Reiss on Fannie/Freddie Suits
Bloomberg BNA quoted me in No Basis for Discovery by GSE Investors, Treasury Department, FHFA Memos Say. It reads
[Reproduced with permission from BNA’s Banking Report, 102 BBR 417, 3/11/14. Copyright 2014 by The Bureau
of National Affairs, Inc. (800-372-1033) https://www.bna.com]
The Treasury Department and the Federal Housing Finance Agency March 4 said a federal judge should deny a motion for discovery in lawsuits by Fannie Mae and Freddie Mac investors, citing an agreed-upon schedule and saying the motion would do nothing to address legal questions at the core of the case (Fairholme Funds v. Federal Housing Finance Agency, D.D.C., No. 13-cv-01053, 3/4/14).
In its memo filed in the U.S. District Court for the District of Columbia, Treasury said Fairholme’s Feb. 12 motion for discovery (31 DER EE-6, 2/14/14) would be “improper” under a November scheduling order, and urged the court to dismiss the Fairholme suit and related cases.
“These cases should proceed on the agreed briefing schedule, which already provided ample time to the plaintiffs to file their substantive briefs, and the Court, upon review of a completed set of briefing with respect to the defendants’ dispositive motions, should dismiss these cases,” Treasury said March 4.
In its March 4 filing, the FHFA memo said “no discovery is necessary to assess the purely legal arguments” before the court, adding the Housing and Economic Recovery Act of 2008 (HERA) bars second-guessing of the FHFA’s actions as conservator of Fannie Mae and Freddie Mac.
Litigation Ongoing
The suit is one of several in at least two district courts and the U.S. Court of Federal Claims that challenge Treasury and FHFA action in August 2012 that restructured contracts governing preferred stock issued by the two government-sponsored enterprises.
Fairholme and other investors say the August 2012 amendment amounted to an expropriation of their assets and have variously sought damages and compensation in response.
The government has sought to dismiss the Fairholme case and others, but in its Feb. 12 motion, Fairholme said the government’s motion to dismiss was too expansive and raised questions that require access to government documents, e-mails and other materials.
Arrowood Indemnity Co., the plaintiff in a related case in the district court and a separate case in the Claims Court, Feb. 20 sought to link its own bid for discovery to Fairholme’s (36 DER EE-8, 2/24/14).
Fairholme has already prevailed on its discovery motion in the Claims Court. In a Feb. 26 order, Judge Margaret M. Sweeney granted Fairholme’s motion for a continuance to pursue discovery in that case.
March Reply Scheduled
In the district court, Fairholme is scheduled to respond to the government’s March 4 memos by mid-March.
“We are reviewing the opposition briefs filed by the defendants just yesterday, and we will respond to them in our reply brief, due on March 14,” a spokesman for Fairholme told Bloomberg BNA March 5.
High Stakes Seen
Professor David Reiss of Brooklyn Law School in New York March 5 said discovery usually occurs after motions to dismiss have been decided.
In this case, he said, “the stakes are so high and the quality of lawyering so high that there is litigation over the scheduling order itself.”
“This is a hard-fought battle and the issues are incredibly complex,” Reiss told Bloomberg BNA. “Each side characterizes their arguments as relatively straightforward, but I think the judge will have a hard time parsing out the issues, because there are different statutory regimes, policy issues and the like that must be rationalized with each other. I think this is just the beginning of a long slog,” he said.
March 6, 2014 | Permalink | No Comments
March 5, 2014
What $4 Billion Does for Homeowners
Enterprise released a Policy Focus on What the JPMorgan Chase Settlement Means for Consumers: An Analysis of the $4 Billion in Consumer Relief Obligations. It opens,
On November 19, 2013, JPMorgan Chase reached a record-setting settlement deal with the federal government’s Residential Mortgage-Backed Securities (RMBS) Working Group for $13 billion, which included $4 billion in consumer relief for struggling homeowners and hard-hit communities.
