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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Freddie Mac’s Index Shows Housing Market Improvement

According to Freddie Mac, things are looking up for the South Florida housing market. The August Multi-Indicator Market Index (MIMI) ratings, released last Friday, awarded the Miami Metro Area a score of 69.2. While Miami is still 11 points shy of an “in range” score, this latest score is 11.43% higher than last August’s score, making Miami the fourth most improved metro area from August 2013 to August 2014, behind Las Vegas, Chicago and Riverside, California.

MIMI “measures the stability of local housing activity by combining current local market data with Freddie Mac data for all 50 states, plus the District of Columbia, the top 50 metros, and the nation. Specifically, MIMI assesses where each market is relative to its own long-term stable range by looking at home purchase applications, payment-to-income ratios (changes in home purchasing power based on house prices, mortgage rates and household income), proportion of current mortgage payments in each market, and the local employment picture.” These four indicators are combined to form a composite score, between 1 and 200. A score below 80 is considered “weak,” while a score above 120 is deemed “elevated.” Continue Reading

Connect at the 2014 MBA Annual Convention & Expo

The 2014 MBA Annual Convention & Expo will be held in Las Vegas, NV from October 19-22. My colleague Robert M. Siegel and I will be attending the conference. As many of you know, we lead the mortgage industry team here at Bilzin Sumberg. In addition to representing mortgage companies throughout the country, we often host educational and training seminars for industry professionals. During the conference, we are available to discuss legal issues that your company may be facing.

If you would like to schedule a meeting in advance, please email Phil (pstein@bilzin.com) or Robert (rsiegel@bilzin.com).

We look forward to meeting you there.

Regulators Increase Scrutiny of Wall Street Lending

Federal bank regulatory agencies are significantly increasing their scrutiny of Wall Street bank lending, moving from annual reviews to a system of monthly audits in a major effort to curtail aggressive underwriting practices.

Until recently, the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (OCC) have monitored banks’ behavior annually in Shared National Credit (SNC) reviews, meaning that banks had to wait up to a year to receive feedback from regulators. With a move toward monthly audits — focused on whether banks are adhering to guidelines released by the regulatory agencies in March of last year — there will be ongoing feedback from regulators, and regulators will be able to provide more specific guidance. The audits, for example, are understood to be broader than the SNC reviews, looking beyond just loans that the banks have made to deals that the banks turned down, how the banks rate and classify each loan, and the process the banks go through to approve credit. Continue Reading

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