July 30, 2014
Bloomberg BNA quoted me in FIRREA-Fueled Penalty Against BofA Signals More Risk for Large Institutions (behind a paywall). It reads in part,
A federal judge in New York ordered Bank of America to pay $1.26 billion in civil penalties to the U.S. government in connection with a Countrywide lending program, setting up a likely appeal in one of the most closely watched cases in the financial services arena (United States v. Bank of Am. Corp., S.D.N.Y., No. 12-cv-01422, 7/30/14).
The ruling by Judge Jed Rakoff of the U.S. District Court for the Southern District of New York, which also said former Countrywide official Rebecca Mairone must pay $1 million in installments, followed an October jury verdict that found Bank of America liable for Countrywide’s sale of bad loans to Fannie Mae and Freddie Mac, some of which were securitized.
Countrywide sold those loans under its “High-Speed Swim Lane” program—an initiative aimed at speeding the loan approval process and one launched before Bank of America acquired Countrywide in 2008.
Rakoff called the nine-month HSSL program “from start to finish the vehicle for a brazen fraud,” and imposed a $1,267,491,770 penalty on Bank of America.
The amount was less than the $2.1 billion sought by the government, but well above what Bank of America argued was appropriate, which was $1.1 million at the most .
“We believe that this figure simply bears no relation to a limited Countrywide program that lasted several months and ended before Bank of America’s acquisition of the company,” Bank of America spokesman Lawrence Grayson told Bloomberg BNA July 30. “We are reviewing the ruling and assessing our appellate options,” he said.
* * *
According to Rakoff, Firrea could have allowed a penalty in this case that would have equaled the value of the loan transaction itself, which totaled $2.96 billion.
Rakoff, citing the discretion granted to judges in such cases, reduced the penalty to $1.267 billion, saying not all of the loans were flawed.
Brooklyn Law School Professor David Reiss called Rakoff’s ruling significant and a new turn in an important area of case law for businesses.
“We’re beginning to see a jurisprudence of Firrea penalties and a penalty regime that is very pro-government,” Reiss told Bloomberg BNA. “This shows that the penalty can be as high as the nominal amount of the transaction. It’s good guidance in the sense that it helps businesses know the outer boundaries of their risk, but it’s a generous view of deterrence,” he said.
July 25, 2014
The Consumer Financial Protection Bureau released its second Financial Literacy Annual Report. In blogging about last year’s report, I noted that the CFPB assumed that financial education worked more than research had shown it to work. Unfortunately, this report seems to be mostly a rehash (in many cases an extensive word-for-word rehash) of last year’s (pace Senator Walsh). From what I could tell, the only significant new financial education research that the CFPB has undertaken since last year is its “rules of thumb” project.
“Rules of thumb” are a decision-making and education technique that uses practical, easily-implemented guidelines for making decisions. Existing research has found rules of thumb to be a successful technique for improving decision making in many areas, and more successful than comprehensive education in some instances. Thus, rules of thumb could be a cost-effective method to improve consumer decision making. However, little research exists examining the effectiveness of rules of thumb for financial decision making.
Accordingly, in 2014 the Bureau began a research project to study the effectiveness of rules-of-thumb-based approaches aimed at helping consumers decrease their credit card debt. Rules-of-thumb-based education may be particularly appropriate for improving consumer literacy about credit card use, as credit card decisions are repetitive and frequent. We have finished the first phase of the project to understand how to create rules of thumb, when they are most useful, and how they can be implemented to ensure maximum success. The second phase of the project will test a set of rules of thumb aimed at helping consumers decrease their credit card debt. When we release the final results, which are expected in 2015, we expect that this project will increase knowledge of the efficacy of a rules-of-thumb approach to financial education both within the CFPB and among a range of external stakeholders who serve consumers. (72-73, footnote omitted)
This seems like a great project for the CFPB to undertake. But the rest of its efforts to improve its understanding about the efficacy of financial literacy leaves me under, underwhelmed, particularly because the rule-of-thumb project is limited to just one consumer financial product, credit cards.
California Court Denies Plaintiffs’ Claims for Breach of Express Agreements, Breach of Implied Agreements, Slander of Title, Wrongful Foreclosure, and Violations of California Civil Codes
The court in deciding Zapata v. Wells Fargo Bank, N.A., 2013 U.S. Dist. (N.D. Cal. Dec., 2013) dismissed the plaintiff’s action for failure to state a claim.