This brief examines how the $4 billion obligation will likely flow to consumers over the next four years. According to the settlement terms, eligible activities for which JPMorgan Chase will receive credit broadly include: loan modifications; rate reduction and refinancing; low- to moderate-income/disaster area lending; and anti-blight work. (1)
Enterprise projects that JPMorgan’s $4 Billion obligation will
translate into $4.65 billion in relief for existing homeowners, with an additional $15 million going to homebuyers, and as much as $380 million in cash and REO properties allocated to reducing foreclosure-related blight. Our analysis projects that over 26,500 borrowers will receive a total of $2.6 billion in principal forgiveness, which translates into $1.5 billion in credit toward the bank’s obligation. Forbearance will be extended on 17,000 loans, and slightly more than 7,000 second liens will be fully or partially forgiven. In addition to forgiveness or forbearance, we anticipate the interest rates on approximately 26,500 loans will be reduced, resulting in a real borrower savings of $1.4 billion. (1)
We’re talking about some pretty big numbers here, so it might be useful to break them down on a per borrower basis.
- 26,500 loans will receive interest rate reductions resulting in $1.4 billion in consumer benefit, or $52,830 per loan.
- 26,500 borrowers will receive $2.6 billion in principal forgiveness, or $98,113 per homeowner.
The report, unfortunately, does not parse these big numbers out so well. For instance, do they reflect savings over the expected life of the loans or over the remaining term? We also do not know whether these changes, large as they are, will leave sustainable loans in their place. So, this is a report provides a useful starting point, but some very big questions about the settlement still remain to be answered.
March 5, 2014 | Permalink | No Comments
Illinois Court Finds that Assignment was Proper, Thus Wells Fargo Could Foreclose
The court in deciding Wells Fargo Bank, N.A. v. Abatangelo, 2013 IL App (1st) 130423-U (Ill. App. Ct. 1st Dist. 2013) affirmed the lower court’s ruling in favor of plaintiff Wells Fargo. The court determined Wells Fargo had standing to bring the foreclosure action.
Mr. Abatangelo challenged the lower court’s grant of summary judgment on Wells Fargo’s foreclosure complaint, specifically its finding that Wells Fargo had standing to foreclose on the mortgage. On this appeal, Mr. Abatangelo contended that the lower court erred in granting summary judgment because (1) the mortgage contract did not properly assign the right to foreclose to Wells Fargo; and (2) the trial court improperly considered new arguments raised by Wells Fargo for the first time in a reply brief in support of their motion to dismiss.
After considering the arguments put forward by Abatangelo the court affirmed the lower court decision.
March 5, 2014 | Permalink | No Comments
The Court found That Bank of America had Standing Even After Merger
The court in deciding Bank of Am., N.A. v. Harris, 2013-Ohio-5749 (Ohio Ct. App., Cuyahoga County 2013) found Bank of America had standing after merger.
Plaintiff moved for summary judgment arguing that Bank of America lacked standing to foreclosure because the bank was “a party solely by virtue of a purported assignment from MERS.” Plaintiff argued that MERS had no authority to assign the mortgage to Bank of America, and thus, Bank of America had no standing to bring the suit.
The court found that the bank had standing to bring a foreclosure action because it was the real party in interest at the time that a foreclosure complaint was filed. The court noted that a party who received an assignment of mortgage from MERS as a nominee had standing to foreclose when the borrower defaulted. The court found that here the bank had possession of the note, therefore, it was the current holder of the note and entitled to enforce it under R.C. 1303.31. Further, the court found that after the merger, the bank stepped into the shoes of the absorbed company and had the ability to enforce, thus no further action was necessary to become a real party in interest.
March 5, 2014 | Permalink | No Comments
United States District Court Rejects Claim Under the Washington Consumer Protection Act
The United States District Court for the Western District of Washington in deciding Massey v. BAC Home Loans Servicing LP, 2013 U.S. Dist. 180472 (W.D. Wash. Dec. 23, 2013) granted defendants’ motions for summary judgment.
