FANNIE MAE A/K/ A FEDERAL NATIONAL MORTGAGE ASSOCIATION, its successors and/or assigns, Respondent,
v.
RONALD STEINMANN and KATHLEEN STEINMANN, Petitioners,
and
JOHN and JANE DOE, UNKNOWN OCCUPANTS OF THE PREMISES, Defendants.
PER CURIAM-Ronald and Kathleen Steinmann defaulted on a home loan secured by a deed of trust and failed to cure the default. The trustee ultimately sold the Steinmanns’ Clark County home at a trustee’s sale to the highest bidder, Federal National Mortgage Association (Fannie Mae). Having thus obtained title to the property, Fannie Mae sent the Steinmanns a 20-day notice to vacate. When the Steinmanns refused to leave, Fannie Mae filed a complaint for unlawful detainer. See RCW 59.12.032; RCW 61.24.040, .060. The trial court granted Fannie Mae’s motion for summary judgment and issued a writ of restitution in its favor. The record on appeal does not indicate that Fannie Mae requested attorney fees, and the trial court did not award any.
On the Steinmanns’ appeal, the Court of Appeals affirmed and awarded Fannie Mae attorney fees under the Residential Landlord-Tenant Act of 1973, chapter 59.18 RCW, and the terms of the deed oftrust. The Steinmanns subsequently filed a petition for review in this court, challenging the restitution order and the attorney fees award. We grant review only on the issue of attorney fees and vacate the award. The unlawful detainer statute contains no provision for the award of attorney fees. See ch. 59.12 RCW. The deed of trust here authorized the lender (and by implication the borrower) to recover attorney fees in any action to “construe or enforce any term” of the instrument. But Fannie Mae was not a party to the deed of trust, and it does not claim to have purchased the debt. The deed of trust as a security instrument effectively disappeared by the time Fannie Mae took title to the property. And though the unlawful detainer action was authorized under the deeds of trust act, see RCW 61.24.040, .060, the action was not one to “construe or enforce” the deed of trust; the sole objective was to force the Steinmanns off the property so that Fannie Mae could take possession as the new owner.
Nor does the Residential Landlord-Tenant Act apply m these circumstances. Under the act, costs and attorney fees are available to a landlord who obtains a writ of restitution against a holdover tenant. RCW 59.18.290(2). But the Steinmanns did not occupy the home pursuant to a rental agreement establishing a landlord-tenant relationship between them and Fannie Mae. See RCW 59.18.030(19), (21). And Fannie Mae’s right to possession of the premises derived solely from its purchase of the property at the trustee’s sale, not from the termination of a rental agreement. Thus, when the Steinmanns refused to comply with Fannie Mae’s notice to vacate, they were not residential tenants holding over after the termination of a rental agreement so as to entitle Fannie Mae to attorney fees under the Residential Landlord- Tenant Act.
In sum, the Court of Appeals erred in awarding Fannie Mae attorney fees under the deed of trust and the Residential Landlord-Tenant Act. The petition for review is granted on the issue of appellate attorney fees, and the award is reversed and vacated.1
1 Since we vacate the Court of Appeals award of attorney fees, Fannie Mae’s request for attorney fees for answering the petition for review is denied. RAP 18.1 G).
a.) America’s Wholesale Lender, a New York Corporation, the “Lender”, specifically named in the mortgage, did not file this action, did not appear at Trial, and did not Assign any of the interest in the mortgage.
b.) The Note and Mortgage are void because the alleged Lender, America’s Wholesale Lender, stated to be a New York Corporation, was not in fact incorporated in the year 2005 or subsequently, at any time, by either Countrywide Home Loans, or Bank of America, or any of their related corporate entities or agents.
c.) America’s Wholesale Lender, stated to be a corporation under the laws of New York, the alleged Lender in this case, was not licensed as a mortgage lender in Florida in the year 2005, or thereafter, and the alleged mortgage loan is therefore, invalid and void. ·
HSBC Bank USA, N.A., AS TRUSTEE FOR THE REGISTERED HOLDERS OF RENAISSANCE EQUITY LOAN ASSET- BACKED CERTIFICATES, SERIES 2007-3, , Plaintiff,
against
Patricia B. Thomas, VINCENT THOMAS, AMERICAN GENERAL HOME EQUITY INC., NYS DEPARTMENT OF TAXATION AND FINANCE, CAPITAL ONE BANK, PARKING VIOLATIONS BUREAU, ENVIRONMENTAL CONTROL BOARD, MIDLAND FUNDING LLC., “JOHN DOE No.1” through “JOHN DOE #12”, the last twelve names being fictitious and unknown to plaintiff, the persons or parties intended being the tenants, occupants, persons or corporations, if any, having or claiming an interest in or lien upon the premises, described in the complaint, Defendants.
7675 /2011 Wayne P. Saitta, J.
Plaintiff, HSBC BANK USA, N.A., AS TRUSTEE FOR THE REGISTERED HOLDERS OF RENAISSANCE EQUITY LOAN ASSET- BACKED CERTIFICATES, SERIES 2007-3, (hereinafter “Plaintiff”), moves this Court for an Order pursuant to CPLR § 3212 for Summary Judgment against the Defendant and striking the answer of Defendant and granting further relief as this Court deems just and proper.
