REFinBlog

Editor: David Reiss
Brooklyn Law School

September 26, 2017

Tuesday’s Regulatory & Legislative Roundup

By Jamila Moore

  • Wells Fargo may have thought it was out the fire with their fraudulent accounts scandal; however, the super bank may face additional penalties. The Federal Reserve may be next in line to penalize the bank. Earlier this year, Wells Fargo received a $100 million dollar fine from the Consumer Financial Protection Bureau. Though, Janet Yellen, chair of the Federal Reserve, did not allude to the specifics of a looming penalty the agency may impose, she did mention the agency will do whatever is necessary to ensure the appropriate controls are in place within the organization.
  • After 30 years, East St. Louis Housing Authority no longer has to report to the United States Department of Housing and Urban Development (HUD). In October of 1985, the federal agency began overseeing the department due to the physical condition of the city’s housing, the mismanagement of the agency’s finances, and poor management by the agency’s leaders. In 1985, the East St. Louis Housing Authority was the first agency taken under federal control and to date the longest agency under HUD’s control.

September 26, 2017 | Permalink | No Comments

September 25, 2017

Getting CAMELS Past Regulators

By David Reiss

photo by Max Pixel

Bloomberg BNA Banking Daily quoted me in Court Asked to Second-Guess Bank Capital, Earnings, Risk Ratings (behind a paywall). It reads, in part,

A now-shuttered Chicago bank is taking on the proverbial giant in a fight to give banks the right to challenge safety and soundness ratings by federal regulators.
Builders Bank, an Illinois-chartered community bank that technically closed its doors in April, wants a federal judge to review a so-called CAMELS rating of 4 it got from the Federal Deposit Insurance Corporation, a rating it said triggered higher costs for insurance premiums (Builders Bank v. Federal Dep. Ins. Corp., N.D. Ill., 15-cv-06033, response 9/13/17). The rating should be reviewed by a court, it said, because it didn’t accurately reflect the bank’s risk profile. A 3 rating would have been more appropriate, it said.
It’s hard to exaggerate the importance of the awkwardly-named CAMELS ratings, which also are used by the Federal Reserve and the Office of the Comptroller of the Currency. The ratings — which measure capital, assets, management, earnings, liquidity, and sensitivity to market risk on a range of 1 to 5, with 1 being the best rating — can mean thumbs-up or thumbs-down on business plans by banks and affiliates.
Want to merge with or buy another bank? Don’t bet on it if your bank has a low CAMELS rating. Want to pay lower premiums for federal deposit insurance? A high rating may mean yes, a low rating probably not. Want to lower your capital costs? Endure fewer examinations? Open new branches? Hold on to a profitable business unit or face regulatory demands to divest it? All of those business decisions and others can turn on how well a bank scores under the CAMELS system.
Pinchus D. Raice, a partner with Pryor Cashman LLP in New York who represents the New York League of Independent Bankers, said judges should be able to look over those rating decisions.
Judicial review would enhance the integrity of bank examinations, he said. “I think it would increase confidence in the process,” Raice told Bloomberg BNA. “Somebody should be looking over the shoulders of the agency, because CAMELS ratings are critical to the life of an institution.” The New York trade group has filed a brief in the suit urging the court to rule against the FDIC.
FDIC Rating Challenged
The FDIC has asked Judge Sharon J. Coleman of the U.S. District Court for the Northern District of Illinois to dismiss the case on several grounds.
For one, the FDIC said, Builders Bank no longer exists. It voluntarily dissolved itself earlier this year and in April transferred its assets to Builders NAB LLC, a nonbank limited liability company in Evanston, Ill., that couldn’t be reached for comment. In a Sept. 13 filing, the bank said Illinois law allows it to continue the suit even though it’s now merged with the LCC, and that it’s seeking damages in the amount of the excessive deposit insurance premiums it says were paid.
Bank Groups Join
The next likely step is a ruling on the FDIC’s motion to dismiss, though it’s not clear when the court might make a decision. Meanwhile, the case has attracted briefs from several banking groups — a joint brief filed in August by the Clearing House Association, the American Bankers Association, and the Independent Community Bankers of America, and a separate brief a few weeks later by the New York League of Independent Bankers.
None of the four groups is wading into the actual dispute between Builders Bank and the FDIC, and their briefs explicitly said they’re not supporting either party. However, all four groups urged the court not to issue a sweeping decision that says CAMELS ratings are exempt from outside review.
According to the Clearing House, the ABA, and the ICBA, banks should be able to seek judicial review in exceptional cases “where such review is necessary and appropriate,” such as if regulators get their calculations wrong, or if regulators use ratings to retaliate against banks that criticize FDIC policies or personnel.
“At a minimum, given the complexity of the CAMELS rating system and the consequences of CAMELS ratings, this court should not issue a ruling that is broader than necessary to decide this dispute and that may undermine the ability of other banks to obtain judicial review,” the brief said.
*     *      *
David Reiss, professor of finance law at Brooklyn Law School in Brooklyn, N.Y., called the case a signal that the banking industry believes a range of agency actions might be held to be unreviewable. “As a general philosophy, unless Congress has made unreviewability crystal clear, I think we want to be careful,” Reiss told Bloomberg BNA. “This does seem intuitively overbroad to me.”
He also said the case, because it involves a bank that no longer exists, raises the possibility of a result that might not be welcomed by the banking industry. “The bank groups may be somewhat worried that a now-dissolved bank may get a court ruling that could have unintended consequences for banks still doing business,” he said.

