November 16, 2013
A Review of “Reckless Endangerment”
The 2008 Financial Crisis and subsequent fall of Lehman has been a recent point of fascination. HBO released its acclaimed “Too Big to Fail”; Kevin Spacey starred in “Margin Call”; even Michael Douglas’ “Wall Street” saw a revamp with a sequel starring Shia LaBoeuf. In the academic sphere, the crisis has certainly been susceptible to hindsight bias but has also been analyzed from many different angles and approaches. In “Reckless Endangerment,” esteemed journalist Gretchen Morgenson teams up with Joshua Rosner to tell the little-known story of Fannie Mae and its large role in the subprime mortgage crisis. By using its special government backing, Fannie Mae, a private company, dominated the mortgage market and became the nation’s second-largest debt issuer.
At the heart of the story is James Johnson, Fannie Mae’s chief executive in the 1990s. Morgenson, in some sense “pierces the corporate veil” by exposing the faces behind the corporation. Humanizing the corporation, in such a manner, only serves to prove that the Financial Crisis was not one created in the abstract, but one created by people in a whirlwind of greed.
Morgenson argues and narrates how Johnson persuaded Congress to maintain Fannie Mae’s implicit government backing and fought off any governmental regulation. She traces the relationships he forges to further the interests of Fannie Mae. Notably, she mentions Georgia’s Fair Lending Act and its failed attempt at curbing predatory lending and how Johnson contributed to its demise. The tale would be incomplete with honorable appearances by players like CountryWide Financial, National Finance Corporation, NovaStar, KB Home and the infamous REMIC transaction.
As an introduction to understanding the subprime mortgage crisis, “Reckless Endangerment” is an entertaining read. Morgenson successfully makes an otherwise dry story of self-interested corporate interests, into a riveting tale filled with drama fueled by the unique personalities of the men sitting behind the scenes. Still, Morgenson’s agenda is very apparent creating an underlying tone of skepticism at Washington’s attempts to promote homeownership as the ultimate achievement of the American Dream.
November 16, 2013 | Permalink | No Comments
Michigan Court Finds MERS Had Capacity to Assign Mortgage, and Bank of New York Mellon Had Capacity to Accept MERS’s Assignment of the Mortgage
The court in Maslowski v. Mortgage Elec. Registration Sys., 2013 U.S. Dist. LEXIS 155970, 2013 WL 5876608 (W.D. Mich. Oct. 31, 2013) found that dismissal under Fed. R. Civ. P. 12(b)(6) is appropriate.
The plaintiff in this case [Maslowski] challenged a foreclosure and foreclosure sale. Essentially, the plaintiff claimed that the foreclosure proceedings were invalid because defendant MERS lacked capacity to assign the mortgage, and defendant Bank of New York Mellon lacked capacity to accept MERS’s assignment of mortgage.
The court rejected the plaintiff’s reasoning and noted that once the redemption period has expired, a plaintiff must meet a high standard for a federal court to invalidate or set aside a mortgage foreclosure by advertisement in Michigan. In particular, a plaintiff must show both fraud related to the foreclosure process itself and that he or she was prejudiced by the defendant’s failure to comply with the foreclosure statute’s requirements. The Court agreed with the lower court and found that the plaintiff had made no allegations or showing of prejudice, and that therefore, dismissal under Fed. R. Civ. P. 12(b)(6) is appropriate.
November 16, 2013 | Permalink | No Comments
Georgia Court Affirms That The Holder of a Deed to Secure Debt is Authorized to Exercise the Power of Sale in Accordance With the Terms of the Deed
The court in deciding Sanford v. Bank of Am., N.A., 2013 U.S. Dist. LEXIS 156084, 2013 WL 5899238 (N.D. Ga. Oct. 31, 2013), found that each of the plaintiff’s arguments lacked merit and subsequently granted defendant’s motion to dismiss.
Plaintiff’s claim for wrongful foreclosure against BANA was based on three theories: (1) invalid assignment of the security deed; (2) improper notice under O.C.G.A. § 44-14-162.2; and (3) BANA’s lack of authority to foreclose as a non-secured creditor.
The court rejected plaintiff’s second and third arguments based on previous case law. The court cited a previous holding, noting that “the holder of a deed to secure debt is authorized to exercise the power of sale in accordance with the terms of the deed even if it does not also hold the note or otherwise have any beneficial interest in the debt obligation underlying the deed.”
