when it comes to making mortgage repurchase and indemnification demands on loan originators had their own substantial problems servicing the loans that they either originated or acquired from third parties.

Bank of America, Citigroup and JPMorgan Chase all flunked Fannie Mae’s test of mortgage servicers, failing to meet even the minimum requirements for performance in 2012. Wells Fargo and Ally Bank both received the equivalent of a “C” grade, signifying an average level of performance relative to their peers.

The poor performance of the top banks is surprising considering the top five mortgage servicers—B of A, JPMorgan Chase, Citi, Wells Fargo and Ally—each claimed in October that they had met 304 different servicing standards and reforms as part of the $25 billion national settlement with 49 state attorneys general and federal regulators. That settlement was designed to address servicing abuses that led to the robo-signing of foreclosure documents.

Fannie’s “Star” program, now in its second year, was designed to create standards and rank servicers based on their overall performance, customer service and foreclosure prevention efforts. Continue Reading

Taking The Easy Way Out Again: Recent OCC/Big Banks Settlement

By Robert Siegel and Ruben S. Fogel on Posted in Legislation/Regulation, Too Big to Fail

Amidst Evidence both Old and New of Big Banks’ Wrongdoing, OCC Again Drops the Ball by Settling Instead of Regulating the Culprits

Any follower of this blog or the mortgage crisis at large will — sadly — not be surprised by the seemingly never-ending news of foreclosure misdeeds by the nation’s biggest banks. Recent news reveals a particularly distasteful episode in the robo-signing foreclosure debacle involving victims who are among those who sacrifice the most for our nation and at the same time are among those most vulnerable to wrongful foreclosure tactics: our nation’s active-duty military.

While it has long been known that those affected by the robo-signing foreclosure issues included military families, that number has long been believed to have been relatively small. As the NYTimes’ DealBook reports, at least 700 military members are victims of wrongful foreclosures, in many cases while away from their homes and families on active duty. Not surprisingly given their ‘too big to fail” thought process, the banks’ defenses in this instance include the fact that those 700 or more foreclosures are just a small fraction of foreclosures under post robo-signing review.

Continue Reading

President Obama Touts Refinancing Plan in State of the Union Address

By Sacha Boegem and Robert Siegel on Posted in Fannie Mae/Freddie Mac, Legislation/Regulation

The Responsible Homeowner Refinancing Act of 2013

President Barack Obama delivers the State of the Union address at the U.S. Capitol in Washington, D.C., Feb. 12, 2013. (Official White House Photo by Chuck Kennedy)

In his State of the Union Address on February 12, 2013, President Obama called on Congress to make it easier for families to refinance their mortgages. Specifically, the President urged Congress to pass refinancing legislation being sponsored by Sen. Robert Menendez (D., N.J.) and Sen. Barbara Boxer (D., Calif.) that would waive certain fees that the Federal Housing Finance Agency (“FHFA”) had reduced but not eliminated entirely for Home Affordable Refinance Program (“HARP”) borrowers making payments on mortgages held by Fannie Mae and Freddie Mac.

Also, while the bill, “The Responsible Homeowner Refinancing Act of 2013” would not create a new refinancing program, it would reduce certain demands placed on lenders that refinance loans they don’t currently manage, including eliminating employment and income verification requirements to refinance, and extend the HARP program for one more year, to the end of 2014.

Significantly, the bill applies only to borrowers with loans held by Fannie Mae and Freddie Mac, not to borrowers with private loans. Nonetheless, the legislation appears to enjoy broad industry and consumer support, including from the National Association of Realtors, the Mortgage Bankers Association, the National Association of Home Builders, the Center for Responsible Lending, and the Consumer Federation of America.

Continue Reading

DOJ Lawsuit Against S&P and McGraw Hill

By Philip R. Stein on Posted in Legislation/Regulation, Residential Mortgage-Backed Securities (RMBS)

Last week, the Department of Justice (DOJ) filed a civil suit in the Central District of California against Standard & Poor’s Financial Services (S&P) and its parent company McGraw-Hill. The suit alleges that S&P engaged in a scheme to defraud investors in Residential Mortgage-Backed Securities (RMBS) and Collateralized Debt Obligations(CDOs).

As noted in the DOJ’s press release, the lawsuit alleged that investors, many of them financially insured institutions, lost billions of dollars on CDOs for which S&P issued inflated ratings that misrepresented the securities’ true risk.

The Complaint also alleges that S&P falsely represented that its ratings were objective, independent and uninfluenced by S&P’s relationships with investments banks, when actually, S&P’s desire for increased revenue and market share led it to favor the interests of these banks over investors. Continue Reading

Bank of America Settlement in Jeopardy?

By Enza G. Boderone and Robert Siegel on Posted in Mortgage Repurchase, Too Big to Fail

Bank of America’s $8.5 billion settlement in 2011 to resolve claims over Countrywide’s mortgage abuses may be in jeopardy. Last week, a group of investors, the Triaxx funds and the Federal Home Loan Banks of Boston, Indianapolis and Chicago, all of which hold certificates of mortgage-backed securities issued by the trusts covered by the settlement, sent a letter to the trustee in the New York case in which the settlement was reached.

The letter was sent to the presiding judge. In that letter, the investors claim that Bank of America may have engaged in self-dealing and other misconduct in connection with modifications to first lien loans held by the trusts where Bank of America or Countrywide held second lien loans on the same mortgaged properties. Continue Reading