May 1, 2014
Stressing out on Fannie and Freddie
The Federal Housing Finance Agency issued Projections of the Enterprises’ Financial Performance (Stress Tests) (Apr. 30, 2014). This is a pretty technical, but important, document. The Background section provides some needed context:
This report provides updated information on possible ranges of future financial results of Fannie Mae and Freddie Mac (the “Enterprises”) under specified scenarios, using consistent economic conditions for both Enterprises.
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. . . the Dodd-Frank Act requires certain financial companies with total consolidated assets of more than $10 billion, and which are regulated by a primary Federal financial regulatory agency, to conduct annual stress tests to determine whether the companies have the capital necessary to absorb losses as a result of adverse economic conditions. This year is the initial implementation of the Dodd-Frank Act Stress Tests.
In addition to stress tests required per the Dodd-Frank Act, this year as in previous years, FHFA worked with the Enterprises to develop forward-looking financial projections across three possible house price paths (the “FHFA scenarios”). The Enterprises were required to conduct the FHFA scenarios as they have in the past, in conjunction with the initial implementation of the Dodd-Frank Act Stress Tests.
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The projections reported here are not expected outcomes. They are modeled projections in response to “what if” exercises based on assumptions about Enterprise operations, loan performance, macroeconomic and financial market conditions, and house prices. The projections do not define the full range of possible outcomes. Actual outcomes may be very different. (4, emphasis in the original)
The stress test results are as follows:
Dodd-Frank Act Stress Tests Severely Adverse Scenario
- As of September 30, 2013, the Enterprises have drawn $187.5 billion from the U.S. Treasury under the terms of the Senior Preferred Stock Purchase Agreements (the “PSPAs”).
- The combined remaining funding commitment under the PSPAs as of September 30, 2013 was $258.1 billion.
- In the Severely Adverse scenario, incremental Treasury Draws range between $84.4 billion and $190.0 billion depending on the treatment of deferred tax assets.
- The remaining funding commitment under the PSPAs ranges between $173.7 billion and $68.0 billion. (3)
FHFA Scenarios
- In the FHFA scenarios, cumulative, combined Treasury draws at the end of 2015 remain unchanged at $187.5 billion as neither Enterprise requires additional Treasury draws in any of the three scenarios.
- The combined remaining commitment under the PSPAs is unchanged at $258.1 billion.
- In the three scenarios the Enterprises pay additional senior preferred dividends to the US Treasury ranging between $54.0 billion to $36.3 billion. (3)
There are a number of important points to keep in mind when reviewing this report. First, it addresses just four scenarios out of the the multitude of possible ones. But hopefully the Severely Adverse Scenario gives us a sense of the outer limits of what a crisis could do to the Enterprises and the taxpayers who backstop them.
Second, the report is another corrective to arguments that the federal government’s bailout of the Enterprises can be measured by the amount of money that they actually advanced to the two companies, as opposed to a measure that also accounts for the additional amount that the federal government is committed to provide them if their financial situation takes a turn for the worse.
Finally, as I have noted before, there is an important political battle for control of the narrative of the bailout of the Enterprises. The only narrative during the crisis itself was that the federal government bailed out the two companies because they were insolvent. Revisionist histories, put forward in the main by private shareholders of the two Enterprises, challenge that narrative. The shareholders put forth another version of history: the federal government effectively stole solvent, viable Fannie and Freddie from them. It will be important for objective third parties to document the truth about this in accordance with Generally Accepted Accounting Principles. From my understanding of the facts, however, it is clear that the two companies were as good as dead when the federal government put them into conservatorship in 2008 and started advancing them tens of billions of dollars year after year until their fortunes turned around in 2012.
May 1, 2014 | Permalink | No Comments
Court Dismissed Minn. Stat. § 559.01 Claims
The court in deciding Lubbers v. Deutsche Bank Nat’l Trust Co., 2013 U.S. Dist. (D. Minn., 2013) dismissed plaintiff’s claims.
Plaintiffs sought to invalidate the foreclosure of the mortgage on their home. Plaintiffs asserted three claims against defendant: (1) quiet-title, to determine adverse claims under Minn. Stat. § 559.01; (2) declaratory judgment; and (3) slander of title.
Plaintiffs alleged the following causes of action:
In count I, plaintiffs asserted a quiet title action pursuant to Minn. Stat. § 559.01, and sought a determination regarding Deutsche Bank’s adverse interest in the Property. According to plaintiffs, in a quiet title action, the burden of proof was on the mortgagee asserting an adverse interest in the property to show that both record title and legal title concur and co-exist at the same time and in the same entity to foreclose by advertisement.
In count II, plaintiffs sought a declaratory judgment under Minn. Stat. § 555.02 that the various assignments of mortgage, notices of pendency, and powers of attorney were all void, and that plaintiffs remain the owner of the property in fee title.