Upon reading the Notice of Motion for Summary Judgment for Referee to Compute by Danielle L. Tabankin, Esq., attorney for Plaintiff, HSBC BANK USA, N.A., AS TRUSTEE FOR THE REGISTERED HOLDERS OF RENAISSANCE EQUITY LOAN ASSET- BACKED CERTIFICATES, SERIES 2007-3, dated August 22nd, 2013, together with the Affirmation in Support of Danielle L. Tabankin, Esq., dated August 20th, 2013, together with the Affidavit in Support of Denise V. Lundquist, dated July 23rd, 2013, and all exhibits annexed thereto; the Affirmation in Opposition of Solomon Rosengarten, Esq., Attorney for Defendant, Patricia B. Thomas, dated November 29th, 2013; the Reply Affirmation of Richard O’Brien, Esq., attorney [*2]for Plaintiff, HSBC BANK USA, N.A., AS TRUSTEE FOR THE REGISTERED HOLDERS OF RENAISSANCE EQUITY LOAN ASSET- BACKED CERTIFICATES, SERIES 2007-3, dated December 4th, 2013, and all exhibits annexed thereto; and after argument of counsel and due deliberation thereon, Plaintiff’s motion for Summary Judgment is denied for the reasons set forth below.
FACTS
Plaintiff moves for summary judgment and seeks to strike the answer and dismiss the affirmative defenses of Defendant PATRICIA B. THOMAS, “Defendant”. Plaintiff commenced an action on April 9, 2011 to foreclose a mortgage which encumbers the property located at 9015 Avenue K, Brooklyn, NY. The mortgage secures loans made to Defendant in the total amount of $540,000.
On May 22, 2006, Defendant signed a note to repay a loan of $470,000 from Delta Funding Corporation. On May 22, 2006, Defendant also signed a mortgage to secure the note.
On June 29, 2007, Defendant signed a second note in return for a loan of $71, 856.13. On June 29, 2007, Defendant signed a second mortgage to secure this note.
Also on June 29, 2007, Defendant signed a Consolidation, Extension and Modification Agreement, (“CEMA”), consolidating the May 22, 2006 Note and the June 29, 2007 Note, and their underlying mortgages, for a new principal amount owing of $540,000.
The copy of the May 22, 2006 Note submitted with the moving papers is followed by a purported allonge, made out to the order of the Plaintiff and signed by Carol Hollman, Vice President of Delta Funding Corporation. There is no allonge attached to either the June 29, 2007 Note or the June 29, 2007 CEMA.
In support of its motion, Plaintiff annexes the affidavit of Denise V. Lundquist, Contract Management Coordinator of Ocwen Loan Servicing, LLC, purported attorney in fact for Plaintiff, and servicer of the loan. Lundquist attests that, based on her review of Ocwen’s servicing records, Plaintiff owns the note and mortgage [sic]. She attests that based upon “her own knowledge”, Plaintiff owned the note and mortgage [sic] at the time the action was commenced.
Defendant in her answer denied that Plaintiff is the owner of the note and mortgage. Defendant’s affirmative defenses include that Plaintiff lacks standing to bring this action and that Plaintiff failed to serve a ninety day notice pursuant to RPAPL section 1304.
ARGUMENTS
Plaintiff argues that Defendant’s answer should be stricken and that Plaintiff has standing because it was assigned the mortgage pursuant to an assignment by MERS, as nominee of Delta Funding Corporation, dated January 25, 2011. Plaintiff also asserts that it was in possession of the notes at the time the action was commenced.
It argues that because Defendant defaulted on the promissory notes that were secured by mortgages on the property located at 9015 Avenue K, Brooklyn NY, Plaintiff is entitled to foreclose on the security interest.
Defendant argues that Plaintiff has no standing to bring this action as it has not shown [*3]that it was the holder of the mortgages and the notes at the time the action was commenced. Defendant contends that Plaintiff was never assigned the notes, and that the notes were not negotiated to it as the purported allonge does not comport with the UCC section 3-202(2), which requires an allonge to be firmly affixed to the note. Defendant also argues that Plaintiff has not provided proof of service of the ninety day notice.
ANALYSIS
“A plaintiff has standing where it is both the holder or assignee of the subject mortgage and the holder or assignee of the underlying note prior to commencement of the action with the filing of the complaint. Where the issue of standing is raised by a defendant, a plaintiff must prove its standing in order to be entitled to relief. Either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident.” GRP Loan, LLC v. Taylor, 95 AD3d at 1173, 945 N.Y.S.2d 336 (2nd Dept 2012), internal citations omitted.
The assignment of the mortgage, which Plaintiff relies on to demonstrate ownership of the note, is insufficient because on its face it only assigns the mortgage. It does not include an assignment of the notes or the underlying debt. Further, it includes no evidence that Delta Funding authorized MERS, as nominee, to assign the mortgage. Thus, the assignment cannot establish Plaintiff’s standing. Bank of New York v Silverberg, 86 AD3d 274 (2nd Dept 2011), Aurora v Weissblum, 85 AD3d 95, 923 NYS2d 609 (2nd Dept 2011).
Plaintiff has also failed to establish that the note was negotiated to it prior to commencement of this action.
Negotiation requires physical delivery of a note, endorsed either specifically to the party or endorsed in blank. UCC § 3—202(1) and UCC § 3—204(2). The endorsement must be made either on the face of the note or on an allonge so firmly affixed to the note as to become a part thereof. UCC section 3-202(2).
Plaintiff has submitted, in support of its motion, copies of the two notes and the CEMA.
The two notes and CEMA are all between Defendant and Delta Funding Corp., and none contains an endorsement on its face.
