- Ninth Circuit upholds Section 8, which provides low income housing, recipients’ right to one-year notice that their benefits will be cut after failing to receive any notice in 2007.
- Franklin American Mortgage Co. settled with the U.S. Department of Justice for $70 million for allegedly violating the False Claims Act in originating and underwriting loans insured by the Federal Housing Administration that it knew were not eligible for insurance.
Tag Archives: settlement
Monday’s Adjudication Roundup
- BNY Mellon files a brief on writ for cert with the Supreme Court warning the potential for “warping” the residential mortgage-backed securities market if it overturns the Second Circuit’s decision finding that provisions of the Trust Indenture Act did not apply to the securities at issue.
- Investors of Citibank file a class action in NY state court claiming that Citibank ignored toxic residential mortgage-backed securities causing $2.3 billion in losses.
- Investors sue RAIT Financial Trust and its trustees alleging that the trust knew about subsidiary pocketing fees leading to a $21.5 million SEC settlement.
CFPB Mortgage Highlights Fall ’15
The Consumer Financial Protection Bureau released its Fall 2015 Supervisory Highlights. In the context of mortgage origination, the CFPB found that
supervised entities, in general, effectively implemented and demonstrated compliance with the rule changes, there were instances of non-compliance with certain [rules] . . .. There were also findings of violations of disclosure requirements pursuant to the Real Estate Settlement Procedures Act (RESPA), implemented by Regulation X; the Truth in Lending Act (TILA), implemented by Regulation Z; and consumer financial privacy rules, implemented by Regulation P. (9, footnotes and sources omitted).
Specifically, it found that one or more entities failed to
- “fully comply with the requirement that charges at settlement not exceed amounts on the good faith estimate by more than specified tolerances.” (10)
- comply with the regulations governing HUD-1 settlement statements because of fees on the HUD-1 did match those on invoices; improper calculations on the HUD-1; and fees charged for services that were not provided, among other things.
- provide required disclosures.
- reimburse borrowers for understated APRs and finance charges, as required by Regulation Z.
In the context of mortgage servicing, the CFPB found that while it
continues to be concerned about the range of legal violations identified at various mortgage servicers, it also recognizes efforts made by certain servicers to develop an adequate compliance position through increased resources devoted to compliance. . . . Supervision continues to see that the inadequacies of outdated or deficient systems pose considerable compliance risk for mortgage servicers, and that improvements and investments in these systems can be essential to achieving an adequate compliance position. (15)
This is all well and good, but as I have noted before, it is hard to estimate how much of a problem exists from such a report — one or more entities did this, we are concerned about a range of legal violations of that . . .. I understand that the CFPB’s primary audience for this report are CFPB-supervised entities concerned with the CFPB’s regulatory focus, but this approach barely rises to the level of anecdote for the rest of us.
Kickbacks in Residential Transactions
The Consumer Financial Protection Bureau has issued Compliance Bulletin 2015-05, RESPA Compliance and Marketing Servicing Agreements. The Bulletin opens,
The Consumer Financial Protection Bureau (CFPB or the Bureau) issues this compliance bulletin to remind participants in the mortgage industry of the prohibition on kickbacks and referral fees under the Real Estate Settlement Procedures Act (RESPA) (12 U.S.C. 2601, et seq.) and describe the substantial risks posed by entering into marketing services agreements (MSAs). The Bureau has received numerous inquiries and whistleblower tips from industry participants describing the harm that can stem from the use of MSAs, but has not received similar input suggesting the use of those agreements benefits either consumers or industry. Based on the Bureau’s investigative efforts, it appears that many MSAs are designed to evade RESPA’s prohibition on the payment and acceptance of kickbacks and referral fees. This bulletin provides an overview of RESPA’s prohibitions against kickbacks and unearned fees and general information on MSAs, describes examples of market behavior gleaned from CFPB’s enforcement experience in this area, and describes the legal and compliance risks we have observed from such arrangements. (1, footnote omitted)
RESPA had been enacted to curb industry abuses in residential closings. Segments of the industry have been very creative in developing new strategies to avoid RESPA liability, with MSAs a relatively new twist. MSAs are often “framed as payments for advertising or promotional services” but in some cases the providers “fail to provide some or all of the services required under their agreements.” (2,3)
This Bulletin is a shot across the bow of industry participants that are using MSAs, reminding them of the significant penalties that can result from RESPA violations. It seems to me that the Bureau is right to warn industry participants to “consider carefully RESPA’s requirements and restrictions and the adverse consequences that can follow from non-compliance.” (4)
Monday’s Adjudication Roundup
- The U.S. Securities and Exchange Commission were granted its request to freeze Luca International Group LLC’s CEO’s assets. He allegedly engaged in a “Ponzi-like” scheme with EB-5 investors.
- New York appeals court revived claims against Nomura Holdings Inc. brought by investors finding that HSBC can seek damages for misrepresentation in mortgage-backed securities transactions, which ended up being defective loans.
- In case brought by U.S. Bank against Credit Suisse, a New York judge refused dismissal for failing to buy back bad loans worth $1 billion, finding that the servicing agreement with U.S. Bank required it to do so.
- The Internal Revenue Service approved Bank of America’s $8.5 billion settlement for mortgage-backed securities purchased from Countrywide.
- JPMorgan and MassMutual have settled in case where JPMorgan had allegedly cause MassMutual to lose $2.3 billion in mortgage-backed securities.
Monday’s Adjudication Roundup
- NY bankruptcy judge dismissed suit against DLA Piper for misappropriation of over $36 million in payments to cover mortgage-backed securities. The judge cited NY law that “prevents wrongdoers and their successors from pursuing claims that arise out of their own misconduct.”
- NY federal judge denied “Act of God” defense made by National Electronic Transit Corporation for damage caused to machines stored in warehouse during Hurricane Sandy, instead finding that the company was under-prepared for the storm.
- RBS Securities has settled to pay $129.6 million for claims made by the National Credit Union Administration for the sale of mortgage-backed securities, which may have led to the failure of two credit unions.
- NY federal court denied Citibank’s bid to relate FDIC’s suit over failure as trustee for mortgage-backed securities to a suit accusing the bank of mishandling mortgage-backed securities in pooled loans.
Monday’s Adjudication Roundup
- Plaintiffs in class action suit against JPMorgan Chase & Co., who were fraudulently charged unnecessary home inspection fees, argue that the bank cannot avoid class certification because Chase admitted that “determining whether an inspection was reasonable requires an assessment of the borrower’s and property’s individual circumstances.” The plaintiffs claim “Chase cannot turn back time and do now what it was required to do then.”
- Deutsche Bank AG and Massachusetts Mutual Life Insurance Co. settle in suit accusing Deutsche Bank of misleading investors over approximately $125 million in residential mortgage-backed securities by failing to determine the accuracy of the statements in its offering documents.