Plaintiff Cindy T. Massey asserted a claim under the Washington Consumer Protection Act against defendants in connection with non-judicial foreclosure proceedings. Defendants Freddie Mac and MERS, together, brought a separate motion for summary judgment. After considering the plaintiff’s arguments the court granted defendants’ motions for summary judgment.
In regards to her CPA claim the court found that the plaintiff failed to identify any deceptive acts perpetrated by Freddie Mac. For that reason alone the CPA claim against Freddie Mac failed.
Ms. Massey also argued that Bank of America did not possess the authority to initiate non-judicial foreclose proceedings on the property for various reasons, the primary of which was the characterization of MERS as the beneficiary on the deed of trust. Specifically, Ms. Massey argued that the assignment of the deed of trust to Bank of America was void, that the Appointment of Northwest Trustee as successor trustee was void, and that Bank of America did not hold the Note when it initiated foreclosure. After considering this argument the court found that they were without merit.
March 5, 2014 | Permalink | No Comments
March 4, 2014
Housing Affordability Challenges
The Center for Housing Policy has issued a report, The Housing Affordability Challenges of America’s Working Households. It finds that
Overall, 15.6 percent of all U.S. households (18.1 million households) were severely housing cost burdened in 2012. Severely cost burdened households are those that spend more than half of their income on housing costs. Renter households are more than twice as likely to be housing cost burdened than owner households. In 2012, 24.7 percent of all renter households were severely burdened compared to 10.5 percent of all owner households. (1)
Unsurprisingly, “the nation’s lowest income households face the most severe challenges” as nearly “eight in ten extremely low-income working households, and over a third of very low-income working households, are severely housing cost burdened.” (3) The paper concludes that “unless housing production increases substantially — particularly in the highest cost markets — rents are going to continue to rise . . ..” (4)
This simple point — that there is not enough supply to meet demand is made time and again by scholars and policy analysts. But that simple truth bangs up against the arguments of those who oppose development for a variety of reasons: because it can be an agent of localized gentrification, because it changes the fabric of communities, because it can benefit business interests.
There is some truth to all of these arguments and many people can make them in good faith. But one cannot be a proponent of affordable housing without supporting a meaningful increase in housing production. Here in NYC, the de Blasio Administration has appeared to embrace this fundamental truth. In many parts of the country, however, people claim to support affordable housing and strict limits on housing construction. Affordable housing advocates have to call them out on that contradiction as the two policies are in direct conflict with each other.
All the demand side subsidies in the world (like Section 8 vouchers) won’t get people into housing if the supply isn’t there in the first place. Build it and working households will be sustainably housed. Don’t build it and they won’t be.
March 4, 2014 | Permalink | No Comments
March 6, 2014
Washington Court Upholds Dismissal of RESPA Claims
By Ebube Okoli
The court in deciding Bhatti v. Guild Mortg. Co., 2013 U.S. App. 25659 (9th Cir. Wash. 2013) ultimately upheld the lower court’s decision by dismissing the plaintiff’s RESPA claims.
Plaintiffs Nusrat Bhatti and Erfan Semuel filed a complaint in Washington state court against Guild Mortgage Co. and MERS for quiet title, declaratory judgment, and violations of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601.
Defendants filed a Fed. R. Civ. P. 12(b)(6) motion to dismiss. The lower court granted defendants’ motion to dismiss. Plaintiffs appealed, after considering the plaintiff’s appeal, this court affirmed the lower court.
This court held that the lower court did not abuse its discretion in ruling on defendants’ 12(b)(6) motion. This court also found that defendants did not violate the DTA’s requirement that a deed of trust’s beneficiary hold the note when it appoints a successor trustee
Accordingly, the lower court’s judgment was affirmed.
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March 6, 2014 | Permalink | No Comments