Immediately following the copy of the May 22, 2006 note is an undated allonge, on a separate sheet of paper, with a specific endorsement by Delta Funding Corporation to Plaintiff. However, the allonge references loan number #0103451001 which is the number of the June 29, 2007 note, not the May 22, 2006 note. This discrepancy is sufficient to raise a question of fact as to whether the purported allonge was firmly affixed to the 2006 note.
Further there is no evidence of endorsement of either the second note or the CEMA.
Plaintiff alleges that the CEMA combines the two notes and “accordingly the allonge would transfer both notes”.
This argument is analogous to that made by the Plaintiff in Aurora v Weissblum, 85 AD3d 95, 923 NYS2d 609 (2nd Dept 2011). In Aurora, there were two notes and mortgages consolidated by a CEMA. Aurora argued that an assignment of the first note and mortgage effected an assignment of the second note and consolidated note. The Second Department rejected that argument, noting that Aurora produced no documentation of assignment of the second note or the CEMA. Id., at 109, 618. The argument that an allonge, even if firmly [*4]attached to the first note, can effect a negotiation of the second note or CEMA is less sound than the argument that an assignment of one note can effect the assignment of a consolidated note.
Plaintiff’s argument ignores the rationale for the requirement that an allonge be firmly affixed to the note it endorses. Further, it is inconsistent with a promissory note’s function as a negotiable instrument. The prime characteristic of a negotiable instrument is that it can be negotiated based on physical delivery and endorsement, and a buyer of the note can rely on its enforcement without resort to additional documentation.
Plaintiff’s argument that Defendant’s objection to applying one allonge to two notes “puts form over fact” misses the fact that the rights and obligations connected to a negotiable instrument derive from its form, and are inextricably dependent on it.
Additionally, Plaintiff has failed to offer evidence in admissible form that the notes were physically delivered to them before commencement of the action. The affidavit by Lundquist, which merely asserts in a conclusory fashion that Plaintiff owns the mortgage and note, is insufficient as the “affiant failed to give any factual detail of a physical delivery of both the consolidated note and CEMA”. Aurora, supra, at 109, 619.
Plaintiff also argues that the Pooling and Servicing Agreement (“PSA”) “categorically proves” physical possession of the note. However, the PSA does not state that the notes or CEMA have in fact been physically delivered to the Plaintiff. Further, the PSA does not address whether the notes were endorsed to Plaintiff or whether the purported allonge was firmly affixed to either note or CEMA.
As there still remain questions of fact as to whether the notes and CEMA were negotiated or transferred to Plaintiff before commencement of the action, summary judgment dismissing Defendant’s affirmative defense of lack of standing is inappropriate.
RPAPL 1304
Defendant raised as a fourth affirmative defense that Plaintiff failed to serve a ninety day notice required by RPAPL section 1304 as a condition precedent to commencing a foreclosure action.
While Plaintiff provides a copy of the ninety day notice, it does not provide an affidavit of mailing of the notice.
In her affidavit, Lundquist states that the notice was sent by first class mail and certified mail. However, no mailing receipt or other business record on which she bases her statement is either identified or appended.
While service of mail is complete upon deposit of a properly stamped and addressed envelope, and presumed to be received, there still must be evidence that a properly stamped and addressed envelope was mailed.
As Plaintiff has not provided proof in admissible form that the ninety day notice was mailed, it has not met its burden for summary judgment. Aurora v Weissblum, 85 AD3d 95, 923 NYS2d 609 (2nd Dept 2011).
WHEREFORE Plaintiff’s motion for summary judgment striking Defendant’s answer and dismissing her affirmative defenses is denied, and it is hereby
Ordered that the parties are directed to appear at a preliminary conference in the Intake Park on November 13, 2014.
This shall constitute the decision and order of this Court.
This document is scheduled to be published in the Federal Register on 10/23/2014 and available online at http://federalregister.gov/a/2014-24194, and on FDsys.gov
BUREAU OF CONSUMER FINANCIAL PROTECTION 12 CFR Part 1024
Compliance Bulletin and Policy Guidance – Mortgage Servicing Transfers
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Compliance Bulletin and Policy Guidance.
SUMMARY: The Bureau of Consumer Financial Protection (CFPB) is issuing a compliance bulletin and policy guidance entitled “Compliance Bulletin and Policy Guidance – Mortgage Servicing Transfers” in light of potential risks to consumers that may arise in connection with transfers of residential mortgage servicing rights.
DATES: This bulletin is effective and applicable beginning August 19, 2014.
FOR FURTHER INFORMATION CONTACT: Allison Brown, Program Manager (202) 435-7107; Yevgeny Shrago, Attorney, (202) 435-7098; or Whitney Patross, Attorney (202) 435- 7057, Office of Supervision Policy.
SUPPLEMENTARY INFORMATION:
I. Introduction
The CFPB is issuing this compliance bulletin and policy guidance to residential mortgage servicers and subservicers (collectively, servicers), in light of potential risks to consumers that may arise in connection with transfers of residential mortgage servicing rights. The CFPB’s concern in this area remains heightened due to the continuing high volume of servicing transfers.
Servicers engaged in significant servicing transfers should expect that the CFPB will, in appropriate cases, require them to prepare and submit informational plans describing how they will be managing the related risks to consumers.
The CFPB is continuing to monitor the mortgage servicing market and may engage in further rulemaking in this area.
“The problem with designing something completely foolproof is to underestimate the ingenuity of a complete fool.”
