Archive for September 7th, 2011

Obama’s Pick to Protect Consumers Testifies Before Senate

Obama’s Pick to Protect Consumers Testifies Before Senate

09/06/2011 By: Carrie Bay

Richard Cordray has been hand-picked by President Obama to lead the new Consumer Financial Protection Bureau (CFPB). On Wednesday, Cordray stood before the U.S. Senate to make a case for lawmakers’ confirmation of his appointment.

On the heels of major lawsuits announced by the Federal Housing Finance Agency related to mortgage bonds sold to the GSEs, Cordray told senators that regulatory authority is his weapon of choice as opposed to litigation.

“I know from my own experience that lawsuits can be a very slow, wasteful, and needlessly acrimonious way to resolve a problem,” Cordray said in his testimony. “The supervisory tool, in particular, offers the prospect of resolving compliance issues more quickly and effectively without resorting to litigation.”

Cordray said the CFPB has a “bigger and more flexible toolbox” and legal action will be used “judiciously” when banks or nonbank credit institutions are evading consumer protection laws or seeking to gain an unfair advantage over their law-abiding competitors.

Cordray acknowledged that when he held the position of attorney general for the state of Ohio, his only viable option to address the problems that consumers face was to open an investigation that might lead to a lawsuit.

While Cordray stressed that he instituted a policy while serving as Ohio’s lead counsel which opened the lines of communication early in order to resolve issues without going to court, he and his office made countless headlines for their mortgage-related lawsuits.

Ohio was one of the first states to file suits against servicers over the robo-signing infractions uncovered last fall, when Cordray was attorney general.

“[W]e pursued those mortgage servicers who, despite strong warnings, repeatedly violated consumer protection laws,” he told senators.

Cordray also pursued many actions against foreclosure rescue companies that he says “were reaching into the pockets of desperate people in an effort to steal what little remained as they sought to keep their homes.”

The foreclosure crisis, especially formidable in Ohio, has been a hot button for Cordray for some time. During his time as a county treasurer, Cordray says he saw the foreclosure crisis “wreaking havoc” in many neighborhoods. He helped create a ‘Save Our Homes’ task force to bring together businesses, banks, nonprofits, and government, to work in collaboration to help borrowers avert foreclosure.

Later, when he became state treasurer, Cordray expanded the ‘Save Our Homes’ program into a statewide effort, co-chaired a task force to work with mortgage servicers, and helped start a foreclosure mediation program.

Cordray says his past experiences as a public servant have given him “a strong resolve to address [the] kinds of financial difficulties that confront our communities,” and he vowed to streamline regulations and disclosures such as those related to mortgage loans.

Cordray has been with the CFPB since December when he was tapped to build out the bureau’s enforcement team.

His confirmation as head of the agency faces opposition from Republican senators who are are pushing for the role of CFPB chief to be replaced by a five-member committee.

2011
09/07
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Mortgage Industry Layoffs May Reverse By Year-End

Mortgage Industry Layoffs May Reverse By Year-End

09/06/2011 By: Krista Franks

After the mortgage industry lost more than 2,000 jobs in the first half of 2011, things may pick up throughout the end of the year, according to the recently released Second-Quarter 2011 Mortgage Employment Index by MortgageDaily.com.

During the second quarter of 2011, the mortgage industry lost about 500 positions after adding close to 5,000 jobs and decreasing by more than 5,000 positions.

The loss for the quarter is less than last quarter’s net job loss of 1,804.

However, in the same quarter last year, the industry was looking much more hopeful with an addition of 740 jobs.

The greatest loss occurred in California, where real estate finance positions declined by 1,078, far surpassing the

state with the second-greatest decline – Pennsylvania with 292 layoffs.

In contrast, Ohio experienced the greatest gain in mortgage industry jobs with 800 additional positions over the second quarter of 2011. With half the hirings – 400 – Kentucky ranked second for greatest number of jobs added in the second quarter.

Wells Fargo was the source of almost half of all layoffs for the quarter. The company closed its reverse mortgage division and decreased its fulfillment staff.

On the other hand, about half of the hirings throughout the second quarter took place at Chase.

Looking forward, MortgageDaily.com predicts a possible increase in hiring throughout the rest of the year as rates remain at record lows and loan performance remains low, leading to increasing numbers of refinance applications.

Hirings are more likely to occur at small- to mid-sized banks than at larger banks where layoffs have occurred during the first half of the year.

In its recent report, the U.S. Department of Labor recorded a total of 237,300 working real estate finance professionals during the month of July. The field has decreased from a revised 247,700 in July 2010.

The same report recorded the number of “mortgage and nonmortgage loan brokers” rose from 48,600 in June to 49,000 in July, according to MortgageDaily.com.

2011
09/07
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AG Settlement Will Not Release Banks From Securitization Liability

AG Settlement Will Not Release Banks From Securitization Liability

09/06/2011 By: Krista Franks

As state attorneys general and major U.S. banks continue to work toward a settlement, questions abound regarding the amount of legal liability the servicers should and will maintain after an agreement is signed.

The two groups have been working toward a settlement regarding robo-signing and other improper actions by the servicers since the beginning of the year.

