Rejecting an all-too-common strategy among mortgage investors of “shoot first, talk later,” New York state judge Eileen Bransten has dismissed several mortgage repurchase lawsuits originally filed by the Federal Housing Finance Agency (“FHFA”) against a Credit Suisse affiliate, ruling that the suits were filed before Credit Suisse had an opportunity to repurchase the subject loans or otherwise cure the alleged loan deficiencies.
The FHFA had alleged in the lawsuits that Credit Suisse unit DLJ Mortgage Capital, Inc. made misrepresentations about mortgage-backed securities that cost investors $1.4 billion. In dismissing the claims with prejudice, Judge Bransten found that, while DLJ was entitled to a 90-day cure period to buy back the loans after receiving the plaintiffs’ repurchase demands, the FHFA had filed the summonses before DLJ was served with the repurchase notice. Continue Reading
Former North Carolina congressman and the new head of the Federal Housing Finance Agency (FHFA), Mel Watt, has given the public a sneak peek of how he will lead the FHFA. On December 20 he released a statement expressing his intentions to delay the Agency’s earlier announced plan to increase mortgage fees on loans borrowers seek that will ultimately be sold to Fannie Mae and Freddie Mac.
Fee Hike Originally Proposed by Watt’s Predecessor
Watt, who was sworn in yesterday, replaces Ed DeMarco, who President Obama appointed in 2009 after the agency’s previous head resigned. It was under DeMarco’s tenure that the Agency announced its plan to implement a March/April 2014 fee hike. The so-called guarantee fee would increase by an average of eleven basis points overall. DeMarco explained that the fees were designed to bring more private capital into the market. However, some contend that the fees make little sense since Fannie and Freddie are already so flush with profits. In fact, Fannie and Freddie have been doing so well that they have already paid back almost all of their $187 billion taxpayer-funded bailout.
On December 19, 2013, correspondent lenders were the beneficiaries of a long-awaited common sense ruling on when the statute of limitations begins to run under New York law for purposes of a mortgage buyback claim. The common-sense answer: when the loan was sold by the correspondent lender (as we have been saying all along!).
Statute of Limitations Begins at Breach of Representation
The New York State Appellate Division unanimously reversed Judge Shirley Werner Kornreich’s May 13, 2013 decision in ACE Sec. Corp. Home Equity Loan Trust, Series 2006-SL2 v. DB Structured Prods., Inc., 40 Misc. 3d 562 (Sup. Ct. N.Y. Cnty. 2013) which denied defendant-appellant’s motion to dismiss holding that the statute of limitations does not bar plaintiff-respondent’s claims. Reversing Judge Kornreich, the Appellate Division held that the statute of limitations for mortgage put-back claims begins to run on the date when the alleged breach of representations and warranties was made, rather than the later date on which the alleged failure to repurchase occurred.
Specifically, the Appellate Division stated that “[t]he motion court erred in finding that plaintiff’s claims did not accrue until defendant either failed to timely cure or repurchase a defective mortgage loan. To the contrary, the claims accrued on the closing date of the MLPA, March 28, 2006, when any breach of the representations and warranties contained therein occurred.” Continue Reading
On December 20, 2013, the Federal Housing Finance Agency (“FHFA”), as conservator of Fannie Mae and Freddie Mac, announced that it will receive settlement payments of $1.925 billion from Deutsche Bank AG in connection with claims of alleged violations of federal and state securities laws related to private-label, residential mortgage-backed securities purchased by Fannie Mae and Freddie Mac.
Settlements “do not constitute any liability or wrongdoing”
The settlement did not “constitute an admission by any of the Deutsche Bank Defendants of any liability or wrongdoing whatsoever” and were therefore favorable, in that sense at least, to Deutsche Bank because admitting wrongdoing could have increased its exposure in private mortgage repurchases lawsuits.
In an article in today’s DBR by John Pacenti, I weigh in on forced-place insurance policies. The article addresses the new restrictions by the Federal Housing Finance Agency that aim to prohibit mortgage services from being reimbursed for expenses associated with captive reinsurance arrangements. Pacenti also quotes a prior blog post that I co-authored with associate Anthony Narula.
Please click here to read the full article.
It looks like yet another illegal kickback scheme involving mortgage insurance has been uncovered in the residential mortgage industry. Recently the Consumer Financial Protection Bureau (“CFPB”) filed a lawsuit in the U.S. District Court for the Southern District of Florida against Republic Mortgage Insurance Company (“RMIC”), alleging that it had developed an illegal scheme in which it paid kickbacks to residential mortgage lenders in exchange for business. Interestingly, these allegations come in the wake of recent reports that private mortgage insurers have returned to profitability after the housing crisis.
