The CFPB has had its hands full with charges of discrimination, and of planting sympathetic people in public hearings. That aside, it is pretty good about keeping us up to date on its activities. For example, if you want details of its each of the new rules that is currently available, on can visit Rules.
But
today the House Financial Services Committee will hold a hearing
entitled "Who's in Your Wallet: Examining How Washington Red Tape Impairs
Economic Freedom." According to the Committee memo, the
hearing will examine the economic consequences of recent rulemaking,
supervisory, and enforcement actions of the CFPB, FDIC, Fed, NCUA and OCC.
Issues to be explored include how the agencies evaluate the costs and
benefits of their actions, whether products or services are no longer being
offered because of agency actions, the steps federal regulators take to measure
the impact on consumers if they no longer have access to specific products or
services as a result of regulatory action, and the procedures or standards
agencies follow in determining whether to engage in formal rulemaking under the
Administrative Procedure Act.
Lawsuits,
and settlements, have become a fact of life in mortgage banking. Yesterday Citigroup
announced a proposed settlement with 18 institutional investors represented
by Gibbs & Bruns over 68 RMBS (residential mortgage backed security) deals
done on deals done between 2005 and 2008. Under the proposed settlement,
Citigroup would pay $1.125 billion to bondholders, which represents approximately
a 7.6% payout of past and projected losses on those deals. The trustees have
until June 30 to accept the settlement, with an option to extend the offer for
an additional 45 days. Of the 68 deals involved, there are around 5 deals which
are involved in active rep & warrant litigation initiated by the trustees -
with one of the lawsuits against the originator. Additionally, some of the
deals have had meaningful loss reversals in the past (most likely due to loan
repurchases by Wells Fargo). There are quite a few deals with Wells Fargo as
the originator and it's not clear how these deals are going to be treated as a
part of the settlement. In addition, trustees do not appear to be indemnified,
and this may delay the acceptance process.
In
this case, Citi will make a binding offer to trustees (Deutsche Bank/HSBC/US
Bank and Wells Fargo), offering a payment of $1.125 billion in cash and a
reimbursement of any trustee expense in return for a release of all
repurchasing claims. The settlement does include a servicing component similar
to the Countrywide/JPMorgan settlements. The agreement is also subject to
regulatory approval by the FHFA.
Analysts
immediately pointed to the similarities between this deal and one involving
Countrywide
- the one where the FHFA entered into a settlement agreement with Bank of
America to resolve existing litigation on securities fraud as well as other
legacy contract claims regarding $57.5 billion of legacy securitizations from
Bank of America, Countrywide, and Merrill Lynch. Bank of America agreed to pay
$9.5bn in total, which included a cash payout of $6.3bn to resolve securities
fraud claims and a fair market value purchase of $3.2bn for securities with a
UPB of $5 billion. The settlement covered deals in certain legacy shelves and
the repurchase of selected securities. BoA agreed to indemnify the GSEs from
any damages resulting from this settlement.
And
let's not forget another big settlement - the $1.9 billion one between the FHFA
and Deutsche Bank Structured products announced last December. The agreement
resolved ongoing securities fraud-related litigation as well as certain
repurchase claims. After the announcement of this settlement, various trustee
letters were sent out to bondholders stating that the FHFA would not pursue rep
and warranty claims in certain deals, and the GSE entities were withdrawing
their notices of repurchase demands for certain deals.
And
the industry learns from past lawsuits. Talk about a sword over the lender's
head. Recently in the legal case of Wells Fargo Bank, N.A. v. Lonzie Heath, the
Court of Appeals for the Fifth District of Texas at Dallas affirmed a jury
verdict concluding that the lender should forfeit all principal and interest
because the fair market value of a homestead for a Texas home equity loan was
less than the value indicated on the Acknowledgment of Fair Market Value.
According to the Texas legal firm of Gregg & Valby, the originating lender
apparently failed to sign the Acknowledgment of Fair Market Value as required
by Article XVI Section 50 of the Texas Constitution. They write, "The
trial court accordingly determined that the fair market value of the homestead,
at the time the loan was made, was a question of fact to be decided by a jury.
The jury determined that the fair market value at the time the loan was made
was lower than that indicated on the appraisal and acknowledgment of fair
market value. The jury further found that the lender failed to cure this
violation after notice; and the lender, therefore, must forfeit all principal
and interest on the loan. A motion for rehearing en banc has been filed in the
matter and is pending." Considering that failure to sign the
Acknowledgment of Fair Market Value places originators at risk of forfeiting
all principal and interest, Gregg and Valby suggest, well, actually signing the
Acknowledgment of Fair Market Value, and to have procedures and protocols in
place for future closings. Imagine that!
How
about some relatively recent investor updates?
Wells
Fargo has
updated its adverse credit history requirements for all Conventional Conforming
transactions, including removing the minimum Loan Score parameters for
bankruptcy, foreclosures, pre-foreclosures, short sales, and
deeds-in-lieu. For bankruptcies, guidance now stipulates that at least 24
months must have elapsed since the discharge date or 48 months must have
elapsed since the dismissal date, the latter which applies to borrowers who
were unable to complete the Chapter 13 plan. Borrowers with multiple
bankruptcy filings within the last seven years will be considered eligible if
at least five years have passed since the discharge or dismissal. The
seven-year requirement also applies to foreclosure situations that were a
result of financial mismanagement. For deeds-in-lieu, pre-foreclosures,
and short sales, Wells has removed the minimum down payment requirement and
will allow loans with a DU certificate if the borrower has a 24-month history
of re-established credit and the LTV/TLTV/CLTV is less than 80%. Cash-out
refinances are no longer allowed on LP and manually underwritten loans if the
borrower has experienced a pre-foreclosure, short sale, or deed-in-lieu within
the last seven years, and only primary residences will be permitted for
purchase transactions.
Citi
has
removed its previous deed-in-lieu/short sale/pre-foreclosure and high LTV
overlays and has added LP Open Access as a program option for refinancing
restructured loans. Borrower contribution requirements have been updated
to require 5% of the borrower's own funds for LTVs over 80%, and HPMLs will no
longer be eligible as Conventional loans and will only be accepted for FHA and
VA non-streamline transactions. The Government HPML DTI has been changed
to 43 in accordance with QM as well.
Folks
who think that the movement stock and bond markets are always linked are having
a little trouble defending that false premise over the last few business days.
Stocks have continued to fall, but rates have not done much of anything.
What
might be of more interest to investors, and in a round-about way lenders, is
the issuance of other debt. Sure, originators are pumping out agency and
non-agency loans every day. But this week we have a 3-yr, 10-yr, and 30-yr
Treasury auction. The Federal Home Loan Bank, which has not issued any debt
since January, is in the market this week. Freddie Mac auctioned off $500
million of "reference bills" across three- and six-month maturities.
And when you throw on corporate debt issuance, anyone needing to buy
fixed-income securities has plenty of options.
But
returning to mortgages, Monday was a quiet day although agency MBS prices
improved slightly; the 10-yr's yield sat around 2.71% all day and closed there.
There is no substantive scheduled news for today, although there is a $30
billion 3-year note auction. And, in the very early going, we're unchanged
from Monday's closing levels.
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