Tag Archives: massachusetts

What $4 Billion Does for Homeowners

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Enterprise released a Policy Focus on What the JPMorgan Chase Settlement Means for Consumers: An Analysis of the $4 Billion in Consumer Relief Obligations. It opens,

On November 19, 2013, JPMorgan Chase reached a record-setting settlement deal with the federal government’s Residential Mortgage-Backed Securities (RMBS) Working Group for $13 billion, which included $4 billion in consumer relief for struggling homeowners and hard-hit communities.

This brief examines how the $4 billion obligation will likely flow to consumers over the next four years. According to the settlement terms, eligible activities for which JPMorgan Chase will receive credit broadly include: loan modifications; rate reduction and refinancing; low- to moderate-income/disaster area lending; and anti-blight work. (1)

Enterprise projects that JPMorgan’s $4 Billion obligation will

translate into $4.65 billion in relief for existing homeowners, with an additional $15 million going to homebuyers, and as much as $380 million in cash and REO properties allocated to reducing foreclosure-related blight. Our analysis projects that over 26,500 borrowers will receive a total of $2.6 billion in principal forgiveness, which translates into $1.5 billion in credit toward the bank’s obligation. Forbearance will be extended on 17,000 loans, and slightly more than 7,000 second liens will be fully or partially forgiven. In addition to forgiveness or forbearance, we anticipate the interest rates on approximately 26,500 loans will be reduced, resulting in a real borrower savings of $1.4 billion. (1)

We’re talking about some pretty big numbers here, so it might be useful to break them down on a per borrower basis.

  • 26,500 loans will receive interest rate reductions resulting in $1.4 billion in consumer benefit, or $52,830 per loan.
  • 26,500 borrowers will receive $2.6 billion in principal forgiveness, or $98,113 per homeowner.

The report, unfortunately, does not parse these big numbers out so well. For instance, do they reflect savings over the expected life of the loans or over the remaining term? We also do not know whether these changes, large as they are, will leave sustainable loans in their place. So, this is a report provides a useful starting point, but some very big questions about the settlement still remain to be answered.

Reiss on Predatory Online Lending

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E-Commerce Times quoted me in CFPB Suit Targets Predatory Online Lending Practices. It reads in part:

The Consumer Finance Protection Bureau this week put online finance companies on notice that it will not overlook them merely because they operate in cyberspace. Specifically, the bureau sued CashCall for collecting money consumers allegedly did not owe.  In its suit, the bureau charged that CashCall and its affiliates engaged in unfair, deceptive, and abusive practices, including illegally debiting consumer checking accounts for loans that were void.

CashCall and the associated companies are reportedly owned by J. Paul Reddam, a race-horse owner and philosophy professor-turned-businessman.

The Background

Beginning in late 2009, CashCall and its subsidiary, WS Funding, entered into an arrangement with online lender Western Sky Financial, according to the CFPB. Western Sky Financial has asserted that the laws in the state in which it is based — South Dakota — did not apply to it because it was based on an Indian reservation and owned by a member of the Cheyenne River Sioux Tribe.

The CFPB maintains Western Sky still must comply with state laws when it makes loans over the Internet to people in other states.

The loans ranged from US$850 to $10,000 and came with upfront fees, lengthy repayment terms and annual interest rates from nearly 90 percent to 343 percent, the CFPB said. Many of the loan agreements allowed payments to be debited directly from the borrower’s bank account.

By September 2013, Western Sky had become the subject of several states’ investigations and court actions, and it began to shut down its business. CashCall and its collection agency, Delbert Services, continued to take monthly installment payments from consumers’ bank accounts or otherwise sought to collect money from borrowers.

After its own investigation, the bureau concluded that the high-cost loans violated either licensing requirements or interest-rate caps, or both, in Arizona, Arkansas, Colorado, Indiana, Massachusetts, New Hampshire, New York and North Carolina, meaning the consumers did not owe that money that was being collected.

As part of its suit, the CFPB is seeking monetary relief, damages, and civil penalties.

The CFPB did not respond to our request for further details.

*     *     *

‘Particularly Weak’

 

While there might not be much controversy over the CFPB’s suit against an online lender, CashCall is certainly defending itself using other arguments.

Clearly, the action falls within the CFPB’s broad mission of protecting consumers from predatory behaviors in the financial services industry, asserted David Reiss, a professor of Law at Brooklyn Law School.

However, CashCall’s attorneys, Neil Barofsky and Katya Jestin, have said that the CFPB does not have a mandate to impose rate caps.

“Of all of CashCall’s arguments, this one seems particularly weak,” Reiss concluded, “as the CFPB is just seeking to enforce existing state laws that have been allegedly violated across the country.”

Massachusetts Trial Court Grants Defendant Bank’s Motion For Summary Judgment in Service Member Civil Relief Act Case

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The Plaintiff in Randle v. GMAC, No. 09 MISC 408202 GHP filed a complaint seeking, among other things, a declaration that defendant GMAC Mortgage did not hold any claim secured by a mortgage recorded with the County Registry, and lacked standing to bring an action against the plaintiff pursuant to the Service Members Civil Relief Act.

