How did we arrive at the end of the 3rd quarter so
quickly? It has been filled with legal news about the financial services sector
right up to the very end. Former Federal Reserve Chairman Ben Bernanke and
ex-Treasury secretaries Henry Paulson and Timothy Geithner have been called to testify at the
U.S. Federal Court of Claims in a lawsuit brought by Maurice "Hank"
Greenberg's Starr International, the largest shareholder of American
International Group. The suit claims an unconstitutional "taking" of
property when the government assumed 80% of the insurer's stock. The fun never
ends.
Philip R. Stein (Bilzin Sumberg Baena Price & Axelrod LLP)
wrote a piece for American Banker on fighting buybacks. Mr.
Stein will be presenting a free webinar on October 9 (available for
re-broadcast thereafter) on the CFPB's attempts to expand its authority, and
how lenders can best defend against CFPB investigations and enforcement
actions. Anyone interested in registering for the webinar should email Phil
Stein.
Speaking of the intersection between legal and lending, home
loans to minorities are at a 14-year low. Is it because fewer actually qualify,
or because of discrimination or disparate lending? It is a touch
subject, and things might become touchier. "The Supreme Court is weighing
whether to hear an appeal from Texas officials who argue that intent to
discriminate must be proven and that the "disparate impact" standard
is too loose an interpretation of the landmark 1968 law that
prohibited discrimination in housing.
"Lenders continue to accelerate
their efforts to wrap up repurchase activity on legacy loans. Notably, AMLG
has seen Bank of America ramp up its efforts in shaking down the correspondent
lenders in an effort to collect as much of their losses as they are able to."
So wrote the American Law Group in its latest newsletter, although it does not
appear to be on its website which is unfortunate as it is quite lengthy and
hard to do justice in this commentary. "Although it has not yet been
clearly ascertained what the effect of the $16.65B settlement will have on
originators, AMLG expects that this settlement, in addition with the prior
settlements with the GSEs, will force Bank of America to more aggressively
come down on the originators to recuperate its damages." In addition,
"On another note, there have also been several other recent developments
both in and out of court having the potential to materially affect those
repurchase and make-whole defense and resolution strategies that are being
presently employed in a number of key jurisdictions. Included in the recent
rash of filings by RFC, LBHI in its bankruptcy case in New York, as well as the
significant number of lawsuits being filed by LBHI, RFC, Flagstar, Franklin
American, BB&T, US Bank, FDIC on behalf of IndyMac, are their ever changing
litigation strategies. The battle, which has been won in many states by
originators and lenders, has been over the applicable statute of limitations
which is a defense that swiftly ends litigation. The issue is whether the
statute runs from sale of the allegedly defective loans, as that is when the
breach of representations and warranties occurred, or when the lender suffered
an actual and appreciable loss. Because cases have come down in various states
in favor of originators regarding the statute of limitations for breach of
contract claims, lenders are shifting arguments, now asserting that the
statute of limitations should be assessed in its indemnification claims."
The Federal Deposit Insurance Corporation announced a settlement
with Merrick Bank, South Jordan, Utah, for unfair and deceptive practices related
to marketing and servicing of credit card "add-on products," in
violation of Section 5 of the Federal Trade Commission (FTC) Act. "This
action results from a review of the Bank's credit card products by the FDIC. As
part of the settlement, the Bank stipulated to the issuance of a Consent Order,
Order for Restitution, and Order to Pay Civil Money Penalty (collectively, FDIC
Order). The FDIC Order requires the Bank to pay a civil money penalty (CMP) of
$1.1 million, and restitution of approximately $15 million to harmed consumers.
Consumers who are eligible for relief under the settlement are not required to
take any action to receive compensation."
As expected, the CFPB targeted Flagstar Bank for its latest penalty. As you
might recall, Flagstar mentioned the possible action a month or two ago in its
quarterly report. So although not a surprise, I am sure it still hurts.
