February 4, 2013
More on CFPB Ability-To-Pay Rule
Attorney Robert Barnett asks whether the CFPB’s new Ability-To-Pay Rule is too rigid. He says that ‘the insistence on a solid 43 percent debt-to-income ratio will exclude many very solid applications from qualification as a Qualified Mortgage . . ..” (1) He also argues that LTV and credit scores are more reliable predictors of default and that there is no reason to trump them with a firm debt-to-income limitation. Barnett cites a study from the Housing Policy Council that indicates that loan volume would drop more than 18 percent when DTIs were reduced from a range of 44 to 46 percent to a range of 40 to 42 percent. This drop in loan volume was accompanied by a relatively modest drop in the default rate from 1.59 percent to 1.43 percent.
I can’t speak to the merits on this, but it does raise an important question: what mechanisms are in place at the CFPB to go back and test such rules to ensure that they are appropriately balancing consumer protection with consumer opportunity.
February 4, 2013 | Permalink | No Comments
Florida Court of Appeals Held that Bank Defendant had Standing to Bring Foreclosure Claim and Plaintiff’s Due Process Rights were Not Violated
In Harvey v. Deutsche Bank Nat. Trust Co., 69 So. 3d 300 (Fla. Dist. Ct. App. 2011), the District Court of Appeal of Florida, Fourth District, held that Deutsche Bank had standing to bring a foreclosure action as holder of the promissory note, and Harvey’s (borrower/homeowner’s) due process rights were not violated when the Circuit Court denied his motion for reconsideration without a hearing.
On September 17, 2009, Deutsche filed a motion for summary judgment, along with an affidavit of indebtedness. However, on September 30, 2009, Deutsche filed an affidavit of lost note. At that point, the trial judge told Harvey that nothing would be done until the lost note affidavit was in the court’s file. On October 29, 2009, Deutsche filed a copy of the assignment of mortgage from MERS to Deutsche, with an effective date of March 31, 2009.
Harvey argued that the assignment was fraudulent because it was not filed until twenty days after Deutsche filed the foreclosure. But the trial judge claimed that there was no record evidence supporting Harvey’s position. Harvey then filed a motion for reconsideration which was denied by the Circuit Court. Harvey appealed claiming 1) summary judgment should not have been granted because a genuine issue of material fact existed as to Deutsche’s standing to foreclose and 2) the Circuit Court erred and violated Harvey’s due process rights by denying his motion for reconsideration without holding a hearing. Here, the Court held 1) because the note at issue was payable to AHMAI, indorsed in blank, and Deutsche possessed the original note and filed it with the Circuit Court, Deutsche’s standing could be established from its status as the note holder regardless of any recorded assignments. 2) Harvey failed to present evidence supporting her argument that the mortgage assignment had questionable signatures. And 3) due process does not require a trial court to hold a hearing before it denies a motion for a new trial. Thus, since the Circuit Court properly found that Deutsche had standing to enforce the note — based on uncontroverted record evidence—Harvey’s motion for reconsideration was properly denied without a hearing and summary judgment was properly granted.
February 4, 2013 | Permalink | No Comments
Florida Court of Appeal held that Loan Servicer Defendant was the Proper Holder of Promissory Note and Mortgage, and Granted Summary Judgment
In Riggs v. Aurora Loan Services, LLC, 36 So. 3d 932 (Fla. Dist. Ct. App. 2010), the District Court of Appeal of Florida, Fourth District, held that Aurora Loan Services, LLC, was the lawful holder of a promissory note and affirmed the Circuit Court’s decision granting Aurora’s motion for summary judgment.
Riggs, the borrower/homeowner, objected to Aurora’s foreclosure action on the grounds that Aurora’s promissory note had a blank indorsement and thus failed to conclusively establish that Aurora was the lawful owner and holder of the note. The Court disagreed.
Aurora possessed the original note which was indorsed in blank and signed as required. The Court noted that because the indorsement was a blank indorsement, the note was payable to bearer and could be negotiated by transfer of possession alone. The Court then held that Aurora was the holder of the note, and was entitled to enforce it, because the note was negotiated by its transfer of possession. The Court also found no authentication issue since Riggs never challenged the authenticity of the signature at issue in his pleadings, and because the promissory note was self-authenticating. Thus, because Aurora offered supporting affidavits and the original note with a blank indorsement, the Court held that Aurora was the proper holder of the note and mortgage.