I could never get my FDIC supervisors to listen to my suggestion that we begin tracking in 2007 the credit default swap index to detect any sign of problems in the subprime mortgage market. They never thought it would be a worthwhile exercise. The rest is history.
From: Haskins, Dwight J. Sent:Friday, August 21, 2009 5:55 PM To: Corston, John H.; Hirsch, Pete D. Subject: Genesis of the crisis as it related to a little known LIDI suggestion
“The problem with designing something completely foolproof is to underestimate the ingenuity of a complete fool.” — Douglas Adam, Hitchhiker’s Guide to the Galaxy
Most economists agree that the financial crisis began right around July 2007. It so happens that I was following the ABX securities on a routine basis back then. Not long after the crisis got going, I suggested that “the index be one more data element worth tracking in the LIDI (large insured depository institutions) database and LIDI Dashboard.” As I stated in October 2007, “I thought the ABX swap index was the best barometer we had to project loss exposure in subprime loan portfolios.”
It turns out this would have been a good practice to have adopted to get a good perspective on rising risks confronting the industry. Yes, the fall began with subprime assets but as we see today, the prime loans are now a big problem with one of eight mortgage loans delinquent. And as it turned out the derivatives contracts written by AIG, Lehman Brothers and Bear Stearns led to their eventual collapse due to the liquidity squeeze brought about by uncertainty of collateral values. As current prices stand today on the AAA ABX-HE and BBB ABX-HE, an investor would have lost 72% and 97% of their investment if purchased at origination back in mid-2007 and sold today.
As I pointed out in my other analyses, significant unrealized losses on financial assets remain today with several of the largest banks, with fair values below book balances buried in the financial statement footnotes.
One can see more clearly the genesis of the financial crisis by going to Securitized Banking and the Run on Repo, where Gorton and Metrick (what a great economist name) go over the basic idea of how repo haircuts relate to a bank run. The economists note the crisis started in July 2007, just when several AAA ABX-HE (subprime housing) tranches started trading below par. At that point people realized these assets were not merely a normal bump in default rates, because anytime a large AAA CDO trades below par, you basically have a catastrophe alert. The failure of informationally insensitive assets caused every informationally insensitive asset to trade as if a junk bond. At about that time beginning in July 2007, investors changed from taking any AAA rated securities as a given, to going over all the things that could go wrong, by using the minimax principle, which generated really low prices.
So, when the AAA subprime securities went bad, all AAA ABS was suspect, haircuts rose, and through the mechanism described by Gorton, a reduction in the monetary base occurred similar to as if customers withdrew deposits from a bank. A modern bank run via repo haircuts occurred. The paper identifies the hit due to increases in repo haircuts. Another key factor was changes to the funding spread. The business model of many structured finance vehicles, including SIVs depended on a stable LIBOR rate, otherwise it wasn’t safe to lever up the AAA securities. Once LIBOR started going wild, the funding costs for the SIVs exceeded the coupons on their investments, so the business model was unsustainable, and investors stopped supporting the SIVs, the real Achilles heal of investment banks such as Citigroup, JP Morgan and Bank of America. As it were, both sides of the balance sheet were squeezed.
Combine this situation in the financial crisis where the margin spiral was declining with the fact that banks were shedding assets, often at fire-sale prices, and that they were hoarding liquidity out of fear of a run, you had all the makings of a catastrophe in the making. Liquidity was squeezed as it was necessary to stop the run and assets were being shed either to window dress the balance sheet and enable the large banks to claim that they had no asset-backed securities, or because they were trying to stay above the run threshold and away from the thundering (selling) herd.
Dwight
From: Haskins, Dwight J. Sent:Thursday, October 25, 2007 2:51 PM To: Corston, John H.; Hirsch, Pete D. Subject: More Data showing CDO and Subprime Exposure probably resides in Other Large Banks
John/Pete, I should have had this bit of news when I sent you the email earlier. Here’s a bit more context why the ABX swaps appear to likely show fairly significant declines in subprime mortgage values subsequent to September 30. Banks had to cut-off valuations naturally on Sept 27, 28 at the latest to make their 3Q financial statement deadlines. Values have declined significantly since September 30. My take is some 20 to 30% decline since the end of September so obviously there is little investor interest in this segment which could worsen any credit crunch for subprime borrowers. Also, Merrill Lynch and other large banks must still be sitting on losses for the fourth quarter. I think the ABX swap index is the best barometer we have to project loss exposure in subprime loan portfolios.
It is one more data element worth tracking in the LIDI database and LIDI Dashboard.
The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages. ABX contracts are commonly used by investors to speculate on or to hedge against the risk that the underling mortgage securities are not repaid as expected. The ABX swaps offer protection if the securities are not repaid as expected, in return for regular insurance-like premiums. A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments. Likewise, an increase in the ABX Index signifies investor sentiment looking for subprime mortgage holdings to perform better as investments.
So far this week, the 07-1 series is settling its trading on its lifetime lows for all but the AAA tranche. The BBB and BBB- tranches are about to break the 20% level. The 07-1 tranche cover 20 subprime mortgage bonds issued in the second half of 2006, coinciding with the high in the national real estate market. Source: Markit. http://housingderivatives.typepad.com/housing_derivatives/abx_index/index.html
From: Haskins, Dwight J. Sent:Thursday, October 25, 2007 11:33 AM To: Corston, John H.; Hirsch, Pete D. Subject: More CDO and Subprime Exposure probably resides in Other Large Banks
As we can see, it appears that we will need to find a good way to capture analytical commentary by Dedicated Examiners/Case Managers relating in the LIDI Assess Database. We will have to experiment with it and see how best to make it work. It may be tricky to capture embedded charts, as shown below. Below are my comments on Merrill Lynch and why we can expect further earnings problems still coming in the fourth quarter.
