January 10, 2013
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
January 8, 2013
Republicans Issue Report Critical of CFPB’s Regulation of Mortgage Markets
The staff of the House’s Committee on Oversight and Government Reform issued a report that argues that the CFPB is “predisposed to limit access to credit;” “will increase regulatory burdens and reduce credit availability;” and has inadequate mechanisms to “detect access to credit impediments.” As to mortgage markets in particular, it argues that
Lenders are reportedly requiring the highest credit scores in a decade to approve home mortgages, with an average credit score of 737 for borrowers approved for a home loan in 2011.22. The international capital guidelines outlined in the Basel III capital accords have also made mortgage loans less worthwhile for banks. An April 2012 Federal Reserve survey found that 83 percent of banks were less likely to originate a GSE-eligible 30-year fixed-rate mortgage for a borrower with a credit score of 620 and a 10 percent down payment than they were in 2006. Roughly 70 percent of those banks surveyed blamed regulatory and legislative changes for restricting lending. (3-4, footnotes omitted)
It continues,
the CFPB is currently considering a mortgage rule that would require a lender to verify a borrower’s ability to repay a mortgage unless the loan satisfies the definition of a “qualified mortgage.” According to Frank Keating, CEO of the American Bankers Association, the rule could “make borrowing more expensive and credit less available. Some lenders may leave the market altogether.” The rule could also increase the cost of mortgage lending, reduce consumer choice, and make it harder for consumers to compare mortgage options. If the CFPB is not careful, these rules could make it more difficult – if not impossible – for millions of Americans to purchase homes. (11, footnotes omitted)
The analysis in this staff report strikes me as fundamentally unsophisticated as it does not draw a distinction between sustainable credit and unsustainable credit. The last bubble was driven by credit that was extended to people who could not repay it. There is no reason we would want to see a return to those practices.
The question should be — what regulations allow for a healthy mortgage market where careful lenders make loans to creditworthy borrowers?
January 8, 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