September 25, 2017 | Permalink | No Comments

Monday’s Adjudication Roundup

By Jamila Moore

  • A class of tenants in New Jersey alleged their landlord unreasonably charged the group for attorneys’ fees during their eviction proceedings. In a New Jersey trial court, the group was unsuccessful at becoming a certified class; however, the group achieved success when the New Jersey Appellate Division overturned the prior decision.
  • Spainhour Law Group recently overcame a legal challenge. Spainhour’s adversary attempted to disqualify the company from representing their client, Real Estate Management LLC. As a result, Spainhour may now move forward in defending the management group and its owner in a breached partnership agreement suit.
  • Bank of America, is in a federal Colorado court. A class of homeowners sued the bank for allegedly conspiring to deny their loan modifications. Under the Home Affordable Modification Program, most of the applicants were eligible; however, the bank and it’s contractors allegedly determined various ways to deny their applications.

September 25, 2017 | Permalink | No Comments

Friday’s Government Reports Roundup

By Jamila Moore

  • Core Logic released a Home Equity Report for the second quarter of 2017. Homeowners across the U.S. experienced a 10.6 increase in their home equity from year-to-year. While 10% seems like a nominal amount, in the aggregate the total exceeds over $700 billion in increase of home equity for homeowners throughout the U.S. Further, home owners with negative mortgages, individuals with a mortgage balance that exceeds the value of their home, decreased by 21.9%.
  • The United States Department of Housing and Urban Development, Secretary Ben Carson, recently outlined his goals for the federal agency. As the first step, Secretary Carson will ensure the staff of the agency is well trained so as to ensure the services rendered to the public are efficient and correct. He further believes this initial step will decrease fraud, waste, and abuse that often occurs with the implementation of the agency’s programs. His other ideas include community partnerships and revising the agency’s rental assistance practices and procedures.

September 22, 2017 | Permalink | No Comments

September 21, 2017

Agalarov Oligarchs Sell NYC Real Estate

By David Reiss

By Vugarİbadov - Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=19869321

Emin Agalorov, son of Aras Agalarov

The Daily News quoted me in Oligarch family in Trump Russia dealings sells $2.8M Manhattan apartment. It opens,

The oligarch tied to President Trump’s dealings in Moscow sold a multimillion-dollar apartment in Midtown as his family’s name began to surface in the Russia investigation.

Irina Agalarova, the wife of Kremlin-connected billionaire Aras Agalarov, closed the sale of her pad on W. 52nd Street at the end of June, according to city property records.

The two-bedroom property fetched more than $2.8 million, up only $300,000 from what the Agalarovs paid for it last February.

It was not immediately clear why the wealthy family, whose patriarch rose from his roots in the former Soviet republic of Azerbaijan to become one of the biggest real estate developers in Russia, chose to sell its Manhattan digs.