Furthermore, the court noted that the notice requirement is satisfied if the notice identifies the individual or entity with full authority to negotiate, amend, and modify the terms of the mortgage, regardless of whether that entity is a secured creditor, note holder, deed holder, or none of the above.
November 16, 2013 | Permalink | No Comments
November 14, 2013
Reiss on Future of Frannie at Urban Land Institute
I will be on an Urban Land Institute panel on November 21st, The Future of Fannie Mae and Freddie Mac. The panel
will seek to shed some more light on the road ahead for the GSEs and their impact on commercial real estate lending and residential mortgage securitization. Specifically, the panel will address questions such as:
• What will the GSEs’ roles be in the multi-family and single-family markets in the future?
• Will the GSEs remain in conservatorship? If not, what level of government support, if any, will they receive going forward?
The event will feature individuals speaking on behalf of the lending, investment, academic, and GSE communities.
The moderator is Katharine Briggs, a Managing Director at BlackRock. She is a member of BlackRock’s Financial Markets Advisory Group within BlackRock Solutions. Ms. Briggs is a member of the Commercial Real Estate Advisory Team within BlackRock Solutions’ Financial Market Advisory Group. Mrs. Briggs specializes in US and European commercial real estate and related analytics. Ms. Briggs was formerly the Vice President of Corporate Finance with Summit Properties, a multifamily developer and publicly traded REIT owning 60 communities valued at over $2 billion. At Summit, she was responsible for all capital markets activities, investor relations, financial forecasting and tax planning.
The other panelists are:
Robert E. Bostrom, Co-Chair of the Financial Regulatory and Compliance Practice at Greenberg Traurig. His legal career spans more than 30 years, where he has worked and advised at the highest levels of leadership in the banking sector, in private legal practice and inside a government sponsored enterprise (GSE). As general counsel of Freddie Mac, Bob played a pivotal role during the financial crisis and recovery directing Freddie Mac’s legal strategy through the conservatorship, investigations, enforcement actions and litigation. Bob has advised clients on financial institutions regulation, examination, compliance and supervision matters. He is experienced helping clients navigate the implementation of the Dodd-Frank Act, especially the Consumer Financial Protection Bureau.
David Brickman, the Senior Vice President, Multifamily,, at Freddie Mac. He was named senior vice president of Multifamily in June 2011. As head of Multifamily, Mr.
Brickman is responsible for customer relations, product development, marketing, sales, loan purchase, asset management, capital markets, and securitization for the company’s multifamily business, which includes the flow mortgage, structured and affordable mortgage, CMBS and low-income housing tax credit portfolios. The total multifamily portfolio was $180 billion as of March 31, 2013. He is a member of the company’s senior operating committee and reports directly to CEO Don Layton.
Mike McRoberts, a Managing Director at Prudential Mortgage Capital Company. He is responsible for growing and enhancing Prudential’s leadership position in multifamily lending as head of the company’s market rate Fannie Mae and Freddie Mac portfolio teams and agency production team. Prior to joining Prudential, Mike was a vice president and national head of sales and production for Freddie Mac, where he was responsible for the agency’s conventional multifamily business, structured transactions and senior’s housing teams, the national Freddie Mac Program Plus network and Freddie’s four regional production offices. Earlier, he was
national head of underwriting and credit and managing director of Freddie Mac’s southeast region.
Joanne Schehl, Vice President and Deputy General Counsel at Fannie Mae. She is Fannie Mae’s Vice President and Deputy General Counsel for the Multifamily
Mortgage Business. She reports to the Senior Vice President and Deputy General Counsel – Multifamily Mortgage Business. Ms. Schehl leads the team responsible for providing legal support for multifamily infrastructure and operations, lender relationships, operational risk, and regulatory compliance. Ms. Schehl was previously a partner at Arent Fox PLLC, where she was a member of the real estate and finance groups, and served on the firm’s executive committee and as its professional development counsel, founded and led the firm’s strategic technology initiative, and was a leader in the firm’s diversity efforts.