This action boiled down to an attempt made by the plaintiff to avoid foreclosure by attacking the mortgage securitization process. Plaintiffs Christopher and Elaine Zapata took out a promissory note and deed of trust with Family Lending Services, Inc. The deed of trust named S.P.S. Affiliates as trustee and MERS as nominee for the lender and as beneficiary.
Plaintiffs alleged a host of violations, including the claim that the defendants allegedly violated the terms of the deed of trust by executing an invalid and false notice of default because they were not the true lender or trustee.
Plaintiffs also alleged that the defendants violated the pooling and service agreement for the ARM Trust by failing to record the assignments. Also, Wells Fargo allegedly failed to sign the loan modification agreement or provide plaintiffs with a copy Wells Fargo had signed.
According to plaintiff, defendants also allegedly recorded invalid substitution of trustee, assignment of the deed of trust, and notice of default because of various alleged recording errors and delays. Plaintiffs also allege that defendants intentionally confused them.
Plaintiffs sought declaratory relief and claim breach of express agreements, breach of implied agreements, slander of title, wrongful foreclosure, violation of California Civil Code Section 2923.5, violation of California Civil Code Section 2923.55, violation of 18 U.S.C. 1962, and violation of California Business and Professions Code Section 17200 of California’s Unfair Competition Law.
As an initial matter the court noted that, courts in this district as well as the undersigned have rejected plaintiffs’ central underlying theory. Further, the court noted that neither their court of appeals nor the California Supreme Court had ruled on whether plaintiffs may challenge the mortgage securitization process, but the undersigned has held, in agreement with persuasive authority from this district, that there was no standing to challenge foreclosure based on a loan’s having been securitized.
Accordingly, after considering the plaintiff’s litany of claims, the court ultimately granted the defendant’s motion to dismiss.
July 24, 2014
The court in deciding Mitchell v. Deutsche Bank Nat’l Trust Co., 2013 U.S. Dist. (N.D. Ga., 2013) ultimately dismissed the plaintiff’s complaint with prejudice.
The plaintiff’s complaint alleged federal violations of the Truth-in-Lending Act (“TILA”), the Real Estate Settlement and Procedures Act (“RESPA”), and the Homeownership Equity Protection Act (“HOEPA”).
The Complaint also asserted the following Georgia state law claims: (1) fraud; (2) wrongful foreclosure; (3) quiet title; (4) slander of title; (5) infliction of emotional distress and (6) unfair business practices.
In reviewing the plaintiff’s complaint, the court found that the plaintiffs had failed to plead a cognizable claim to support their claims. Thus, after considering the plaintiff’s arguments, the court dismissed all claims with prejudice.
Georgia Court Finds that the Assignment of the Security Deed from MERS to Ocwen Permitted it to Exercise the Power of Sale Under the Security Deed Even Though Ocwen did not Hold the Note
The court in deciding Thompson v. Fed. Home Loan Mortg. Corp., 2013 U.S. Dist. (N.D. Ga., 2013) granted defendant’s motion to dismiss.
Plaintiff filed this complaint challenging the defendants’ right to foreclose on his property and alleged the following: (1) the defendants failed to provide plaintiff with statutory notice of the foreclosure sale thirty days prior to November 6, 2012, in violation of O.C.G.A. § 44-14-162.2(a); (2) the defendants violated O.C.G.A. § 44-14-162.2(a) by failing to identify Freddie Mac as the secured creditor and failing to indicate Ocwen as an agent on Freddie Mac’s behalf; and (3) Ocwen lacked the authority to institute foreclosure proceedings because it only possessed the security deed while Freddie Mac was in possession of the note.
Defendants moved to dismiss plaintiff’s complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted.
In regards to the failure to record the security deed, the plaintiff further alleges that Ocwen lacked the authority to institute foreclosure proceedings because the security deed was improperly assigned and recorded in its favor. According to the plaintiff, the security deed should have been recorded in favor of Freddie Mac, the note holder and “true secured creditor.”
The court found that the assignment of the security deed from MERS to Ocwen permitted it to exercise the power of sale under the Security Deed even though Ocwen did not also hold the note. Thus the court decided that the plaintiff was unable to state a claim for wrongful foreclosure, and the defendants’ motion to dismiss was granted. The court likewise rejected the plaintiff’s remaining claims.