Count III, plaintiff alleged slander of title, plaintiffs asserted that Wilford, acted at direction of Deutsche Bank, drafted and recorded documents that were false and not executed by legally authorized persons, and that Deutsche Bank knew that the documents were false because unauthorized persons executed the power of attorneys and the assignments of mortgage.
As relief, plaintiffs sought: (1) a determination of adverse interest in the Property; (2) a declaration that the sheriff’s certificate of sale, the various assignments of mortgage, notices of pendency, and powers of attorney are all void; (3) a declaration that plaintiffs remain the owner of the Property in fee title; and (4) money damages. Id., Prayer for Relief.
After considering the plaintiff’s claims, this court granted the defendant’s motion to dismiss.
May 1, 2014 | Permalink | No Comments
Court Finds that BAC Home Loans did not Have Standing to File Suit
The court in deciding BAC Home Loans Servicing, L.P. v. Blythe, 2013-Ohio-5775 (Ohio Ct. App., Columbiana County, 2013) reversed the lower court’s decision and found that appellee had not established that it was the current holder of the note and mortgage, thus, appellee did not have standing to file suit.
Appellant Walter J. Blythe appealed the Columbiana County Common Pleas Court’s decision granting summary judgment in favor of BAC Home Loans Servicing, L.P., in a foreclosure action.
Blythe challenged the trial court’s finding that BAC had standing to foreclose in the absence of evidence that BAC was the holder of the note that created the obligation. Blythe relied on the material submitted by BAC in support of this claim.
This court held that the note that had been specially indorsed to a bank under R.C. 1303.25(A) could not be enforced by the loan servicing company (LSC) that was not the transferee or successor in interest of the bank. The LSC was not the holder of the note under R.C. 1303.32(A)(1) by virtue of the merger of the bank and a national association (NA). The LSC was not a non-holder in possession entitled to enforce under R.C. 1303.31 as it had not acquired the bank’s right to the note under R.C. 1303.21.
The court noted that even if the NA had filed the foreclosure suit, there was no evidence of the transaction, merger, or mergers that gave rise to an its interest in the note. The note was not bearer paper and could only be enforced by the bank since the note was payable to the bank, here the bank was the real party in interest in the foreclosure action, thus the LSC lacked standing to foreclose.
May 1, 2014 | Permalink | No Comments
April 30, 2014
Reiss on Abandoned Homes
Interest.com quoted me in How to Deal with An Abandoned Home. It reads in part,
5 places to look for help
An abandoned home in an otherwise thriving neighborhood can be an eyesore – or worse.
What happens if the lawn goes uncut for weeks or months? If a pipe bursts inside? If a squatter takes up residence?
This abandoned property can quickly move from nuisance to become a real hazard. And if you’re trying to sell your home, an empty property next door can scare away potential buyers, or lead to lower bids than if your neighbor maintained that property.
You don’t need to fight this battle alone, though.
There are resources available to help turn that property around, whether you just want to cut the lawn, or try to get it out of the hands of an owner who is trying to squeeze every dime out of the property, at the expense of your street. Here’s who to call in what situation.
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Call the homeowner’s association
If you’re part of a homeowner’s association, it can help, too.
“HOAs have broad powers to enforce standards for homeowners,” says David Reiss, professor of law at the Brooklyn Law School in New York, where he teaches courses on real estate practice.
How much power they have depends on the HOA’s bylaws, rules and regulations, but HOAs can impose fines for non-compliance with standards laid out in those rules.
“Some might go further and allow and HOA to enter onto a property to conduct maintenance,” Reiss says, which can take care of immediate problems.
He warns, though, that an HOA should consult a lawyer before taking that step, not only to make sure what they’re doing is allowed according to its bylaws, but also because, even if the owner is delinquent on maintenance, they could still accuse the HOA of trespassing or stealing for entering the property.
April 30, 2014 | Permalink | No Comments
April 29, 2014
Reiss on Supreme Court Mortgage Case
Law360 quoted me in Supreme Court Takes Up Mortgage Rescission Timing Case (behind a paywall). It reads in part,
The U.S. Supreme Court agreed Monday to weigh in on whether federal law requires borrowers to notify creditors in writing of their intention to rescind their mortgages or file a lawsuit making a similar claim within three years.
The petitioners in the case, Larry and Cheryle Jesinoski of Eagan, Minn., are seeking to overturn a September ruling in the Eighth Circuit that they were required to sue Countrywide Home Loans Inc. to have their mortgage financing rescinded within three years of the transaction closing. The Jesinoskis argue that the Truth In Lending Act only requires that they provide notice of rescission in writing within those three years.
