MBA’s Legal Issues & Regulatory Compliance Conference

On Sunday, May 3, 2015, I will serve as a panelist at the Mortgage Bankers Association’s Legal Issues & Regulatory Compliance Conference at the Sheraton Chicago Hotel & Towers in Chicago, IL.Skyscraper2

More than 800 attorneys, compliance officers, company executives and government relations associates will convene to discuss the latest regulatory, supervisory, enforcement and litigation issues within the mortgage industry, including TILA RESPA Integrated Disclosure (TRID) and the Home Mortgage Disclosure Act (HMDA).

I will be a panelist for the session “Fair Lending and Other Significant Litigation,” and will be discussing such issues as fair lending and disparate impact claims, residential mortgage-backed securities lawsuits, and mortgage buyback litigation.

Click here to learn more about MBA’s Legal Issues & Regulatory Compliance Conference.

BofA’s Inconsistent Positions

Bank of America recently moved to dismiss a lawsuit filed by Ambac Assurance Corp. in New York state court, alleging $600 million in damages for fraudulent inducement in connection with payments it made under policies insuring faulty residential mortgage-backed securities issued by Countrywide. In its complaint filed at the end of 2014, Ambac claims that it insured securities in eight RMBS trusts worth $1.68 billion at the height of the housing boom from 2005 to 2007, in reliance on Countrywide securities offerings that contained false and misleading information. Ambac contends it would have never insured the transactions had it known Countrywide failed to follow strong underwriting guidelines as it claimed. The bond insurer filed a similar lawsuit against Bank of America in 2010 which is still & keys

BofA Launches Stones From its Glass House

In its motion seeking dismissal, Bank of America denigrates Ambac’s lawsuit as a “sophisticated monoline insurer’s hindsight effort to shift blame for its own recklessness.” Bank of America goes on to state that Ambac, having sued every major participant in the RMBS market it did business with in the years leading up to the collapse of the housing market, is now “unwilling to accept the consequences of its own losing bets.” In its heated argument for dismissal, Bank of America is also critical of Ambac for having “access to offering documents rife with relevant disclosures” and that it was “incumbent on an insurer of its size and sophistication” to conduct its own due diligence. Continue Reading

Fraud Verdict Against Countrywide & BofA Upheld

BofA’s “hustling” attempt to overturn a $1.27 billion judgment against it and Countrywide—along with the individual defendant identified in the next paragraph, the “Defendants”—in the U.S. District Court for the Southern District of New York for fraud in the sale of loans to Fannie Mae and Freddie Mac has proved unavailing.

Gavel & BooksJudge Jed Rakoff of the Southern District of New York recently rejected the Defendants’ motion for a judgment in their favor or in the alternative, for a new trial. The judge characterized the Defendants’ attempt to meet their burden as one that they “utterly failed” to meet and stated that the evidence of material misrepresentations supporting the verdict was “overwhelming.” Indeed, Judge Rakoff viewed the Defendants “continuing contention that there was insufficient evidence of a material misrepresentation to support the jury’s verdict” as one that “border[ed] on the frivolous.”

This lawsuit involved numerous accusations of fraud by the U.S. Department of Justice against Countrywide, which was acquired by Bank of America in 2008, and one of Countrywide’s officers, Rebecca Mairone, a creator of Countrywide’s “High Speed Swim Lane” program, also called HSSL or “Hustle,” which was the culprit for huge quantities of poor quality loans originated by Countrywide, and the focus of the lawsuit. That program emphasized speed of loan originations over quality and rewarded staff based on volume of loans. It reportedly removed the processes responsible for safeguarding loan quality and preventing fraud by eliminating underwriter review even from many high risk loans, assigning critical underwriting tasks to loan processors who were previously considered unqualified even to answer borrower questions. The program also eliminated previously mandated checklists that provided instructions on how to perform these underwriting tasks, and did away with the review of loans prior to sale to ensure that all conditions on the loan’s approval were satisfied prior to funding. Moreover, in furtherance of the program’s goal, compensation to those involved in the loan origination process was revamped to provide performance bonuses solely based on the volume of loans. Countrywide was also accused of concealing quality control reports on Hustle loans—reports that demonstrated high rates of fraud and other material defects plaguing the loans. Countrywide reportedly concealed this program from Fannie Mae and Freddie Mac when it sold the GSEs loans that it knew were not of investment quality. Continue Reading

Huge Settlements Between S&P, Government

2015 is leaving Standard and Poor’s (S&P) quite a bit poorer. Yesterday, the major credit rating agency agreed to pay $1.375 billion to resolve lawsuits brought against it by the U.S. Department of Justice and attorney generals from 19 states and the District of Columbia regarding S&P’s pre-crisis ratings of mortgage-backed securitizations (MBS) and collateralized debt obligations (CDO). Those lawsuits, the first of which were initiated in 2013, allege that between 2004 and 2007, S&P misrepresented the stringency and objectivity of its ratings—that those ratings were plagued by conflicts of interest that incentivized S&P to artificially inflate the ratings in order to appease the issuers that paid millions of dollars for its services. Consequently, a large number of the MBS and nearly every CDO rated by S&P at that time failed, creating billions of dollars-worth of investor losses.