February 4, 2013 | Permalink | No Comments
February 1, 2013
United States District Court in Florida Denies Plaintiff’s Motion to Remand Case to State Court
In Diversified Mortg., Inc. v. Merscorp, Inc., 809-CV-2497-T-33EAJ, 2010 WL 1793632 (M.D. Fla. May 5, 2010) the United States District Court, in the Middle District of Florida, denied Diversified Mortgage Inc.’s motion to remand its case to state court. MERS originally removed its case to federal court alleging complete diversity of citizenship between the parties and an amount in controversy above $75,000. Diversified filed the motion to remand the case claiming that the amount in controversy “ha[d] not been met.” Diversified argued that it did not request monetary damages but instead sought declaratory and injunctive relief. The Court noted, however, that “for equitable claims such as ones for declaratory or injunctive relief, the amount in controversy is determined by the object of the litigation that will flow to Diversified, not the damages.” Thus, because Diversified sought declaration as to whether it had any ownership in 65-135 mortgage loans, the amount in controversy would be determined from the monetary value of the benefit the Court declared Diversified had in the mortgages at issue.
Diversified responded by claiming that if it had an interest in the mortgages, it is unlikely that Diversified would seek collection from MERS. Instead, Diversified would pursue many individual actions against unidentified mortgage companies, or not pursue any actions at all. But the Court noted that the amount in controversy is determined by the face value of the mortgages and not by the level of ease or difficulty associated with collecting the loan amounts. Consequently, the Court reviewed the mortgage documents, determined that the amount in controversy exceeded $75,000, and denied Diversified’s motion.
February 1, 2013 | Permalink | No Comments
Borden and Reiss on Lawyers and REMICs
Our latest, Dirt Lawyers and Dirty REMICs, is on SSRN and BEPress.
February 1, 2013 | Permalink | No Comments
January 31, 2013
United States District Court in California Denies Plaintiff’s Motion for Temporary Injunctive Relief, Allowing Non-Judicial Foreclosure
In Chilton v. Fed. Nat. Mortg. Ass’n, 1:09-CV-02187 OWW SM, 2009 WL 5197869 (E.D. Cal. Dec. 23, 2009), the United States District Court, in the Eastern District of California denied Chilton’s motion for temporary injunctive relief. Chilton filed a complaint alleging that Federal National Mortgage Association (Fannie Mae) violated provisions within U.S.C. Title 15, regarding Commerce and Trade, and/or U.S.C. Title 18, regarding Crimes and Criminal Procedure, because Fannie Mae initiated a non-judicial foreclosure on her property without a genuine original note. Chilton then filed an order to show cause and motion for temporary restraining order, in an attempt to block the foreclosure process. The Court noted that in order to obtain temporary injunctive relief, Chilton must demonstrate a likelihood of success on the merits.
The Court rejected Chilton’s legal theory holding that non-judicial foreclosures can be commenced without producing an original promissory note. The Court noted that under California Civil Code § 2924, et seq. Section 2924(a)(1), regarding Mortgages in General, a trustee, mortgagee, beneficiary or any of their authorized agents may conduct a foreclosure. In addition, the party initiating the foreclosure need not be in possession of the original note. Consequently, the Court held that Chilton was unlikely to succeed on her claim for relief, and thus found it unnecessary to set Chilton’s motion for temporary injunctive relief for a hearing.
January 31, 2013 | Permalink | No Comments
SEC Complaint on Improper Trading of MBS — Much Ado?
By David Reiss
Floyd Norris, the only journalist to whom I have written fan mail (sorry Gretchen, you’re next), has another interesting column about a case that the SEC has brought against an MBS trader, Jesse Litvak. The complaint alleges that
On numerous occasions from 2009 to 2011, Litvak lied to, or otherwise misled, customers about the price at which his firm had bought the MBS and the amount of his firm’s compensation for arranging the trades. On some occasions, Litvak also misled the customer into believing that he was arranging a MBS trade between customers, when Litvak really was selling the MBS out of Jefferies’ inventory. Litvak’s misconduct misled customers about the market price for the MBS, and, thus, about the transaction they were agreeing to. Litvak also misled customers about whether they were getting the best price for their MBS trades and how much money they were paying in compensation. MBS are generally illiquid and discovering a market price for them is difficult. Participants trading in the MBS market must rely on informal sources, including their broker, for this information.(1-2)
Norris is right to highlight what this case can reveal about the lack of transparency in the trading of MBS, a lack of transparency that does not exist in many other major secondary markets for securities.
But I was struck by how little is at stake in this SEC case. The complaint alleges that the misconduct occurred in 25 (count ’em, 25!) trades from 2009 through 2011 (7) and that Litvak’s behavior “generated over $2.7 million in additional revenue for his firm.” (2) Not for him personally, mind you, but for his firm! He, of course, should be punished if the allegations prove to be true. And yet . . ..
Time after time, the government brings cases against mid-level players somehow involved in the financial crisis. Time after time, people wonder why these are the best cases that can be brought. My earlier thoughts about this can be found here and here. Is it possible that even the SEC lacks the resources to investigate the massively document intensive cases that would get to the heart of the matter?
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February 1, 2013 | Permalink | No Comments