But the case goes beyond a ruling in the Eighth Circuit. A Supreme Court ruling would resolve a circuit split that has seen the Third, Fourth and Eleventh circuits rule that borrowers have three years from closing to notify lenders in writing within three years of their intention to cancel their mortgages, while the First, Sixth, Eighth, Ninth and Tenth circuits have found that a lawsuit must be filed within that three-year period, according to the Jesinoskis’ December petition for certiorari.
“The resulting rule does violence to the statutory text, manufactures legal obstacle for homeowners seeking to vindicate their rights under a law that was enacted to protect them, and risks flooding the federal courts with thousands of needless lawsuits to accomplish rescissions that Congress intended to be completed privately and without litigation,” the petition said.
TILA provides two different rescission rights to borrowers who apply for and receive a mortgage refinancing. The more common process allows such borrowers to rescind their mortgage within three days of closing and before any money is disbursed.
The law also provides a more expanded rescission right in situations where borrowers do not receive mandated disclosures. There, the law provides three years from the closing date to provide such notice, but with proof that the documents were not provided.
Prior to the 2007 financial crisis, such expanded rescission claims were rare, said Reed Smith LLP partner Robert Jaworski.
“A lot more people were in trouble on their mortgages and couldn’t make payments and were subject to foreclosure. That caused a lot of these claims to be made, much more than previously,” he said.
And that has made the need for resolving the circuit split that much more important.
“It’s kind of ambiguous. It’s not stated as a statute of limitations,” said Brooklyn Law School professor David Reiss.
April 29, 2014 | Permalink | No Comments
April 28, 2014
Premature End to Foreclosure Review
Congressman Cummings (D), the ranking minority member of the House Committee on Oversight and Government Reform, has sent a letter to Congressman Issa, the Chairman of the Committee, regarding the Independent Foreclosure Review. It opens,
I am writing to request that the Committee hold a hearing on widespread foreclosure abuses and illegal activities engaged in by mortgage servicing companies. I request that the hearing also examine why the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency (OCC) appear to have prematurely ended the Independent Foreclosure Review (IFR) and entered into a major settlement agreement with most of the servicers just as the full extent of their harm was beginning to be revealed. (1)
It goes on to assert that “some mortgage servicing companies engaged in widespread and systemic foreclosure abuses, including charging improper and excessive fees, failing to process loan modifications in accordance with federal guidelines, and violating automatic stays after borrowers filed for bankruptcy.” (2) It concludes that it “remains unclear why the regulators terminated the IFR prematurely, how regulators determined the compensation amounts servicers were required to pay under the settlement, and how regulators could claim that borrowers who were harmed by these servicers would benefit more from the settlement . . . than by allowing the IFR to be completed.” (2)
The letter raises a number of important concerns, but I will focus on just one — “how did the regulators arrive at the compensation amounts in the settlement?” (9) This particular settlement was for billions of dollars from BoA, PNC, JPMorgan and Citibank. This is an extraordinarily large sum, but the public is left with no sense of whether this sum is proportional to the harm done. I have raised this concern with other billion dollar settlements. As the federal government moves forward with these large settlements, it should carefully consider their expressive function — does the penalty fit the wrongdoing? And if so, how was that calculated? People want to know.
April 28, 2014 | Permalink | No Comments
Texas Court Dismisses Claims Centered Around FDCPA and TDCPA Violations
The court in deciding Warren v. Bank of Am., N.A., 2013 U.S. Dist. (N.D. Tex., 2013) granted defendant’s motion to dismiss all of the claims brought by the plaintiff.
Plaintiff alleged that MERS could not assign the note or deed of trust because it was not a party to, and never had a beneficial interest in, the note. Plaintiff further alleged that the note was “securitized”, thus defendant was not the owner of the note or deed of trust and had no right to foreclose on the Property. Plaintiff asserted a claim to quiet title and requested declaratory judgment and injunctive relief to restrain defendant from foreclosing and evicting him from the Property.
Although the complaint did not formally list any substantive claims, plaintiff’s request for injunctive relief contained allegations that may liberally construed as claims for wrongful foreclosure and violations of the Tex. Const. art. XVI, § 50(a)(6)(B), the Fair Debt Collection Practices Act (FDCPA), and the Texas Debt Collection Practices Act (TDCPA).
Plaintiff alleged that the defendant failed to notify him of the pending foreclosure sale, since the foreclosure notice was “returned as undeliverable” by the U.S. Postal Service (USPS). Before filing suit, he sent the defendant a request “for a verification of the debt” pursuant to the federal FDCPA and the TDCPA. Plaintiff believed that pursuant to the FDCPA, the foreclosure could not have been conducted until 30 days had passed after the date he sent his request.
Plaintiff further claimed that the defendant could not foreclose because there were defects in the original loan financing and the original foreclosure order and because defendant failed to “physically post” a copy of the foreclosure sale notice at “the courthouse” where the sale was to take place.
This court considered the plaintiff’s contentions and eventually found them without merit.
April 28, 2014 | Permalink | No Comments