The “Big Three” ratings agencies (S&P, Moody’s, and Fitch) who have taken considerable public fire for their perceived role in the 2008 mortgage crisis week’s settlements, had previously remained largely unscathed in connection with their activities from that period. The settlement announced this morning constitutes the biggest settlement ever paid by a credit ratings agency. It comes on the heels of the $125 million settlement S&P reached yesterday with the California Public Employees’ Retirement System over the allegedly inflated grades S&P assigned three structured investment vehicles comprised of CDOs, RMBS, and securitized home equity loans. The collapse of those vehicles in 2007 and 2008 cost their retiree investors approximately $1 billion. Continue Reading

Newly Passed Bill May Impact Dodd-Frank Act

The House of Representatives passed legislation that could loosen some of the restrictions imposed by Dodd-Frank on big banks. The bill, Promoting Job Creation and Reducing Small Businesses Burden Act, passed by a margin of 271-154, and contained the following measures:

  1. Delay implementation of the “Volcker Rule” until 2019.
  2. Exempt some private equity firms from registering with the Securities and Exchange Commission.
  3. Loosen regulations on derivatives.
  4. Permit some small, publicly traded companies to omit historical financial data from their financial filings. Continue Reading

Supreme Court Eases Requirements for Homeowners Rescinding Mortgages

The U.S. Supreme Court recently held in Jesinoski v. Countrywide Home Loans, Inc. that borrowers exercising their right to rescind mortgages under the Truth in Lending Act (“TILA”) only need to provide written notice to creditors within three years of the loan being issued, instead of bringing a lawsuit within that period. The high court concluded that TILA only states “when the right to rescind must be exercised, but says nothing about how that right is exercised.”

TILA vests borrowers with the right to rescind certain loans up to three years after the loans were issued, where borrowers do not receive mandated disclosures. Specifically, the Act’s unequivocal terms provide that a borrower “shall have the right to rescind … by notifying the creditor … of his intention to do so.” However, since homeowners’ rights were expanded under TILA in 1980, courts have interpreted the statute differently and confusion has resulted in determining how borrowers must procedurally “notify the creditor” of their intention to rescind loans. Continue Reading

Fighting Back Against CFPB Demands

An increasing number of banks, mortgage lenders, auto finance companies and other financial services industry participants are dealing with inquiries, investigations and actual or threatened legal claims from the Consumer Financial Protection Bureau (CFPB) and other enforcement agencies related to the fairness of their lending, servicing and collection practices. Noting that growing trend, a banking industry commentator recently published an article asking a fundamental question: Should banks push back?” The answer, I believe, is an emphatic “yes.”

Imagine you are a compliance officer at a bank or mortgage company. You take pride in the policies and protocols that your institution has in place regarding its lending practices. You know that your company personnel do a very good job adhering to the applicable procedures, and you know that instances in which rules are violated are dealt with and corrected, swiftly and appropriately, at your company. Continue Reading

A Digital Encyclopedia: Bilzin Sumberg’s Blogosphere

Bilzin Sumberg prides itself as being the go-to firm for domestic and international investors and corporations doing business in Florida and beyond. We aim to provide our clients with legal and business insight into the industries and areas they work in through our various blogs, which hone in on key issues or areas of interest for a wide variety of readers.

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Former JPMorgan Chase Insider Blows the Whistle

Matt Taibbi of Rolling Stone recently profiled the woman JPMorgan Chase paid one of the largest fines in American history to keep from talking in his article, The $9 Billion Witness: Meet JPMorgan Chase’s Worst Nightmare. Alayne Fleischmann, a former Chase manager, revealed the true reason why JPMorganChase settled the claims brought by the DOJ for such a seemingly staggering amount — cash in exchange for secrecy.

On the eve of a civil complaint being filed against Chase, Jamie Dimon called federal prosecutors and negotiated a quiet resolution, keeping many details regarding Chase’s misconduct hidden from the public. Expecting to be called as a key witness in a criminal prosecution against Chase executive officers, Fleischmann says that she was stood up by the government, despite her ability to present ample evidence with time remaining before the statute of limitations expired on a claim for wire fraud. By coming forward now, Fleischman seeks to prevent the “biggest financial cover-up in history.” Continue Reading

BofA Underwater Mortgage Cases Hit Supreme Court

The U.S. Supreme Court will hear two cases brought by Bank of America regarding whether a second mortgage on an underwater property can be voided during Chapter 7 bankruptcy. Both cases involve Florida homeowners who sued to void second mortgages when the debt owed to the holder of the first mortgage exceeded the value of the property.

Specifically, Bank of America is seeking to overturn rulings allowing homeowners to wipe out all liability on a second mortgage through bankruptcy liquidation proceedings, a practice known as “stripping off.” The U.S. Court of Appeals for the Eleventh Circuit, based in Atlanta and having jurisdiction over Florida, Georgia, and Alabama, issued the rulings that Bank of America is appealing. Bank of America says hundreds, if not thousands, of homeowners in those three states have sought to strip off the liens on their second mortgages.

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