According to a widely referenced article in the Financial Times Tuesday, one of the recent drafts of the settlement while “explicitly stat[ing] that the release does not include securitisation claims,” has “language is broad enough in that it could prevent state officials from bringing securitisation claims in the future should they sign up to the agreement.”

In the same article, the Financial Times reported, “State prosecutors have proposed effectively releasing the companies from legal liability for allegedly wrongful

securitisation practices, according to five people with direct knowledge of the discussions.”

However, Geoff Greenwood, a spokesperson for Iowa Attorney General Tom Miller told DSNews.com Tuesday, “We do not intend to release securitization.”

Miller is head of the executive committee of attorneys general working on the settlement and a key member of the negotiating committee.

Furthermore, in a response last week to New York officials’ concerns about the proceedings of the settlement after the removal of New York Attorney General Eric Schneiderman from the executive committee, Miller stated:

“While a final multistate case release has not been negotiated and the release is a work in progress, attorneys general on the Negotiating Committee are not preparing to, nor will they agree to, release the banks from all civil liability. We are also not preparing to, nor can we agree to, release the banks from any criminal liability.”

In other developments, HUD recently completed its investigation into robo-signing practices and has shared its findings with the attorneys general executive committee, according to American Banker.

“We have gathered information through state and federal sources, and we have a very clear picture of the extent of these practices,” Greenwood told DSNews.com, adding that information from all sources has been “very helpful.”

The negotiating committee and the banks will likely meet again later this week, but there is no clear indication yet as to when the groups will reach a final settlement.

2011
09/07
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Financial Firms ‘Disappointed’ FHFA Chose Lawsuits Over Negotiations

Financial Firms ‘Disappointed’ FHFA Chose Lawsuits Over Negotiations

09/06/2011 By: Carrie Bay

The Federal Housing Finance Agency (FHFA) has announced its plans to pursue legal action against financial firms that sold residential mortgage-backed securities to Fannie Mae and Freddie Mac prior to the bursting of the housing bubble.

The agency’s decision could potentially strain relationships between the GSEs and the companies named as defendants, many of whom still sell mortgages to Fannie and Freddie and service home loans held by the two mortgage financiers.

The case against Ally Financial centers around 21 securitizations sold by its mortgage divisions to Freddie Mac between 2005 and 2007. Ally says FHFA’s claims that the company misrepresented information about the risk associated with the underlying mortgages are “meritless.”

“Freddie Mac is a sophisticated investor and elected to take certain risks with respect to purchasing securities,” Ally said in a statement. “The losses Freddie may have sustained related to those securities are a result of market forces, not any alleged errors or omissions by Ally in connection with the securities.”

The company noted that it reached a settlement with Freddie Mac in March 2010 related to whole loan claims and with Fannie Mae in December 2010 related to both whole loan and private-label security claims.

Ally says it is “disappointed that FHFA elected not to continue a more constructive path of negotiations on this particular issue but rather has chosen to utilize the court process.”

Bank of America, whose Countrywide and Merrill Lynch subsidiaries are named in their own individual suits, points out the GSEs have previously acknowledged that their losses related to mortgaged-backed securities were due to the unprecedented downturn in housing prices and other economic factors, including sustained high unemployment.

“[T]hey claimed to understand the risks inherent in investing in subprime securities and continued to invest heavily in those securities even after their regulator told them they did not have the risk management capabilities to do so,” Bank of America said in a statement. “Despite this, the GSEs are now seeking to hold other market participants responsible for their losses.”

FHFA issued its own statement Tuesday to clarify certain points pertaining to the lawsuits. The agency stressed that as conservator of Fannie and Freddie, it is obligated to take the necessary actions to put the GSEs “in a sound and solvent condition” as well as “preserve and conserve the assets and property” of the two entities.

Like other private-label securities investors, FHFA says the GSEs did not have access to the loans underlying the securities in question and ultimately relied on the bond issuers to accurately describe the mortgages backing the security in the marketing and sales materials. The agency notes that such disclosure is required under federal securities laws.

At the heart of the suits is FHFA’s conclusion that the actual mortgages backing the securities had characteristics that “differed in a material way from what had been represented in securities filings.”

“Under the securities laws at issue here, it does not matter how ‘big’ or ‘sophisticated’ a security purchaser is, the seller has a legal responsibility to accurately represent the characteristics of the loans backing the securities being sold,” according to FHFA.

Still, the firms DSNews.com as spoken with, such as First Horizon National Corporation, say they “will aggressively defend” themselves against FHFA’s allegations.

“We believe the claims brought by the FHFA are unfounded,” said a spokesperson for Deutsche Bank. “Fannie Mae and Freddie Mac are the epitome of a sophisticated investor, having issued trillions of dollars of mortgage-backed securities and purchased hundreds of billions of dollars more, often after hand-picking the loans they now claim should not have been included in the offerings. We will vigorously defend against this action.”

Most of the companies named in the lawsuits are remaining tight-lipped on the matter. Such Wall Street fixtures as Goldman Sachs and Morgan Stanley have spurned to opportunity to comment on the move by FHFA, as did JPMorgan Chase, Citigroup, Société Générale, and Royal Bank of Scotland.

More from DSNews.com’s earlier coverage of FHFA’s announcement on the lawsuits is available here on the site. The legal complaints filed by the agency against each of the firms can be accessed online.

2011
09/07
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