- The United States Supreme Court holds that debtors do not have an absolute right to appeal a denial of a proposed bankruptcy plan (mentioned in April 6 post).
- Maryland federal judge approves settlement between CFPB and Genuine Title and participants for illegal mortgage-kickback scheme (mentioned in May 4 post).
- CFPB settles with Florida law firm for nearly $12 million for collecting over $5 million in illegal fees. The firm enlisted homeowners to bring “mass-joinder” suits against mortgage lenders.
- Lead plaintiff in class action against Bank of America asks the Third Circuit to rehear case alleging violations of Fair Debt Collection Practices Act decided last month. The Third Circuit held that the FDCPA covers foreclosure complaints (mentioned in April 13 post).
- The Clearing House Association LLC, the American Bankers Association, the Financial Services Roundtable and the U.S. Chamber of Commerce support Bank of America in its Second Circuit appeal of $1.3 billion fine for allegedly defrauding Fannie Mae and Freddie Mac through its mortgage program, “Hustle.”
- In stipulation, Massachusetts Federal District Court voluntarily dismisses claims against JPMorgan Chase & Co. and other institutions in $5.9 billion MBS suit brought by Bank of Boston.
Tag Archives: foreclosures
Friday’s Government Reports Roundup
- CFPB releases its 2014 Fair Lending Report, discussing its fair lending acts over the past year. It shows that the CFPB required institutions to provide over $224 million in remediation in 2014.
- A S. Census Bureau paper examines the effects of foreclosures on families during the financial crisis and in the years following.
- The Center for Housing Policy released a report “Impacts of Affordable Housing on Health: A Research Summary,” which discusses how Affordable Housing is correlated to better health than unaffordable, unstable and poor quality housing.
- The National Housing Conference released report: “Broadband Connectivity in Affordable Housing,” which highlights the need for internet access in affordable housing.
- HUD released the “2015 Worst Case Housing Needs” report.
Wednesday’s Academic Roundup
- Beyond Disparate Impact: How the Fair Housing Movement Can Move On, by Rigel Christine Oliveri, Washburn Law Journal, Forthcoming,
- Crowding Out Effects of Refinancing on New Purchase Mortgages, by Steven A. Sharpe & Shane M. Sherlund, FEDS Working Paper No. 2015-017.
- Have Distressed Neighborhoods Recovered? Evidence from the Neighborhood Stabilization Program, by Jenny Schuetz, Jonathan S. Spader & Alvaro Cortes, FEDS Working Paper No. 2015-016.
- A Standing Question: Mortgages, Assignment, and Foreclosure, by Eric A. Zacks & Dustin A. Zacks, Journal of Corporation Law, Vol. 40, 2015, Forthcoming.
- Socioeconomic and Racial Disparities in the Financing Returns to Homeownership, by Tom Mayock & Rachel Spritzer.
- REIT Spinoffs: Passive REITs, Active Businesses, by Richard Nugent, Tax Notes, pg. 1513 & 1635, March 23 & 30, 2015.
- Asset-Level Risk and Return in Real Estate Investments, by Jacob S. Sagi, April 19, 2015.
Tall Mortgage Tales
Todd Zywicki has posted The Behavioral Law and Economics of Fixed-Rate Mortgages (and Other Just-So Stories) to SSRN. The article contains
SPOILER ALERT!
a spoof, in order to make a larger point.
The abstract reads,
A major cause of the recent financial crisis was the traditional American mortgage, which is distinctive for the following features: it is a thirty-year, self-amortizing loan with an unlimited right to prepay. The United States is unique in the world for standardizing on a mortgage product with these features. Yet not only have a majority of the foreclosures that occurred during the financial crisis been fixed-rate mortgages, the fixed-interest-rate characteristics have undermined efforts by the Federal Reserve and government to assist recovery of the housing market. Moreover, the long fixed-rate term and ability to refinance are highly expensive and suboptimal features for many consumers. Nevertheless, many consumers persist in purchasing this mortgage. Drawing on the methodology of behavioral law and economics, this article provides rationalizations for how behavioral law and economics can explain the persistence of a product that is so harmful to many consumers and to the economy at large. The article then draws conclusions about what this analysis means for the behavioral law and economics research program generally and for the use of behavioral law and economics in government policymaking.
I have a lot to say about this article but I don’t want to ruin it for you! Suffice it to say, the article is a provocative critique of behavioral law and economics. Those of us who hope to see a healthy mortgage market develop would do well to take this critique seriously — even if you end up rejecting its broader implications.