It would appear that credit risk management practices let Merrill Lynch down, leading to staggering market losses and loss of confidence by the rating agencies. Getting a handle on losses has to be extremely difficult as shown by the rapid deceleration in market values the past 30 days (see chart). Therefore, it is likely that more losses are headed for fourth quarter earnings.
Merrill Lynch missed Earnings Estimates reporting $2.3 billion in losses due to CDO/Subprime Exposure
Write-downs for CDOs and subprime were staggering $7.9 billion, +75% worse than estimates
Shows dependence on structured products and importance of Risk Culture
S&P, Moody’s and Fitch downgraded to high-A with Negative outlooks
One can use the ABX HE BBB index as a barometer of market valuations for Subprime Mortgages. Note it is currently trading at 25 and is down nearly 30% over the past 30 days so that there should be even more losses in the Subprime and CDO portfolio. Using the Index as proxy, one can anticipate that other large banks likely still have losses in their CDO/Subprime Mortgage security investments to show up during their next quarter’s reported earnings.
The exposure should not be limited to Merrill Lynch, especially when looking at who the constituent parties shows other large bank participants to the Structured Index. Most of the large big banks (Citigroup, JP Morgan, Morgan Stanley, Washington Mutual, Bear Stearns) have securities represented in the Index and thus have exposure.
Ocwen Addresses Letter From New York Department of Financial Services
ATLANTA, Oct. 21, 2014 (GLOBE NEWSWIRE) — Ocwen Financial Corporation (NYSE:OCN), the nation’s largest independent mortgage servicer, today made the following statement in response to a letter it received from the New York Department of Financial Services (“DFS”) related to erroneously dated borrower correspondence, and subsequent media coverage of the DFS’s letter.
“Ocwen regrets that, due to software errors in our correspondence systems, we inadvertently sent improperly dated letters to some borrowers. As always, our goal is to avoid foreclosure. In the case of the 283 borrowers in New York who received letters with incorrect dates, 281 are currently borrowers with us. We are continuing to review the rest of the cases. We believe that we have resolved the letter dating issues that have been identified to date, and we continue our investigation as to whether there are additional letter dating issues that need to be resolved. We are working with and fully cooperating with DFS and the Monitor to address their concerns.”
On June 19, 2014, the Monitor discovered that Ocwen backdated by 41 days a letter denying a mortgage loan modification. The letter Ocwen sent to the borrowers was dated June 14, 2012, but the system indicated that it was not sent until July 25, 2012. Given the seriousness of this issue, the Monitor immediately demanded an explanation.
Over the course of the next three months, Ocwen represented to the Department and the Monitor that (1) the issue was isolated to letters of a specific type, (2) the problem affected approximately 6,100 letters, (3) Ocwen discovered the issue in April or May of 2014, and (4) Ocwen implemented changes to its systems in May 2014 that resolved the problem. Each of these representations turned out to be false.
In the meantime, the Monitor undertook its own investigation into the issue. Within a few days, the Monitor uncovered nearly a thousand additional backdated letters that Ocwen evidently failed to find in the prior three months.
The Monitor also discovered inconsistencies in Ocwen’s servicing system that call into question the accuracy and reliability of Ocwen’s recordkeeping. For example, Ocwen’s system shows that Ocwen sent a borrower a pre-foreclosure notice dated May 23, 2013, stating that the borrower was in default and at risk of foreclosure. Yet, a conflicting record in Ocwen’s system indicates that the notice was created on April 9, 2014 – nearly one year after the date of the pre-foreclosure notice. In another example, a letter dated October 29, 2013, warns that the borrower is in danger of foreclosure if he does not make a payment by August 7, 2013, nearly three months prior to the date of the letter. We do not yet know whether this borrower or the many others like him gave up trying to save their homes upon receiving such a letter that appeared to have arrived too late.
Subsequently, under pressure from the Department and the Monitor to identify and disclose the full extent of this issue, Ocwen finally admitted in a memorandum on September 10, 2014, that the backdating issue may not be isolated and that the changes to Ocwen’s systems in May 2014 did not fully resolve the problem. However, Ocwen identified only a fraction of the instances of backdating that had already been uncovered by the Monitor.
The memorandum also repeated the assertion that Ocwen initially discovered the backdating issue in April 2014. However, after persistent questioning from the Monitor for more details surrounding the discovery of the issue, Ocwen informed the Monitor that its investigative team had been mistaken once again. Upon further investigation, Ocwen discovered that one of its employees identified the problem in November 2013 and informed senior management, including the Vice President of Compliance.
Washington, DC – Today, Rep. Elijah E. Cummings, top Democrat on the House Committee on Oversight and Government Reform, and Senator Elizabeth Warren, member of the Senate Committee on Banking, Housing and Urban Affairs, called on the Government Accountability Office (GAO) to investigate threats to consumers arising from the growth in non-bank mortgage servicing. In their letter to U.S. Comptroller General Gene Dodaro, Cummings and Warren noted that as the non-bank share of the mortgage servicing market grew by 300% from 2011 to 2013, lack of servicing capacity at non-bank servicers led to increased consumer complaints and lawsuits.
