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
The Appellate Division of New York State Supreme Court Holds that Assignee Lenders Must Produce Evidence of MERS’s Authority to Assign Mortgage Notes to Lawfully Conduct a Non-Judicial Foreclosure
The New York State Supreme Court, Appellate Division, Second Department in Aurora Loan Services v Weisblum, 923 N.Y.S.2d 609 (App. Div. 2011) held that a mortgage lender does not have standing to foreclose if it cannot establish its lawful status as assignee. In this case, MERS assigned both a mortgage and mortgage note to Aurora Services (“the Assignee”), who subsequently moved to foreclose on the subject property. At the time of the assignment, MERS was the holder of the mortgage, but not the note, which was held by the original mortgagee. MERS claimed that the assignment was valid because it was acting on behalf of the original mortgagee when it assigned the note. The court rejected this argument and held that the assignment was not valid because the Assignee failed to prove that MERS received an explicit grant of authority to assign the note from the original mortgagee. The court explained that, in general, MERS can legitimately assign notes. However, if the assignee moves to conduct a foreclosure, it must produce evidence of MERS’s authority to assign, which must be granted from the original lenders. The court further held that the evidence must show that the original mortgagee explicitly granted MERS such authority to assign.
Here, the lender failed to produce any evidence of MERS’s authority to assign the notes. Thus, the court found that MERS could not assign the note and therefore the lender did not have standing to foreclose.
January 8, 2013 | Permalink | No Comments
January 7, 2013
Oregon District Court Holds that MERS Must Record Every Assignment of Trust Deed to Lawfully Conduct a Non-Judicial Foreclosure
The District Court of Oregon in Hooker v Northwest Trustee Services, Inc., 2011 WL 2119103 (D.Or. May 25, 2011) granted homeowners’ motion for declaratory judgment preventing MERS from continuing with a non-judicial foreclosure proceeding. The court first held that MERS could only be a nominee or agent of a lender, and not have a beneficial interest in the trust deed, where MERS was not listed as the beneficiary on the note. However, the court did not hold that this precluded MERS from lawfully initiating a non-judicial foreclosure. The problem in this case was that MERS only recorded the final assignment of the trust deed, instead of recording every assignment as required by law. In failing to record every assignment of the trust deed in this case, the court found that MERS could not lawfully conduct a non-judicial foreclosure.
January 7, 2013 | Permalink | No Comments
S&P Predicts Residential Mortgage Finance To Improve in 2013
S&P’s report has a couple of interesting predictions:
- Although the GSEs (government-sponsored entities, such as Fannie Mae and Freddie Mac) have been vital players in the U.S. mortgage finance market, 2012 was a strong year for mortgage banking, largely because of refinancing activity. This trend will likely continue in 2013, but banks may struggle to duplicate strong performance next year. . . .
- We expect the federal agencies to continue to dominate the residential mortgage-backed securities (RMBS) market in 2013, but the private-label market will see some growth from a low base.
January 7, 2013 | Permalink | No Comments