Summary judgment was sought by the defendant and granted. It was undisputed that GMAC was the current holder of the mortgage, and therefore there were only two issues and one sub-issue left in contention.

The first issue was whether the plaintiff’s claimed right to challenge the standing of GMAC to have filed the Service Members Case required a judgment in the previous case, declaring the foreclosure invalid; and whether the plaintiff was entitled to the ninety-day right to cure set out in state law.

In deciding the judgment from the Service Member case, the court considered the plaintiff’s argument that due to the chronology of the assignments of the mortgage, and the recording with the registry, relative to the filing and prosecution of the Service Member’s case by GMAC, and also due to evident discrepancy in the date the judgment in the Service Member case was entered on the docket, the foreclosure sale by GMAC cannot be valid and cannot be effective to pass a title.

The court rejected this line of argument and found that such an argument ignored the long established limited scope of Service Members proceedings in Massachusetts. The court noted that a foreclosure is not invalid because title passed on a date prior to the issuance of the judgment in a Service Members case, which has a limited scope and purpose does not permit litigation of broader issues involving the relationship between the borrower and the lender.

Next, the court considered the standing of the mortgagee. The plaintiff claimed a right to challenge the standing of GMAC to have filed the Service Members case. GMAC argued that the standing of a mortgagee to commence a Service Member action was not a live issue in determining the validity of a foreclosure when the mortgage was the record holder of the subject mortgage at the time of the foreclosure. The court agreed with GMAC’s argument.

Lastly, the plaintiff argued that GMAC was unable to foreclose because it did not provide the plaintiff with a 90-day the notice and opportunity to cure a default, as mandated by state law. However, upon review of the designated state law, the court found that the plaintiff was not entitled to such notice, because the specified state law did not apply “to such mortgages whose statutory condition had been voided prior to May 1, 2008.”

Massachusetts District Court Holds that MERS, as Mortgagee and Nominee for Lender, has Authority to Assign Mortgage

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The court in Rosa v. Mortg. Elec. Sys., Inc., 821 F. Supp. 2d 423 (D. Mass. 2011) held that the assignee bank had standing to foreclose on the homeowners. The homeowners argued that the bank did not have standing because MERS lacked authority to assign the mortgage. They made several arguments as to why MERS lacked authority, including (1) the original noteholder did not authorize the assignment; (2) MERS could only act as nominee for the original noteholder, who dissolved in 2008; and (3) MERS did not hold the note at the time of assignment, and thus could not assign what it did not hold.

First, the court looked at MERS’s authority to assign the mortgage. The court rejected the homeowner’s argument, stating, “[s]ince Massachusetts law does not require a signatory to prove authority to execute a mortgage assignment, a mortgagee need not prove authorization from the note holder to assign a mortgage.” The court then held that the assignment by MERS to the assignee bank was valid because MERS was a mortgagee under the terms of the mortgage agreement.

Next, the court determined that the original noteholder’s dissolution had no effect on MERS’s authority to assign. The court held, “[the original noteholder’s] dissolution [did not] terminate MERS’ nominee relationship with a successor purchaser or assignee of the Note or affect MERS'[s] status as mortgagee. . . . As mortgagee, MERS continued to hold the Mortgage in trust for whomever happened to own the Note.”

Finally, the court rejected the argument that MERS must hold the note in order to assign the mortgage. They found this argument contrary to case law. The court stated, “In Massachusetts, the mortgage does not automatically follow the note and the mortgage and the note may be held by different parties. . . . An assignor of a mortgage is not required to have possession of or beneficial interest in the note in order to assign the mortgage because it holds the mortgage in trust for the note holder. ” Thus, MERS had authority to assign the mortgage despite not being in possession of the underlying note.

Massachusetts Superior Court Holds that Assignee of Residential Mortgage Backed Securities has Standing to Seek Statutory Damages

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In Cambridge Place Inv. Mgmt., Inc. v. Morgan Stanley & Co., No. 10-2741-BLS1, 2012 WL 5351233, at *20 (Mass. Super. Ct. Suffolk Co. Sept. 28, 2012), the Superior Court of Massachusetts held that Cambridge Place Investment Management, Inc. (CPIM), as assignee of residential mortgage backed securities, had standing to seek damages under the Massachusetts Uniform Securities Act (MUSA) that resulted from alleged false and/or misleading statements made by the “underwriters, dealers, and depositors of the securities at issue.” In this case, the assignor of the securities was a group of nine hedge funds that had received advice from CPIM to purchase the securities at issue. The securities turned out to produce “substantial losses” for the hedge funds. In order to recoup their losses, CPIM further advised the hedge funds to assign the securities to it, so that it could bring an action in Massachusetts state court.

The underwriters, dealers, and depositors of the securities (Morgan Stanley) argued that CPIM lacked standing for three reasons: “First, [Morgan Stanley] contend[s] that the assignments of claims were done for an “improper purpose”—to collusively destroy federal diversity jurisdiction. . . . Second, [Morgan Stanely] argue[s] that the remedies under MUSA are only available to the direct purchaser of the securities, and, as assignee, CPIM lacks privity with [Morgan Stanely]. . . . Third, [Morgan Stanley] assert[s] that CPIM lacks standing to seek the rescission of the securities because rescission is a personal right that is not assignable.” The court addressed these arguments, rejecting each in turn.

