mortgage-backed securities

The California Supreme Court has ruled that a homeowner who lost her home to foreclosure can challenge the defective transfer of ownership of her mortgage, The Intercept's David Dayen reports. The court held that "'a homeowner who has been foreclosed on by one with no right to do so has suffered an injurious invasion of his or her legal rights at the foreclosing entity’s hands."'

The homeowner's mortgage was transferred into a trust by a bankrupt company four years after new loans were no longer supposed to be added to the trust. The Supreme Court ruled that, even though the homeowner was not a direct party to the transfer of ownership, that she could challenge the defects in the assignment of the deed of trust in order to bring an action for wrongful foreclosure.

The scope of the power of the Consumer Finanical Protection Bureau is under challenge by a New Jersey lender, which is arguing the CFPB Director Richard Cordary illegally imposed a $109 million penalty against it, The Wall Street Journal's Yuka Hayashi reports.

An in-house CFPB judge originally ruled that PHH Corp. took "kickbacks" from mortgage insurers and increased costs for mortgage borrowers. The CFPB says PHH referred borrowers to mortgage-insurance companies and would collect up to 40 percent of the premiums. On appeal, Cordray imposed a penalty that was 18 times more than the in-house judge had sought. Cordray concluded that PHH had violated the law each time it received a monthly payment.

The case is now pending before the U.S. Court of Appeals for the D.C. Circuit and "revolves around the CFPB’s new hard-line interpretation of the four-decade-old Real Estate Settlement Procedure Act, designed to keep lenders and realtors from inflating home-sale transaction costs."

Goldman Sachs will pay $5 billion to settle both federal and state inquiries into its sale of "shoddy mortgages," AP's Ken Sweet reports. The sum includes $1.8 billion in mortgage forgiveness and refinancing, $2.39 billion in civil penalties and $875 million in cash payments.

The deal is with the U.S. Department of Justice, the New York attorney general, the Illinois attorney genearl and other regulators.

Fannie Mae and Freddie Mac are issuing new mortgage bonds this year, which would transfer the risk of default to private investors on all but the safest mortgages, The Wall Street Journal's Joe Light reports. The hope is the new bonds will expand the market for home mortgages as well as prevent taxpayers from being on the hook if another mortgage crisis develops.

Light notes that almost all of the U.S. housing market currently depends upon guarantees from government-backed entities. But the Federal Housing Finance Agency, which regulates Fannie and Freddie, has set a goal for the companies to transfer most of the risk on new mortgages to private investors.

New York Times editor Gretchen Morgenson argues that investors need a more muscular Securities and Exchange Commission. Even though billions of dollars have been paid by financial firms to settle regulatory and legal actions related to the mortgage crisis, most of that money went to the Department of Treasury or states. The SEC has collected $2.6 billion in penalties and disgorgement of profits in its actions, but class actions on behalf of stockholders and debtholders has recovered much more for investors, Morgenson reports. In six cases involving both private lawsuits and SEC action, the SEC recovered $400 million, while private plaintiffs recovered $3.8 billion. The agency "is clearly hamstrung in its efforts to generate recoveries on behalf of harmed investors" and should be authorized by Congress to be able to recover penalties equal to investor losses, Morgenson argues. Investors also should be able to bring private actions udner the securities laws, she argues.

The Appellate Division, First Department, has upheld the $8.5 billion settlement of claims against Bank of America for its involvement with the mortgage crisis, the New York Law Journal's Ben Bedell reports. The appellate panel reversed a lower court judge, who ruled that Bank of New York Mellon, which was the trustee for the pooled mortgage trusts, had abused its discretion in waiving claims that dissident investors said were worth $30 billion to $50 billion. Bank of New York Mellon agreed with the reasoning that investors should not try to force Bank of America to buy back mortgages it had modified.

Outgoing Attorney General Eric Holder wants executives at Wall Street banks to face criminal charges, Bloomberg's Keri Geiger reports. Holder has asked U.S. attorneys involved in residential mortgage-backed securities cases to report in 90 days whether they can develop cases against individual bankers. The decision on whether action will be appropriate will be up to Loretta Lynch, the nominee to replace Holder, he said in a speech Tuesday.

Wall Street banks are being investigated by federal authorities on whether they "deliberately mispricing a type of mortgage bond that was central to the economic turmoil," The Wall Street Journal reports. Its the first "known wide-ranging examination of mortgage-bond sales by banks in the years that followed," The Journal reports. The investigation could upset the financial recovery those institutions have made, but it also could bring some accountability regarding the mortgage-sparked 2008 financial crisis.

In another financial development, JPMorgan has agreed to settle for $2 billion criminal charges that it failed to alert the government about Bernie Madoff's Ponzi scheme, The Washington Post reports.
 

JPMorgan Chase and federal govermental officials have finalized a $13 billion settlement, which is the largest settlement with the goverment on record, The Wall Street Journal reports. The settlement resolves much of the legal liability JPMorgan faces for its role, or the role played by companies it bought up, in the economic crisis after mortgage-backed securities went south despite promises of their strength as an investment vehicle. Part of the settlement includes $4 billion in aid for distressed homeowners, the WSJ also reports.

Gretchen Morgenson, a columnist for The New York Times, writes that the approval of a $8.5 billion settlement between Bank of American and 22 investors in mortgage-backed securities could set the standard for what duty trustees have to protect investors. Morgenson writes: "Trustees for asset-backed securities have a duty to ensure that the companies administering them, known as servicers, do right by the investors who own them. But testimony in the case, known as an Article 77 proceeding, indicates that during months of settlement talks, Bank of New York Mellon did not do all it could to ensure that all investors holding the Countrywide securities got the best deal possible from Bank of America. If the settlement is blessed by the justice, Barbara R. Kapnick, the standard for acceptable behavior by a trustee on behalf of investors will be low indeed. Her ruling will undoubtedly be cited as a precedent for other similar mortgage matters waiting to be heard."