January 10, 2013
CFPB Releases Ability-To-Repay and Qualified Mortgage Final Rules
The CFPB has released the final rules relating to ability-to-repay and Qualified Mortgages. The CFPB’s Summary is currently available.
The big news is that qualified mortgages do NOT have a minimum down payment requirement. This was a very big bone of contention during the proposed rulemaking process (which I discussed here and here).
It is also very interesting to see that the CFPB has taken the position that a total debt-to-income ratio of 43% is the maximum that is generally sustainable for homeowners. This was a bone of contention in the FDIC’s workout of the IndyMac mess during the early years of the crisis, which I had addressed a bit here at page 807. 43% is on the high side of earlier estimates of what is sustainable, so it will be interesting to see if future default data confirms the wisdom of this position.
The rules take effect a year from now.
January 10, 2013 | Permalink | No Comments
Waiver and Equitable Estoppel Argument Rejected by Texas Court
The federal Court of Appeals in Texas affirmed a district court’s dismissal of the plaintiff’s claims in Wigginton v. Bank of New York Mellon, et al., No. 12-10136, (5th Cir. 2012).
Two weeks after two default notices were sent to the plaintiff, a letter reporting a rate adjustment was sent to the plaintiff. The plaintiff argued that the defendant could not foreclose after the change of rate notice was sent because the notice implied the continuation of the note. Specifically, the plaintiff argued that the change of rate notice was effectively a waiver of the default notices because the notice implied that the loan was still on a monthly payment schedule.
The district court stated that the elements of waiver are (1) an existing right, benefit, or advantage; (2) knowledge, actual or constructive, of its existence; and (3) an actual intent to relinquish that right (which can be inferred from conduct). Furthermore, the court stated that waiver is largely a matter of intent, which can be shown by actual renunciation or inference. However, proving a waiver through inference would require a showing that the opposite party has “unequivocally manifested its intent to no longer assert its claim.”
In this case, the district court found that there was no express waiver of the default in the rate of change notice. In addition, although the plaintiff argued that the rate notice indicates that the plaintiff’s loan was still on a monthly payment schedule, she failed to allege facts that would reasonably infer that the defendants unequivocally manifested intent to waive. The court found the claim to be conclusory without supporting evidence. As a result, the district court dismissed the claim because of the pleading deficiency.
The Court of Appeals also disagreed with the plaintiff’s theory of waiver and estoppel and affirmed the district court’s finding.
The Northern District Court case may be found here.
January 10, 2013 | Permalink | No Comments
General Challenge to MERS Rejected by Texas Federal District Court
The United States Southern District Court of Texas defended MERS in Richard v. CIT Group, et al., No. H-12-848 (S.D. Tex Jul. 21, 2012). The plaintiff’s attorney challenged the standing of the defendants and the use of MERS. The plaintiff argued that her confusion about the identity of the holder of the note should be evidence towards lack of standing. The Court notes that the plaintiff never received overlapping or conflicting mortgage bills. In addition, the allonge to the note named the defendant as the rightful holder of the note, showing that the defendant has standing.
The plaintiff also mentioned a number of criminal acts that MERS has committed, but failed to make a specific claim against the institution. The Court then stated that MERS is a tool used for efficiency to lower the cost of borrowing. In addition, those who borrow money to purchase a house through issuing a negotiable note cannot object to its being negotiated or to the effective process for documenting them (in the context of Texas commercial law, the term negotiate is defined as the “transfer of possession … of an instrument by a person other than the issuer to a person who thereby becomes its holder”) (Tex. Bus. & Com. Code Ann. § 3.201(a) (West 2002)).
The Court granted the defendants’ motion of summary judgment after dismissing the plaintiff’s claims.