Ocwen Financial Corp, one of the largest U.S. companies that collects mortgage payments, may have harmed hundreds of thousands of borrowers by sending them letters about loan modifications and foreclosures that were dated months earlier, New York’s financial regulator said on Tuesday.
The company, which has been under scrutiny by New York’s Department of Financial Services for loan-servicing problems, denied loan modifications in letters borrowers received more than 30 days after they were mailed, according to an Oct. 21 letter the regulator sent to Ocwen. Receiving the letter so late would have cut off the opportunity to appeal.
Ocwen also sent backdated letters to borrowers facing foreclosure that may have left them unable to avoid default, Benjamin Lawsky, the department’s superintendent, wrote in the letter to Ocwen general counsel Timothy Hayes.
The head of one of Wall Street’s most important regulatory agencies argued recently that Big Bank CEOs never intended to break the law or engage in foreclosure fraud. Instead, Thomas Curry of the Office of Comptroller of the Currency tells us they weren’t cautious enough.
Internal documents obtained from a bank-backed venture several years ago seem to directly contradict this claim. These documents, which include training materials, PowerPoint presentations, and videos, suggest that the industry made a conscious attempt to bypass local jurisdictions and automate processes — in what can best be described as a fraud-friendly way.
As Comptroller of the Currency, Curry runs one of the agencies charged with keeping our banking system safe, ethical, and crime-free. It’s not an enviable task, but it’s critical to the safety of our economy. So it should have received more attention when Curry wrote in an industry publication that Wall Street suffered, not from a shortage of ethics, but from an inadequate “risk culture.”
A split between state and federal courts has begun to emerge over the authority of the mortgage registry company MERS, according to several attorneys who work in the field.
Earlier this month, the state Superior Court reissued as precedential a decision from September finding that the company, which is estimated to have processed hundreds of thousands of mortgages across the state, has the authority to assign mortgages. The ruling in Gibson v. Bank of America reaffirmed a 2009 holding from the Superior Court that denied a mortgagor’s attempts to stall a sheriff’s sale by arguing that Mortgage Electronic Registration Systems did not have authority to foreclose on a property.
However, in July, U.S. District Senior Judge J. Curtis Joyner of the Eastern District of Pennsylvania allowed a class action suit on behalf of county clerks to go forward against MERS. Class members alleged its mortgage-assignment tracking system was in violation of state law.
This seems to be more of an ongoing issue… I’m afraid.
Raw Story-
A Georgia woman is facing the loss of her home over less than $100 in unpaid taxes – and she says city officials have admitted they might be to blame.
Xui Lui said she never even knew she had an overdue tax bill on her two-bedroom condominium in Norcross, which she bought with cash in 2011.
WSB-TV reported that county records show Lui has paid county and city taxes each year except the first, when certified letters warning of an outstanding balance of $94.85 were returned to the city.
At the Mortgage Bankers Association Annual Convention
Las Vegas, Nevada?
?October 20, 2014
Thank you for having me here this morning. It’s a pleasure to have my first op?portunity to share the stage with Secretary Castro. And, of course, I’m always happy to have the opportunity to talk about the important progress we are making at the Federal Housing Finance Agency (FHFA) to meet our obligations to ensure safety and soundness and liquidity in the housing finance market. I am very pleased to be speaking to mortgage bankers who play an important role in our housing market.
As regulator of the Federal Home Loan Banks and as regulator and conservator of Fannie Mae and Freddie Mac (the Enterprises), we are working on a number of issues at FHFA that relate to our statutory obligations. We recently requested input and comment on several issues involving the Enterprises, including guarantee fees, eligibility requirements for their private mortgage insurer counterparties, proposed housing goal levels for 2015 through 2017, and a proposed Single Security structure. We have also requested comment on a Proposed Rule concerning the membership standards for the Federal Home Loan Banks.
In addition to these issues and proposals, FHFA continues to work on other priorities as well. We know that access to credit remains tight for many borrowers, and we are also working to address this issue in a responsible and thoughtful manner. Additionally, FHFA continues to evaluate ways to refine and improve the loss mitigation and foreclosure prevention policies at the Enterprises, because we understand that many individuals and families are still facing the possibility of foreclosure and are looking for alternatives to stay in their homes. I want to assure you that we are hard at work and making good progress on all these issues, several of which I will highlight in my remarks today.
Let me start by talking about one of FHFA’s key initiatives, revising and clarifying the Representation and Warranty Framework (Framework) under which lenders and the Enterprises operate. As you know, these representations and warranties provide the necessary assurances that allow Fannie Mae and Freddie Mac to purchase loans in an efficient and responsible manner without checking each loan individually or being at each closing. They also provide the Enterprises remedies to address situations where a lender’s obligations to meet the Enterprises’ purchase guidelines have not been fully met.
Over the last several years, we have worked to refine the Representation and Warranty Framework and to have the Enterprises place increased attention and resources on upfront quality control reviews. As part of this process, we have listened closely to your concerns about the impact that loan repurchases have had on your businesses, and we understand that addressing these concerns in ways that are mutually satisfactory to you and the Enterprises is critical to ensuring that there is liquidity in the housing finance market and to providing access to credit for borrowers.
We know that the Representation and Warranty Framework did not provide enough clarity to enable lenders to understand when Fannie Mae or Freddie Mac would exercise their remedy to require repurchase of a loan. And, we know that this issue has contributed to lenders imposing credit overlays that drive up the cost of lending and also restrict lending to borrowers with less than perfect credit scores or with less conventional financial situations.