Alan H. Wiener, Group Head, Wells Fargo Multifamily Capital, at Wells Fargo & Company. He is the group head of Wells Fargo Multifamily Capital, based in New York. Wells Fargo Multifamily Capital specializes in government-sponsored enterprise (GSEs) financing through Fannie Mae and Freddie Mac programs and Federal Housing Administration (FHA)-insured financing. Alan’s career has focused on housing and community development in both the public and private
sectors. Prior to joining Wachovia, he was the chairman of American Property Financing Inc., which Wachovia acquired in 2006. Before that, he was executive vice president with Integrated Resources, Inc.
November 14, 2013 | Permalink | No Comments
Michigan Court Dismisses Plaintiff’s State Law Based Claims of Wrongful Foreclosure
The United States District Court for the Eastern District of Michigan, Southern Division after considering the arguments in Ashford v. Bank of Am., N.A., 2013 U.S. Dist. LEXIS 156159, 2013 WL 5913411 (E.D. Mich. Oct. 31, 2013), dismissed the plaintiff’s complaint, with prejudice.
Plaintiff alleged claims against Defendant BANA for breach of contract (Count I), wrongful foreclosure/declaratory judgment (Count II), wrongful foreclosure (Count III), and violation of the Michigan Mortgage Brokers, Servicers, and Lenders Licensing Act, Mich. Comp. Laws § 445.1651 et seq. (Count IV). Defendant BANA filed the instant Motion.
Defendant argued that Plaintiff’s complaint should be dismissed because there is no valid basis to overturn the sale of the Property after the redemption period terminated. The Court agreed and found the rest of the plaintiff’s claims lacking or without merit.
November 14, 2013 | Permalink | No Comments
November 13, 2013
Massachusetts Land Court Finds Defendant Was Not Entitled to Service Member Relief Act
The Massachusetts Land Court in deciding Suntrust Mortg., Inc. v. Forsberg, 2013 Mass. LCR LEXIS 159 (Mass. Land Ct. 2013) found that defendant (Alfred Forsberg) was not entitled to the protection of the Servicemembers Civil Relief Act, 50 U.S.C. §§ 510 et seq., at the time of foreclosure; and that service and publication of the notice naming SunTrust Mortgage LLC rather than SunTrust Mortgage Inc. did not invalidate the foreclosure sale.
November 13, 2013 | Permalink | No Comments
November 15, 2013
Reiss on Fannie and Freddie Buyout
By David Reiss
Law360 quoted me in Fairholme Changes The Game For Fannie And Freddie (behind a paywall). It reads in part,
Fairholme Capital Management LLC’s plan to buy Fannie Mae’s and Freddie Mac’s insurance businesses will likely turn out to be more symbolic gesture than successful deal, experts say, but the hedge fund’s bold move could increase interest in privatization of the entities and potentially encourage other bidders to join the fray.
* * *
Some experts believe this emphasis on the ownership stakes of Fairholme and other hedge funds will be a major turnoff for the White House, the Federal Housing Finance Agency and the Treasury.
“It’s a very good idea, but the question is, will it keep the government and taxpayers off the hook? And will it bring in sufficient private capital to provide a vibrant residential mortgage market?” said David Reiss, a real estate finance professor at Brooklyn Law School. “Of course they’re looking to maximize their return, so the question has to be, what’s the angle that they’re playing?”
The angle, experts and analysts say, is likely connected to claims Fairholme and other hedge funds have made recently against the federal government, accusing it of devaluing their shares of Fannie and Freddie in order to reap all the GSEs’ mounting profits.
Fairholme and Perry Capital LLC both sued the government over its management of Fannie and Freddie this summer.
In July, Perry Capital accused the Treasury of wrongfully altering stock purchasing agreements with Fannie and Freddie, which allegedly allowed it to illegally speed up the liquidation of the companies and reap more than $200 billion over the next decade.
Two days later, Fairholme and insurance holding company W.R. Berkley Corp. sued the federal government, alleging it had acted unconstitutionally when it altered its bailout deal for the GSEs to keep the companies’ profits for itself.
Fairholme’s proposal assumes that their shares have the value they claim they have in their lawsuit, Reiss said. If the deal were to move forward, valuation of Fairholme’s stake could be a major sticking point.
* * *
“It begins the conversation as to whether you can have effectively a buyout of the federal government from Fannie and Freddie, which is a healthy thing, I think,” Reiss said.
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November 15, 2013 | Permalink | No Comments