"Flagstar must pay $27.5 million to consumers whose loans were being
serviced by Flagstar and who were subject to its unlawful practices. At least
$20 million of this amount will go to victims of foreclosure. Flagstar must
also engage in outreach to affected borrowers who were not foreclosed on and
offer them loss mitigation options. Flagstar must halt the foreclosure process,
if one is happening, during this outreach and qualification process. Flagstar
also is barred from acquiring servicing rights for default loan portfolios
until it demonstrates that it is able to comply with the laws that protect
consumers during the loss mitigation process. In addition, Flagstar will make a
$10 million payment to the Bureau's Civil Penalty Fund."
Also recall that recently the CFPB and OCC have ordered US Bank
to pay nearly $59 million in restitution and civil money penalties to
settle allegations around identity theft products billed by a third party
related to 420,000 consumer accounts. Consumers were reportedly billed for
products but did not receive the full benefit of what they purchased.
The CFPB has published a notice
stating that as part of its Owning a Home project, it plans to seek
approval from the Office of Management and Budget to conduct a field study of
the project. The project consists of a various online tools and resources
developed by the CFPB to help consumers make decisions about
mortgages. Comments are due by November 25, 2014.
According to the CFPB, the purpose of the field study is to
evaluate and improve its Owning a Home project. Among the issues as to
which the CFPB seeks to gain insight through the study are whether and how the
project impacts consumers and which consumer segments or profiles benefit most
from the project. To conduct the field study, the CFPB plans to recruit
prospective homebuyers and assign them to one of two study groups: those exposed
to the project (treatment group) and those not exposed (control
group). The CFPB then plans to survey both groups as they go through the
mortgage shopping process, track the treatment group's usage of Owning a Home
tools and resources, and compare the two groups' attitudes, behaviors and
outcomes.
While we're on the CFPB, Ballard Spahr's Barbara Mishkin writes,
"In May 2013, we reported
that the CFPB's amicus program scored a victory when the U.S. Court of Appeals
for the Second Circuit ruled that the sale of a single-floor condominium
unit in a multistory building was subject to the disclosure and reporting
requirements of the Interstate Land Sales Full Disclosure Act (ILSFDA).
At the court's invitation, the CFPB had filed a letter brief supporting the
consumer/appellee's position that the ILSFDA covered such sales. Now,
it is condominium unit developers who have scored a victory with the Senate's
unanimous approval of H.R. 2600 on September 18, 2014, following the bill's
similar unanimous passage in the House last year. While not exempting
condominium unit sales from the ILSFDA's antifraud requirements, the bill
exempts condominium unit developers from the requirement to register their
projects under the ILSFDA and provide federal property reports to
purchasers. Barring a veto by President Obama, the new exemption will
take effect approximately six months from now. For more on the bill, see
our legal
alert."
It is hard to argue that the U.S. economy is not showing many
positive signs, and that rates are being held in check by unrest overseas.
Yesterday, for example, we began the day with stories of protests in Hong Kong,
causing a flight to the dollar (and dollar denominated assets) and this was
viewed as more important than the news here showing consumer spending rebounded
in August as further job gains encouraged households to loosen their purse
strings. (Personal Incomes rose .3% in August, while Personal spending rose
.5%. The PCE Core rate - the inflation measure the Fed prefers to use - rose
1.5% year-over-year, below their 2% target rate.)
On top of that, recently Freddie Mac's Chief Economist told the
New England Mortgage Banking Conference that 2015 could be the best year for
home sales since 2007. Freddie is forecasting mortgage rates to be
around 5% by the end of 2015 - apparently due to strength in our
economy. Yet Pending Sales of U.S. Existing Homes Fell 1% in August, and
declined 4.1% year over year, following a 2.8% annual decline in July.
August marked the 11th month of year-over-year decreases. The NAR chief economist
said contract signings are holding steady and fewer distressed sales and less
investor activity is likely behind August's modest decline. According to NAR's
Profile of Home Buyers and Sellers, 81 percent of first-time buyers in 2013 who
financed their purchase obtained a conventional or FHA loan.
The news continues today with the July S&P/Case Shiller read
on house price indices, seen improved from the prior -0.20%, September's
Chicago Purchasing Manager's Survey, and September Consumer Confidence. In the
early going rates have crept higher - probably due to less unrest overseas (a
bad thing?). The 10-yr T-note closed Monday at 2.49% and this morning we're
back at 2.52% and agency MBS prices are worse about .125.
http://globalhomefinance.blogspot.com