To address this problem, FHFA and the Enterprises have worked to revise the Framework to ensure that it provides clear rules of the road that allow lenders to manage their risk and lend throughout the Enterprises’ credit box. These revisions are consistent with our broader efforts to place more emphasis on upfront quality control reviews and other risk management practices that provide feedback on the quality of loans delivered to the Enterprises earlier in the process.
The first improvements to the Framework went into effect in January of 2013. These improvements relieved lenders of representation and warranties obligations related to the underwriting of the borrower, the property or the project for loans that had clean payment histories for 36 months. In May of this year, FHFA and the Enterprises announced additional refinements to provide greater clarity around this 36-month benchmark. These changes included:
• Revising the payment history requirement to allow up to two 30-day delinquencies in the first 36 months after acquisition;
• Providing loan level confirmations when mortgages meet the 36-month performance benchmark or pass a quality control review; and
• Eliminating automatic repurchases when a loan’s primary mortgage insurance is rescinded.
As I committed FHFA to do when I announced these refinements in May, we have continued to engage in an ongoing process to address the issue of life-of-loan exclusions. Life-of-loan exclusions are designed to protect Fannie Mae and Freddie Mac from instances of fraud or other significant noncompliance, and, as a result, they allow the Enterprises to require lenders to repurchase loans at any point during the term of the loan. The current life-of-loan exclusions are open-ended and make it difficult for a lender to predict when, or if, Fannie Mae or Freddie Mac will apply one of them.
So, we have continued to address this issue, and I can report that we have reached an agreement in principle on how to clarify and define the life-of-loan exclusions. These changes are a significant step forward that will result in a better Representation and Warranty Framework and facilitate market liquidity without compromising the safety and soundness of the Enterprises.
First, we are more clearly defining the life-of-loan exclusions, so lenders will know what they are and when they apply to loans that have otherwise obtained repurchase relief. These exclusions fall into six categories: 1) misrepresentations, misstatements and omissions; 2) data inaccuracies; 3) charter compliance issues; 4) first-lien priority and title matters; 5) legal compliance violations; and 6) unacceptable mortgage products.
Second, for loans that have already earned repurchase relief, we are clarifying that only life-of-loan exclusions can trigger a repurchase under the Framework. This is a straightforward clarification, but one that we believe will reduce confusion and risks to lenders.
The Enterprises will provide details about the updated definitions for each life-of-loan exclusion in the coming weeks, but let me spend a minute highlighting some aspects of the refined definitions for the first two categories – misrepresentations and data inaccuracies.
In defining both of these categories, we are setting a minimum number of loans that must be identified with misrepresentations or data inaccuracies to trigger the life-of-loan exclusion. This approach allows the Enterprises to act when there is a pattern of misrepresentations or data inaccuracies that warrant an exclusion, but not to revoke repurchase relief they have already granted if they subsequently discover that a lender incorrectly calculated the debt-to-income ratio or loan-to-value ratio on a single loan.
We are also adding a “significance” requirement to the misrepresentation and data inaccuracy definitions. In order to require repurchase of a loan under the misrepresentation or data inaccuracy categories, the “significance” test requires the Enterprises to determine – based on their automated underwriting systems – that the loan would have been ineligible for purchase initially if the loan information had been accurately reported.
Under the revised and modified Framework, the Enterprises will retain their ability to conduct quality control reviews at any time, of course, because this is essential to their risk management practices and is essential to their ongoing safety and soundness. In addition, the Enterprises will continue to engage in transactions that sell a portion of the credit risk from new mortgage purchases to the private market. I announced in May that we tripled the credit risk transfer goal for this year, and both Enterprises are currently on track to exceed it.
After FHFA and the Enterprises release the details shortly on these life-of-loan exclusions, there still remains more work to be done on our Representation and Warranty Framework. On the origination side, FHFA is already focused on developing an independent dispute resolution process. We are also identifying cure mechanisms and alternative remedies for lower-severity loan defects. FHFA also continues to make progress on issues concerning servicing representations and warranties, and we have reached an agreement in principle on modifying compensatory fees and foreclosure timelines. The Enterprises will announce details on these changes in the near future.
During my tenure as Director of FHFA, we have made substantial progress by working together and I believe we can sustain this progress. We have started to move mortgage finance back to a responsible state of normalcy – one that encourages responsible lending to creditworthy borrowers while maintaining safety and soundness of the Enterprises. While there is still more to do, FHFA and the Enterprises have demonstrated the willingness and commitment to develop a better Representation and Warranty Framework for all parties.
We recognize that you are essential stakeholders in this process. As lenders, you play a central role in the overall housing market, and the work you do touches borrowers in communities across the country. You help individuals and families become homeowners. For many of them, this is the single largest investment they will ever make. To fulfill both sides of our shared responsibility, I hope our actions provide sufficient certainty to enable your companies to reassess existing credit overlays and more aggressively make responsible loans available to creditworthy borrowers. This will result in a housing market that is not only better for borrowers, but also better for the Enterprises and lenders and beneficial to our country.
To increase access for creditworthy but lower-wealth borrowers, FHFA is also working with the Enterprises to develop sensible and responsible guidelines for mortgages with loan-to-value ratios between 95 and 97 percent. Through these revised guidelines, we believe that the Enterprises will be able to responsibly serve a targeted segment of creditworthy borrowers with lower-down payment mortgages by taking into account “compensating factors.” While this is a much more narrow effort than our work on the Representation and Warranty Framework, it is yet another much needed piece to the broader access to credit puzzle. Further details about these new guidelines will be available in the coming weeks as we continue to advance FHFA’s mission of ensuring safety, soundness and liquidity in the housing finance markets.