January 10, 2013 | Permalink | No Comments
January 9, 2013
New York Supreme Court Holds that Assignee Banks Must Produce Evidence of MERS’s Authority to Assign in Order to Have Standing to Foreclose
The New York Supreme Court of Kings County in Bank of New York v. Alderazi, 28 Misc. 3d 376 (Sup. Ct. 2010) held that a foreclosing bank, as assignee, does not have standing to bring a foreclosure action if it cannot submit proof of MERS’s authority to assign the mortgage. In this case, “MERS was referred to in the mortgage as nominee of the mortgagee . . . for the purpose of recording the mortgage.” The court then stated that “MERS, as nominee, is an agent of the principal, for limited purposes, and has only those powers which are conferred to it and authorized by its principal.” Based on this rule, the court held that an assignee moving to foreclose must submit evidence to the court that such authority was granted to MERS by the original mortgagee. Here, “[the assignee] submits no evidence that [the mortgagee] authorized MERS to make the assignment. MERS submits only its own statement that it is the nominee for [the mortgagee], and that it has authority to effect an assignment on [the mortgagee’s] behalf.” Thus, the court found that the assignee in this case could not lawfully conduct a foreclosure proceeding.
The court went on to explain that “even accepting MERS'[s] position that the [mortgagee] acknowledges MERS'[s] authority to exercise any or all of the [mortgagee’s] rights under the mortgage, the mortgage does not convey the specific right to assign the mortgage. The only specific right enumerated in the mortgage is the right to foreclose and sell the property. The general language ‘to take any action required of the Lender including, but not limited to, releasing and canceling this Security Instrument’ is not sufficient to give [MERS] authority to alienate or assign a mortgage without getting the mortgagee’s explicit authority for the particular assignment.” Hence, under the terms of its own agreement, MERS would have had to solicit an explicit grant of the authority to assign the mortgage from the original mortgagee in order to effectuate a valid assignment. Since the assignee could not prove that such a grant of authority occurred in this case, the court found that the assignment was still invalid under MERS’s and the assignee’s argument.
January 9, 2013 | Permalink | No Comments
FIRREA as a Mortgage Lending Enforcement Tool
William Johnson of the Fried, Frank law firm has an interesting analysis of enforcement cases that invoke the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) which is unfortunately behind the NYLJ paywall.
Johnson discusses the history of FIRREA which arose from the ashes of the S&L Crisis of the 1980s. He notes that FIRREA extended the statute of limitations to 10 years for mail and wire fraud statutes (18 U.S.C. sections 1341 and 1343) where the crime “affected” a financial institution.
The government is turning to FIRREA at this point because of its ten year statute of limitations which doubles the statute of limitations that would apply to many other causes of action. Given that we are now about five years out from the crisis, he says that this development is not surprising.
He identifies five cases where the Department of Justice has brought FIRREA causes of action arising from alleged conduct relating to mortgages:
- United States v. Buy-a-Home, No. 1:10-cv-09280 (S.D.N.Y.) (PKC) (filed Dec. 13, 2010)
- United States v. Allied Home Mortgage, No. 1:11-cv-05443 (S.D.N.Y.) (VM)
- United States v. CitiMortgage, No. 1:11-cv-05473 (S.D.N.Y.) (VM)
- U.S. v. Wells Fargo Bank, No. 1:12-cv-07527 (S.D.N.Y.) (JMF) (JCF) (filed Oct. 9. 2012)
- U.S. v. Bank of America, No.1:12-cv 1422 (S.D.N.Y.) (JSR)
He concludes that the government has “turned FIRREA on its head” by stretching its provisions to encompass alleged wrongs against entities such as Fannie and Freddie as well as HUD as well as “financial institutions” as that term is defined in FIRREA.
I don’t know enough to have a position on whether the government has turned FIRREA on its head, but its ten year statute of limitations must look very tempting to prosecutors and regulators as the events that were at the root of the crisis receded further and further from the present.
January 9, 2013 | Permalink | No Comments
S&P Is Optimistic That Residential Mortgage Market Is Rising From Bottom
By David Reiss
S&P’s Outlook Assumptions for the U.S. Residential Mortgage Market
support our view of loss projections on an archetypical mortgage loan pool (see description in section IV). The base-case loss projection of 0.5% for U.S. prime mortgage loan pools, incorporates our current outlook which reflects:
S&P’s archetypal loan is “collateralized by a single-family detached primary residence with a loan-to-value ratio of 75%. For more information on the “archetypical” loan, see paragraph 24 in U.S. RMBS Criteria. Our projections for other types of newly originated products could be lower or higher depending on the characteristics of the loans, relative to the archetypical loan.” (2)
S&P notes that mortgage delinquencies have been flat and even declining. This outlook may be one more crocus pushing through a frozen but thawing residential market.
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January 10, 2013 | Permalink | No Comments