The court held that the first argument must be rejected because “[e]ven if the assignments were made collusively to destroy federal diversity jurisdiction, that, in itself, does not invalidate them. . . . [T]hat the assignments were improperly made to CPIM only affects their validity under federal jurisdictional law, and do not affect their validity under state law.” The court found that for this argument to be accepted, Morgan Stanley needed to show “additional facts to invalidate the assignments under state law.”

The court then rejected Morgan Stanley’s second argument. In doing so, it characterized CPIM as an investment advisor, and applied a functional test “based on the decision-making authority that the investment advisor possessed.” Quoting a Massachusetts district court case, the court stated the test as follows: “as long as the investment advisor has discretion in determining what securities to buy and sell, it qualifies as a purchaser with standing to bring a securities fraud action.” The court then found that CPIM sufficiently alleged that it had discretion in determining what securities to buy and sell.

The court finally rejected Morgan Stanley’s final argument, stating, “The court is unwilling to conclude that CPIM’s claim is ‘personal’ and not subject to assignment. . . . Accordingly, CPIM is entitled to assert all available statutory remedies, including rescission.”

Massachusetts Supreme Court Holds that Bank Lacks Standing to Bring SCRA Claim Against Homeowner

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In HSBC Bank USA, N.A. v. Matt, 464 Mass. 193 (2013), the Supreme Court of Massachusetts found that HSBC Bank USA, N.A. (HSBC) lacked standing to proceed with its claim against the homeowner in a servicemember proceeding. HSBC initially filed a complaint in the Land Court under the Massachusetts Soldiers’ and Sailors’ Civil Relief Act (Massachusetts Act) “to determine if [homeowner] was entitled to foreclosure protections under the Federal Servicemembers Civil Relief Act (Federal SCRA or SCRA).” The homeowner did not contest the fact that she was not entitled to protection under the SCRA. Instead, she disputed HSBC’s standing to bring a foreclosure action generally, arguing, “[HSBC] was not the clear holder of either her note or her mortgage.” Despite the fact that the homeowner “was not entitled to appear or be heard at the servicemember proceeding,” the court considered the standing question sua sponte.

The court held that in determining standing in servicemember proceedings, a bank must present evidence to prove their status as mortgagees, or else as agents of mortgagees. The court reversed the Land Courts decision holding that HSBC had standing because of a purported right to purchase the homeowner’s mortgage. However, the court noted that determinations of standing in servicemember proceedings do not establish (and thus do not eliminate) standing in foreclosure proceedings.

MERS Must Possess Note or Have Authority to Act on Behalf of Note Holder in Order to Foreclose, According to Massachusetts Supreme Court

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In Eaton v Federal National Mortgage Association, 462 Mass. 569 (Mass. 2012), the Supreme Judicial Court of Massachusetts addressed “the propriety of a foreclosure by power of sale undertaken by a mortgage holder that did not hold the underlying mortgage note.” In this case, the homeowner executed both a promissory note, solely to the lender, and a mortgage to the lender and to MERS. Under the terms of the mortgage, the lender was referred to as “lender” and MERS was referred to as “mortgagee.” As mortgagee, MERS was stipulated to hold legal title to the property with the power of sale “solely as nominee.” MERS was also given explicit authority under the mortgage to exercise the right to foreclose the property as nominee for lender. Subsequently, MERS assigned its interest to Green Tree servicing, LLC (Green Tree). The assignment was recorded in the county register of deeds, but without evidence of transfer of the note.

Eventually, the homeowner fell behind on his mortgage payments and Green Tree moved to foreclose. Green Tree was the highest bidder at the foreclosure auction, and assigned the rights to its bid to Fannie Mae. Fannie Mae later moved to evict the homeowner from the property. In response, the homeowner filed a counterclaim, arguing that the underlying foreclosure was invalid because Green Tree did not hold the note at the time of the foreclosure action. The housing court and the superior court found in favor of the homeowner, holding that a mortgagee must possess both the mortgage and the mortgage note to have authority to foreclose.

However, the Supreme Court, transferring the case to its court on its own motion, came to a different conclusion. The Supreme Court found that the lower courts relied only on common law for their holdings, and that statutory law, particularly G.L.c. 183, § 21 and G.L.c. 244, § 14, changes the analysis. Relying on these stautes, the court held “that where a mortgagee acts with the authority and on behalf of the note holder, the mortgagee may comply with these statutory requirements without physically possessing or actually holding the mortgage note.” Whether a mortgagee is acting with authority and on behalf of the note holder is a an agency question, which the Supreme Court could not address based on the record.

The court also held that the ruling only had prospective effect, and thus the ruling “appl[ies] only to mortgage foreclosure sales for which the mandatory notice of sale has been given after the date of this opinion.” However, the court also applied the ruling to the parties in the case, and the court remanded the case to the superior court to determine whether Green Tree was acting with authority and on behalf of the lender at the time of the closing.