The sale, which had not previously been reported, closed roughly 15 months after the apartment was purchased.

Agalarov’s connections to Trump came under scrutiny as part of the probes into alleged Moscow meddling in the 2016 election.

Property documents list the Midtown apartment contract date as May 11, as investigations into possible Kremlin collusion with the Trump campaign heated up with the firing of FBI Director James Comey.

The family’s connections to Trump go back further, however, to when Emin Agalarov, the pop-star son of Aras, featured Miss Universe in a music video.

That choice that later led to the family bringing Trump and his Miss Universe pageant to Moscow in 2013, with the then-reality TV star trotting out his catchphrase, “you’re fired,” in another of Emin’s Europop videos.

Trump and Agalarov also had discussions about creating a Trump Tower Moscow, which never materialized.

While Aras Agalarov had a passing mention in the unverified “dossier” against Trump published in January, his family was brought back into investigators’ orbit after Trump’s son-in-law, Jared Kushner, unveiled his list of foreign contacts in late June.

Those contacts included a June 2016 meeting at Trump Tower with a Russian lawyer promising dirt on the Clinton campaign that Aras Agalarov had obtained from Moscow’s top prosecutor.

Emails show that Rob Goldstone, the British publicist for Emin Agalarov, told Trump Jr. that the information was part of the Russian government’s “support for Mr. Trump.”

Trump Jr. and others have said that nothing came of the meeting, which also included Trump campaign chair Paul Manafort, Kushner, Goldstone, Russian lawyer Natalia Veselnitskaya, Russian-American lobbyist Rinat Akhmetshin, a translator and Agalarov employee Ike Kaveladze.

News of the June 2016 Trump Tower meeting sparked interest in the oligarch family’s dealings, including that Aras Agalarov had put his posh home in Bergen County, N.J., up for sale in mid-June.

Real estate website Zillow shows that the listing was removed on July 14, in the aftermath of the Trump Jr. emails.

Scott Balber, a lawyer representing the Agalarovs in the U.S., told the Daily News Wednesday that the timing was not in any way a reaction to swirling investigations in Washington.

“There is absolutely no connection between selling these two properties to anything in the news,” Balber said.

“I can assure you that Mr. Agalarov knows a lot more about real estate investment than you or I do,” he said.

In fact, the Agalarov clan’s properties in New York, which public records show include two other apartments, are just a few tacks on the map of foreign buyers gobbling up Manhattan real estate.

David Reiss, a real estate expert at Brooklyn Law School, told The News the buyers from abroad can have numerous motivations for coming to New York including “getting real estate as an asset class, taking money from their home country and bringing it abroad so it can’t be clawed back by the local government, or to have another home for family members.”

While Balber trumpeted his client’s investment acumen as a reason for the sale, Reiss said that the $300,000 gain may have actually been a loss after other fees are included, raising questions about its use as an investment.

“In the context of the Agalarovs’ portfolio this is probably a very small item so it was unlikely that this was considered a significant investment by the family,” he said.

While Reiss said there are no indications of wrongdoing on the Agalarov’s part, money laundering has become a persistent worry as multimillionaires and billionaires stash possibly ill-begotten cash in Manhattan apartments.

September 21, 2017 | Permalink | No Comments

Thursday’s Advocacy & Think Tank Roundup

By Jamila Moore

  • Jonathan Spader and Shannon Rieger released a research brief entitled, “Patterns and Trends of Residential Integration in  the United States Since 2000,” detailing the trends of U.S. neighborhoods since 2000. To ensure consistency and reliability, the duo defined integration using two definitions. In the end, the pair determined that neighborhoods across America are more integrated today. Specifically, no-majority neighborhoods increased by approximately 2,000 neighborhoods.
  • 143 U.S. consumers are at risk due to the Equifax data breach which exposed consumer’s names, social security numbers, and birth dates. As a result, the New York Attorney Genera, Eric Schneiderman,l launched an investigation of the company’s breach. He wants to ensure that such a catastrophic event does not take place at the other two large credit agencies. Further both, Transunion and Experian must detail their security measures in a letter to the Office of Attorney General so that the state can protect it’s eight million consumers which were affected.

September 21, 2017 | Permalink | No Comments