- NY federal court approves Citigroup Global Markets Inc., Goldman Sachs & Co. and UBS Securities LLC settlement for $235 million in class action from pension fund for false prospectuses in mortgage-backed securities.
- Better Markets, a financial reform advocacy group, files brief in support of $1.3 billion penalty for Bank of America Corp. for fraud in one of its programs, “Hustle”, which allegedly ripped off Fannie Mae and Freddie Mac.
- Investors filed suit against US Bank NA in New York for failing to act in their best interests in regard to mortgage-backed security trust losses.
Tag Archives: Freddie Mac
First-Time Homebuyers, You’re Okay
Saty Patrabansh of the Office of Policy Analysis and Research at the Federal Housing Finance Agency has posted a working paper, The Marginal Effect of First-Time Homebuyer Status on Mortgage Default and Prepayment.
While this is a dry read, it yields a pretty important insight for first-time homebuyers: you’re okay, just the way you are! The abstract reads,
This paper examines the loan performance of Fannie Mae and Freddie Mac first-time homebuyer mortgages originated from 1996 to 2012. First-time homebuyer mortgages generally perform worse than repeat homebuyer mortgages. But first-time homebuyers are younger and have lower credit scores, home equity, and income than repeat homebuyers, and therefore are comparatively less likely to withstand financial stress or take advantage of financial innovations available in the market. The distributional make-up of first-time homebuyers is different than that of repeat homebuyers in terms of many borrower, loan, and property characteristics that can be determined at the time of loan origination. Once these distributional differences are accounted for in an econometric model, there is virtually no difference between the average first-time and repeat homebuyers in their probabilities of mortgage default. Hence, the difference between the first-time and repeat homebuyer mortgage defaults can be attributed to the difference in the distributional make-up of the two groups and not to the premise that first-time homebuyers are an inherently riskier group. However, there appears to be an inherent difference in the prepayment probabilities of first-time and repeat homebuyers holding borrower, loan, and property characteristics constant. First-time homebuyers are less likely to prepay their mortgages compared to repeat homebuyers even after accounting for the distributional make-up of the two groups using information known at the time of loan origination.
So, just to be clear, being a first-time homebuyer is not inherently risky. Rather, the risks arising from transactions involving first-time homebuyers are the same as those involving repeat homebuyers: loan characteristics, property characteristics and other borrower characteristics.
Monday’s Adjudication Roundup
- The New York Court of Appeals overturned a lower court’s dismissal of suit against New York City, the New York Mets’ ownership group and The Related Cos., which had plans to build the Mets’ stadium on public parkland. The Court ruled that the city had incorrectly found that the rules allowed such a development. This ruling effectively bars the $3 billion project from moving forward.
- CitiMortgage settles to pay $2.2 million in case brought by military members. It was accused of violating the Servicemembers Civil Relief Act, which caps interest payments on military members’ mortgages.
- A Florida federal judge ruled that the $1.3 billion suit against Deloitte for its involvement in the end of Taylor Bean & Whitaker Mortgage Corp. will not be dismissed because Freddie Mac presented evidence that Deloitte “put amateurs on the job, overlooked inconsistencies in audits and accepted the explanations of Taylor Bean executives even when they didn’t make sense.”
- A NY federal judge dismissed Bank of New York Mellon’s indemnification and loan-repurchase claims against General Electric Mortgage Holding LLC, leaving only a breach of contract claim. The court found that the indemnification claims were duplicative of the breach of contract claims and the failure to repurchase claims were precluded by a recent NY Court of Appeals decision in Ace Securities v. DB Structured. The suit involves a $900 million mortgage-backed security that performed poorly.
Monday’s Adjudication Roundup
- The CFPB increased PHH Corp.’s penalty to $109 million from $6.4 million on appeal, while upholding an administrative judge’s ruling that the firm was involved in a mortgage insurance kickback scheme.
- A class of PHH borrowers have been granted cert to the U.S. Supreme Court alleging that PHH Corp. violated the Real Estate Settlement Procedures Act.
- NY Court of Appeals bars mortgage-backed securities suit for $330 million against Deutsche Bank AG due to a six-year statute of limitations that started when the contract was signed.
- Nomura Holdings Inc. is appealing $806 million verdict in suit brought by the Federal Housing Finance Agency for selling bad mortgage-backed securities to Fannie Mae and Freddie Mac.
- The Securities and Exchange Commission brought suit against a New York broker for $4.1 million for allegedly selling unregistered securities through several entities.
Wednesday’s Academic Roundup
- Section 1031 Exchanges: Death of a Related-Party Exchange – Did ‘Butler’ Do It?, by Bradley T. Borden & Alan S. Lederman, Daily Tax Report Journal, Vol. 75, No. 1, 2015.
- The Future of Fannie and Freddie, by Mark A. Calabria, David J. Reiss, Lawrence J. White, Mark A. Willis, & Michael E. Levine, New York University Journal of Law and Business, Vol. 10, No. 339, 2014.
- The Home Selling Problem: Theory and Evidence, by Antonio Merlo, François Ortalo-Magné & John Rust, International Economic Review, Vol. 56, Issue 2, pp. 457-484, 2015.
- Investors Effect on Household Real Estate Affordability, by Sebastien Gay, Kreisman Working Papers Series in Housing Law and Policy No. 22.
Monday’s Adjudication Roundup
- 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.
Friday’s Government Reports
- The U.S. Census Bureau released its economic indicators for the first quarter of 2015, both rental and homeownership vacancy is down compared to the first quarter of 2014. The Homeownership rate of 63.7% is also down.
- The Counselor to the Treasury Department’s Secretary for Housing Finance Policy, Dr. Stegman’s remarks before Fitch Ratings 2015 House View Conference on Residential Mortgage Backed Securities in which he discussed efforts to catalyze the development of a vibrant, responsible private label MBS channel.
- The U.S. Treasury Department’s letter responding to questions from Senator Chuck Grassley (R-Iowa), on the timeframe for ending the conservatorship of Fannie Mae and Freddie Mac in which he clarifies the relationship.
