As of June 30 of this year, Wells Fargo & Co., this nation’s largest mortgage lender, had received demands to repurchase $1.4 Billion out of the $343 billion of residential-mortgage loans Wells Fargo sold to Freddie Mac and Fannie Mae between 2005 and 2008. Freddie Mac claimed that Wells Fargo breached certain representations and warranties made to Freddie Mac relating to thousands of loans purchased from Wells Fargo. Last week, Wells Fargo announced that it will make a one-time cash payment to Freddie Mac in the amount of $780 Million which, combined with payments already made, amounts to a total settlement amount of $869 Million and “resolves substantially all repurchase liabilities related to loans sold to Freddie Mac before 2009.” Millions of dollars in repurchase demands made by Fannie Mae to Wells Fargo remain pending. Continue Reading
The mortgage market should only be minimally impacted by the recent government shutdown
The federal government shut down at the stroke of midnight on September 30th as the Congress failed to pass a bill to continue funding the government. The repercussions are many, including preventing 800,000 Americans from getting paid, suspending various government services, and costing the economy approximately $1 billion per week. At least for now, however, the housing market is likely to avoid the brunt of the pain, unless the shutdown continues beyond just a few days.
While more than 90% of all mortgage loan activity is underwritten, insured, or owned by the government and its affiliated entities, initially at least, the mortgage market is likely to be only minimally impacted. New loans will continue to push through most government agency pipelines, although it is likely that the process will take longer and experience delays.
Richmond, CA is first municipality to use eminent domain on underwater mortgages
Richmond, California’s leaders approved a controversial plan earlier this month to become the first municipality in the nation to use eminent domain to rid itself of underwater mortgages. The plan was approved by the Richmond city council 4-3 following a long and contentious public meeting that began on a Tuesday evening and rolled over into Wednesday’s predawn hours.
Specifically, the council approved Mayor Gayle McLaughlin‘s proposal for city staff to work more closely with Mortgage Resolution Partners LLC (“MRP”) to implement MRP’s plan to use eminent domain to seize and restructure underperforming mortgages as a way to prevent foreclosures. MRP, which is headquartered in San Francisco, is the brainchild of Steven Gluckstern and John Vlahoplus. The company bills itself as a “community advisory firm” working to stabilize local housing markets and economies by keeping as many homeowners with underwater mortgages in their homes as possible. Continue Reading
Sunday, September 15, 2013, marked the fifth anniversary of Lehman Brothers’ bankruptcy, the largest in U.S. history. It is widely believed that Lehman’s meltdown set off a domino effect that led to the global financial crisis and proved to be a major contributing cause of the housing market collapse. Its demise undoubtedly sent shock waves around the world.
President Obama appears determined to use the anniversary of Lehman’s collapse to show that progress has been made. The White House argues that a better capitalized and more stringently regulated financial sector has resulted in an economic turnaround that is able to withstand the potential for future spending cuts and tax increases. “We’ve put more people back to work, but we’ve also cleared away the rubble of crisis and laid the foundation for stronger and more durable economic growth,” Obama commented in a recent statement.
In support of the recovery, Obama points to a growing economy which is extending more credit, rising housing prices, increased employment rates, and a rebounding stock market. Obama implored that he would “keep making the case for the smart investments and fiscal responsibility that keep our economy growing, creates jobs and keeps the U.S. competitive.”
In fact, the Dow Jones industrial average has returned to pre-crisis levels and appears to be primed for setting new heights. In that regard, progress has certainly been made considering that Lehman’s bankruptcy presaged losses that included a 5,000 point drop in the Dow industrial average, $7 trillion in wealth, and perhaps most importantly, a staggering decline of faith in the financial system.
I will be a panelist at the Mortgage Bankers Association’s (MBA) upcoming Regulatory Compliance Conference 2013 in Washington, D.C. I will participate in a session on Monday, September 30 at 1.30 p.m. entitled “Addressing Repurchases in the New Rep and Warrant Model.”
The session will address the latest developments involving the GSEs and FHFA, as well as private investors. We will also discuss what may be on the horizon as the new rules take effect.
The conference offers a great opportunity to network with colleagues, compare notes on implementation successes, and gain a solid understanding of the new rules and requirements that will be enforced beginning in January 2014.