Deutsche Bank Fails to Sufficiently Prove Ownership in Maine Supreme Judicial Court
In Deutsche Bank Nat’l Trust Co. v. Wilk, 2013 ME 79, 76 A.3d 363 (Me. 2013), the Maine Supreme Judicial Court vacated a judgment of foreclosure for Deutsche Bank on appeal by homeowner for Deutsche Bank’s failure to show ownership of the mortgage. Wilk procured a loan from Luxury Mortgage Company in 2005 with MERS named as nominee. Deutsche Bank commenced foreclosure proceedings after homeowners’ default in 2010, going to trial in 2012. The trial court found that Deutsche Bank provided evidence sufficient to merit foreclosure authority via a chain of assignments showing it was the holder of both the note and mortgage under 14 M.R.S. 6321. On appeal, the court notes that while Deutsche Bank evidenced its ownership of the note, it failed to adequately document its ownership of the mortgage, citing flaws in the chain of assignments. The court explains that the chain runs from MERS to IndyMac, then to FDIC as receiver for IndyMac to OneWest Bank, and finally OneWest Bank to Deutsche Bank; the problem is the date on the final assignment is two weeks prior to FDIC’s transfer to OneWest, meaning OneWest lacked authority to assign the mortgage at the time of its assignment to Deutsche Bank. Deutsche Bank attempted to rely on an earlier 2010 assignment from FDIC to Deutsche Bank, but provided no explanation for why the same mortgage as assigned twice by FDIC. As a result of the inconsistencies presented, the court found “the April 2010 assignment of the mortgage to Deutsche Bank, upon which the [trial] court relied, is not a ‘source whose accuracy cannot reasonably be questioned’ as a means of ‘accurate and ready’ proof of Deutsche Bank’s ownership of the mortgage.” See M.R. Evid. 201(b)(2); see also HSBC Mortg. Servs., Inc. v. Murphy, 2011 ME 59.
The court further found that the theory of estoppel by after-acquired property does not apply, and Deutsche Bank failed to prove its ownership under this theory; “the disputed assignment from OneWest Bank to Deutsche Bank did not involve a warranty deed or contain any factual allegation that OneWest Bank would need to contradict to assert title to the mortgage. The assignment purports to transfer ‘all interest’ OneWest Bank then held in the mortgage, without alleging that OneWest Bank had any interest to convey or making any other statement that could be interpreted to estop OneWest Bank from claiming title.” Pike v. Galvin, 29 Me. 183, 185 (1848); Bennett, 90 Me. at 461-62, 38 A. 372. Deutsche Bank was unable to prove any harmless error existed in the assignments, and therefore the trial court erred in granting the judgment of foreclosure.
Homeowners in Fifth Circuit Fail to Defeat Deutsche Bank Assignments
In Reinagel v. Deutsche Bank Nat’l Trust Co., 2013 U.S. App. LEXIS 22133 (5th Cir. Tex. July 11, 2013), the U.S. Court of Appeals for the Fifth Circuit upheld the Texas district court’s decision to grant Deutsche Bank’s motion to dismiss the homeowners’ complaint alleging the loan assignments were invalid due to robo-signing. The Reinagels refinanced their property in 2006 with Argent Mortgage Company, LLC who sold the loan to Deutsche Bank where it was pooled and sold to investors. The sale of the loan to Deutsche Bank was not documented until 2008, when the assignment was executed. The first assignment of the deed of trust failed to reference the promissory note. A second assignment was executed in 2009, expressly naming the subject note.
After the homeowners defaulted on payments, the state court granted the order for foreclosure in 2010, naming Deutsche Bank as mortgagee with right to foreclose. The Reinagels brought this action for a temporary injunction alleging that the assignments were “robo-signed” and as such facially void. They further argued that the assignments violated the pooling and service agreement (“PSA”), which did not permit transfers into the Deutsche Bank trust after October 1, 2006. The case was removed to the district court on diversity grounds, where the court later granted Deutsche Bank’s motion to dismiss the complaint. The Fifth Circuit affirmed this decision on appeal, finding the Reingals’ challenge of the the assignments unconvincing. The court held that although a non-party to a contract cannot enforce said contract, the obligor may defend on any ground which renders the assignment void, giving homeowners standing as they assert the assignments are facially void. The first assignment was held valid, as the court notes “the transfer of a mortgage presumptively includes the note secured by the mortgage” even if it doesn’t expressly reference the note; the validity of the second assignment is irrelevant here. Additionally, the Reinagels cited no precedent to support invalidating the assignments solely on account of robo-signing, or that violations of the PSA would invalidate the assignments. Further, the court did not find sufficient evidence of robo-signing in regard to either assignment. The court is careful to note that its decision is a narrow one, and provides a warning to banks: “we merely reaffirm that under Texas law facially valid assignments cannot be challenged for want of authority except by the defrauded assignor. We do not condone ‘robo-signing’ more broadly and remind that bank employees or contractors who commit forgery or prepare false affidavits subject themselves and their supervisors to civil and criminal liability.” Id at 12.