In relevant court pleadings, the CFPB alleged that RMIC entered into agreements through which it paid illegal kickbacks, or otherwise unearned fees, under the pretext of reinsurance premiums. RMIC allegedly made those illicit payments to captive reinsurance affiliates of lenders providing residential mortgage loans. In return, RMIC obtained private mortgage insurance referrals from those residential lenders, in violation of the Real Estate Settlement Procedures Act (RESPA). According to the CFPB, the North Carolina Department of Insurance was already supervising RMIC’s resolution of outstanding insurance claim obligations through an independent court-approved corrective plan.
Under a proposed consent order, RMIC has agreed to pay a fine and end its practice of doling out kickbacks to residential mortgage lenders in exchange for business. “Kickbacks for mortgage insurance referrals are illegal, and can drive up costs for consumers seeking to buy a home,” said CFPB Director Richard Cordray in a statement. “The order announced today will put an end to this practice and require RMIC to pay a $100,000 penalty for violating the law.” Continue Reading
Last Friday, the Federal Housing Administration announced that it will reduce the maximum threshold for the high-price mortgages it is willing to insure. This change was called for by the Housing and Economic Recovery Act of 2008, but was delayed several times in response to continuing economic turmoil. Currently, in the highest cost areas, the FHA insures mortgages up to $729,750. Starting January 1, 2014, this figure will be reduced to $625,500. The change is predicted to impact new mortgagors in about 650 counties nationwide.
The FHA was created after the Great Depression to stabilize the housing market by selling mortgage insurance to homebuyers. Mortgage insurance mitigates the risk to originators and investors in the event of a borrower’s default, thereby lowering down payments and increasing buyers’ access to financing. The agency, now subsumed under the Department of Housing and Urban Development, has approximately five million mortgages in its portfolio.
Add yet another major settlement to the still-growing list of huge payouts by the nation’s largest banks to settle claims over toxic mortgage-backed securities. Bank of America has now agreed to pay $404 million to Freddie Mac to resolve all repurchase liabilities on home loans that it sold to the government-controlled mortgage company from 2000 to 2009. The settlement covers approximately 716,000 loans.
The List of Large Settlements Continues to Grow
Since 2010, Bank of America has agreed to pay more than $45 billion to settle various claims stemming from the U.S. housing and financial crisis, including a prior settlement to pay Freddie Mac $1.35 billion primarily to address loans sold by Countrywide Financial, which was acquired by Bank of America in 2008. Meanwhile, since September of this year, Freddie Mac has agreed to four other similar settlements stemming from repurchase liabilities, including deals worth $480 million with J.P. Morgan Chase, $65 million with SunTrust, $869 million with Wells Fargo, and $395 million with Citigroup.
On Tuesday, the United States Justice Department announced that it finalized a settlement agreement with JPMorgan Chase for $13 billion. This settlement will resolve a multitude of state and federal investigations into JPMorgan Chase’s sale of residential mortgage-backed securities to investors between 2005 and 2008. In addition to paying fines for securities violations, the proceeds from the settlement will be further distributed to compensate investors who relied upon representations made by JPMorgan Chase as to the value of the securities it sold on the secondary market. $4 billion of settlement funds is earmarked for consumer-related relief such as mortgage write-downs and payment reductions. In total, this settlement is the largest ever reached between any company and the government in U.S. history.
Bank of America and Freddie Mac are currently attempting to resolve a mortgage repurchase dispute in which Freddie Mac claims that Bank of America should have to buy back more than $1.4 billion in mortgage loans it claims were defective. The Wall Street Journal has reported that Bank of America, which is still recovering from its 2008 acquisition of Countrywide Financial, would like to reach an agreement by the end of the year. If that occurs, it will be the second such settlement between Bank of America and Freddie since 2011.
In January of that year, the two giants reached a $1.35 billion settlement in a dispute over loans sold by Countrywide. The initial settlement covered all loans sold to Freddie from 2005 through 2007. As we previously noted, within months of announcing the settlement, its terms were highly criticized by the FHFA Office of Inspector General as being based on a gross understatement of the exposure Freddie Mac faced in respect of those loans.
As of September 30, 2013 federal filings indicate that Freddie Mac has outstanding repurchase demands of $1.4 billion against Bank of America (which amounts to about 42% of all of Freddie’s currently outstanding repurchase demands). While we have not yet seen anything definitive, it has been reported that the $1.4 billion in outstanding demands, and the possible settlement thereof, relate to loans sold by Bank of America/Countrywide to Freddie during the period of 2000-2005. Continue Reading