The MBA suggests that the following should attend:
- In-house counsel
- Compliance officers
- Company executives
- Government relations professionals
- Policy directors
- Quality assurance professionals
- Anyone working to implement the new regulations
The conference will be held September 29 – October 1 at the Renaissance Washington, DC Downtown Hotel. Please click here to register for the event.
The Consumer Financial Protection Bureau (“CFPB”), the financial watchdog agency created following the 2008 financial crisis to protect consumers from unfair, deceptive, and abusive practices in the financial products and services industry, has released a report detailing a host of continuing problems with the handling of mortgages by the country’s major mortgage servicers.
The report, based on examinations conducted by the CFPB between November 2012 and June 2013, highlight failures in fundamental activities, such as sloppy payment processing and account transfers between banks that can result in extra fees for homeowners, and significant shortcomings in handling loans on which borrowers had trouble making payments.
Examples included failing to give homeowners proper notification of a change in the address to which mortgage payments needed to be sent, charging borrowers default fees that were supposed to be paid by investors who had purchased the loans, and botching tax payments the servicer was supposed to deposit on behalf of borrowers.
The CFPB report also focused heavily on problems with loss mitigation programs in which a servicer attempts to limit bank losses and avoid foreclosures when borrowers have trouble making payments. The CFPB report cited inconsistent fees and interest charges, unreasonably long review periods, and missing documents as major problems, as well as incomplete and disorganized files. Continue Reading
An order yesterday by U.S. District Judge Jed Rakoff in New York clears the way for a trial on September 23 in a government lawsuit accusing Bank of America Corp. of fraud in the sale of billions of dollars of toxic mortgage loans to Fannie Mae and Freddie Mac. Judge Rakoff rejected the bank’s bid to dismiss the case.
The court ruled that there are “genuine factual disputes” that justify letting the case continue against the second-largest U.S. bank. Only a few prominent cases tied to the financial crisis have ever gone to trial.
Following up on my recent post on the cases, I had the opportunity to speak with Colin O’Keefe of LXBN TV regarding the recent fraud suits filed by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) against Bank of America.
The suits accuse Bank of America of allegedly defrauding buyers of mortgage-backed securities by lying about the quality of the home loans involved.
BofA maintains that buyers were savvy enough to make informed decisions.
In the interview, I explain the basics of the suits and also share my thoughts on Bank of America’s routine dismissal of such arguments when they are made by correspondents to BofA.
To watch the interview, please click here.
In an opinion refusing to dismiss a lawsuit by several RMBS mortgage trusts in connection with $1.6 billion of mortgage loans, Judge Harold Baer, Jr. of the U.S. District Court for the Southern District of New York, held that the plaintiffs would be limited to the loan purchase price as the contractual measure of damages for failing to repurchase a loan as contractually required, and could not obtain damages beyond that amount.
The trusts allege that UBS failed to repurchase mortgage loans that violated representations and warranties in the underlying agreements, and UBS moved to dismiss the trusts’ request for monetary damages based on a contractual clause limiting the for breaches of representations and warranties to repurchase.
The court rejected the trusts’ argument, holding that monetary damages could be available in lieu of specific performance (i.e., repurchase) if specific performance was unavailable, but limited any damages to the purchase price of the subject loans. The court reasoned that while the “sole remedy” clause did not preclude a claim for monetary damages, it did limit any potential damages to an amount commensurate with the sole remedy clause.
While many loan purchase agreements between loan originators and correspondent banks do not include such “sole remedy” clauses, some do, and even if they do not, Judge Baer’s opinion in MASTR Trust v. UBS Real Estate, 12-CIV-7322 (S.D.N.Y. Aug. 15, 2013), could nonetheless be used by originators to bolster their argument that it would be unfair and unreasonable to hold them liable for damages beyond the loan purchase price (minus, for example, any monies collected by the correspondent bank from the sale and servicing of the loan or underlying property) – assuming they are liable at all for alleged violations of representations and warranties.
It should be no surprise that the private mortgage insurance industry was nearly decimated in the wake of the housing crisis. During that tumultuous time, the private mortgage insurers that survived lost a combined $20 billion. However, it appears that the tide has finally begun to turn.
Diana Olick of CNBC reports that private mortgage insurers are “back in black” after posting their best quarter in 6 years. Olick reports that this comeback has been fueled by (1) lower mortgage delinquencies, (2) growing business, and (3) the Federal Housing Administration (“FHA”) reducing its role in the industry. Continue Reading