July 2, 2014
Law360 quoted me in High Court Environmental Ruling Could Clear Air For Banks (behind a paywall). The article reads in part,
A recent U.S. Supreme Court ruling that a federal environmental law does not preempt state statutes of repose has inspired banks and other targets of Wall Street enforcers to test the decision’s power to finally fend off lingering financial crisis-era cases on timeliness grounds.
The high court on June 9 found that the Comprehensive Environmental Response, Compensation and Liability Act could not extend the 10-year statute of repose in a North Carolina environmental cleanup suit in the in CTS Corp. v. Waldburger case. Although the decision pertained to a case outside of the financial realm, attorneys say it could limit the ability of federal financial regulators to bring claims on behalf of failed financial institutions under two of their favored tools: the Financial Institutions Reform, Recovery and Enforcement Act and the Housing and Economic Recovery Act.
That’s because the defendants in those cases, including banks but others as well, will now be able to argue that regulators like the National Credit Union Administration, the Federal Housing Finance Agency and the Federal Deposit Insurance Corp. missed their chance to bring claims on behalf of institutions in receivership.
Given the Supreme Court’s interpretation, the regulators may be on shaky ground.
“The government is going to have a much more difficult time sustaining the arguments it’s been making after CTS,” said Jeffrey B. Wall, a partner with Sullivan & Cromwell LLP and a former assistant solicitor general.
In its CTS ruling, the Supreme Court found that CERCLA does not preempt state statutes of repose like the one in North Carolina, citing CERCLA’s exclusive use of the phrase “statute of limitations.”
Statutes of repose and statutes of limitations are distinct enough terms in their usage that it’s proper to conclude that Congress didn’t intend to preempt statutes of repose when it crafted CERCLA, Justice Anthony M. Kennedy said in the majority opinion. The justice cited a 1982 congressional report on CERCLA that recommended repealing state statutes of limitations and statutes of repose but acknowledged that they were not equivalent.
According to a memo released June 10 by Sullivan & Cromwell, both FIRREA and HERA are susceptible to similar readings by courts.
Both statutes include extenders that allow government agencies suing on behalf of failed financial institutions to move beyond statutes of limitations on state law claims. However, much like CERCLA, both say nothing about extending statutes of repose, the memo said.
And that could make a major difference for a large number of defendants trying to fend off claims from the FDIC, NCUA and FHFA, Wall said.
* * *
The CTS ruling is likely to play out in cases brought by financial regulators in smaller cases over losses incurred by failed financial institutions using FIRREA and HERA. But FIRREA has also become a favored tool in the U.S. Department of Justice’s big game hunts against ratings agency Standard & Poor’s and Bank of America.
Because those cases are largely predicated on federal claims, the CTS case is unlikely to be a help for those institutions, according to Brooklyn Law School professor David Reiss.
“I don’t read it as having an extension on the higher-profile FIRREA cases,” he said.
But even if CTS is limited to state law claims brought by financial regulators, that could have a major impact given the sheer number of cases the FDIC, NCUA and FHFA bring.
July 9, 2014
Input on Housing Counseling
By David Reiss
HUD has issued a Notice, Federal Housing Administration (FHA): Homeowners Armed With Knowledge (HAWK) for New Homebuyers (Docket No. FR-5786-N-01).
HAWK is a pilot that will
provide FHA insurance pricing incentives to first-time homebuyers who participate in housing counseling and education that covers how to evaluate housing affordability and mortgage alternatives, to better manage their finances, and to understand the rights and responsibilities of homeownership. The goals of the HAWK for New Homebuyers pilot (HAWK Pilot) are to test and evaluate program designs that meet these objectives:
•To improve the loan performance of participants and reduce claims paid by FHA’s Mutual Mortgage Insurance Fund (MMIF).
• To expand the number of families who improve their budgeting skills and housing decisions through access to HUD-approved housing counseling agency services; and
• To increase access to sustainable home mortgages for homebuyers underserved by the current market. (27896)
I have already noted that HAWK is based upon some pretty sketchy research about the efficacy of housing counseling. The Notice presents additional research (in footnotes 5-8) that supports its goals, but I have to say that it seems cherry picked to me. The notice says, for instance, “some studies show” and “Several major studies have recently noted a correlation . . ..” But the Notice does not seem to contextualize these studies at all. A meta-analysis (see here too) of financial education initiatives is decidedly less optimistic.
It seems that the FHA and the CFPB have gone whole hog on counseling even though the evidence is not there to support such strong support. On the bright side, HAWK is a pilot program and the FHA will evaluate it to see whether it meets its goal of “improving loan performance.” (27903) I am just worried a bit worried though, because the FHA’s materials seem to show an unwarranted bias toward counseling that a review of the relevant literature does not seem to bear out.
The HAWK Notice requests comments by July 14, 2014, so you’d better act fast if you have something to say!
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