Now, let me turn my attention to the continuing progress we are making in the multiyear process of developing the Common Securitization Platform (CSP), which will create a shared securitization infrastructure for Fannie Mae and Freddie Mac. As I announced in May, we are focusing on ensuring that the CSP fills the needs of Fannie Mae and Freddie Mac to carry out most of their current securitization functions. To achieve these objectives, FHFA and the Enterprises have revised the governance structure and operating agreement for Common Securitization Solutions (CSS). CSS is a joint venture owned by both Fannie Mae and Freddie Mac and is the corporate entity that we expect ultimately to house and operate the Common Securitization Platform.
Under the updated structure, CSS will be governed by a four-person Board of Managers, with each Enterprise naming two members to the Board. All Board members will have equal votes, and the Board Chair will rotate between these members. This Board structure will enable CSS to develop and operate the Common Securitization Platform in a way that best supports the Enterprises’ current securitization needs and functions. At the same time, our teams continue to ensure that we leverage industry standards and technology where possible to make sure that the CSP will be usable by other secondary market participants in the future. FHFA will continue to be an active participant with the Board and will provide our input as part of our ongoing oversight of the Enterprises to assure that our objectives are achieved.
In addition to completing the structure of the Board of Managers, we are close to being able to announce the selection of a Chief Executive Officer for CSS who will report to the Board of Managers. I anticipate that a formal announcement of the new management structure and the identity of the CEO will be made before the end of the year.
In the meantime, FHFA and the Enterprises have also made considerable progress on the design-and-build phase of the CSP. Each Enterprise has designated staff to work on the project at the CSS location, and during 2014, this team has been developing the technology and infrastructure of the CSP platform. FHFA announced earlier this year that we would leverage the creation of the CSP to establish a Single Security – which we believe should reduce trading disparities between Fannie Mae and Freddie Mac securities – and this team has also incorporated work on the Single Security into the development of the CSP.
The CSP is more than a simple technology project, and it will require significant changes to each of the Enterprises’ business practices. Fannie Mae and Freddie Mac have reorganized their staffs with business operations and information technology experts to develop the systems and processes needed to integrate with the CSP. As this work continues, Fannie Mae and Freddie Mac staff will engage in continuous testing and will develop operating policies and procedures to ensure a smooth transition to the CSP. FHFA, Fannie Mae, and Freddie Mac are committed to achieving a seamless CSP launch, and the actions taken so far are moving us in the right direction toward this multi-year goal.
Finally, while I don’t have sufficient time to do justice to a full discussion of this today, I do want to note before I close that FHFA recently extended the comment period for a Proposed Rule dealing with the membership requirements of the Federal Home Loan Banks. In light of the importance of the issues surrounding the membership rule, FHFA decided to extend the initial 60-day comment period for an additional 60 days until January 12, 2015. I know that many MBA members are also members of a Federal Home Loan Bank, and I hope you will take the opportunity to provide FHFA with your feedback and ideas on this Proposed Rule. As I have consistently done since becoming Director of FHFA, I want to emphasize that getting input and feedback from stakeholders is a crucial part of FHFA’s policymaking process. So give us your input, not only on our FHLB Proposed Rule, but on other policy initiatives and decisions we are evaluating.
Thank you very much for having me here this morning and for giving me the opportunity to share my views on topics that I know are of interest and importance to all of us. I look forward to our ongoing dialogue and to continuing our efforts to achieve our shared goals of restoring safety and soundness and liquidity to the nation’s housing finance market. ?
Contacts:
Corinne Russell (202) 649-3032 / Stefanie Johnson (202) 649-3030?
JP Morgan has set aside another $1 billion to cover penalties for manipulating the foreign exchange market. The bank has paid out billions over regulatory violations and lawsuits in the last two years from the “London Whale” trading scandal to fraudulent sales of mortgage backed securities.
Meanwhile, Jamie Dimon, Wall Street’s darling, remains firmly in command of the fraud infested bank. It doesn’t seem to bother investors how banks make money, as long as the returns keep rolling in. Fines and penalties are merely a cost of doing business.
Back in the days when people were stigmatized for committing fraud, Dimon would have been out the door years ago. Now he is rewarded with oversize bonuses, stock options, and tons of perks. And the fines that JP Morgan has paid out have not gone to the victims; they have gone to the regulators instead.
So-called “zombie” foreclosures have been known to lower property values of surrounding homes. But they also present another problem: property tax revenue lost, RealtyTrac recently reported.
According to RealtyTrac’s most recent data on zombie foreclosures, about 21 percent of the 141,406 total foreclosures reported in Q2 were of the zombie variety. With the owner having deserted the distressed property, not only is there no one to maintain the property’s outward appearance, but there is no one paying taxes on the property.
RealtyTrac estimates near $400 million in delinquent property tax revenue as a result of zombie foreclosures in Q2. The top metropolitan statistical area (MSA) as far as delinquent property tax revenue in Q2, according to RealtyTrac, was New York-Northern New Jersey-Long Island, with $208.5 million. This MSA also reported the highest total number of zombie foreclosures of any MSA in the nation in Q2 with 13,574, according to RealtyTrac.
IN THE DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA FIFTH DISTRICT
NOT FINAL UNTIL TIME EXPIRES TO FILE MOTION FOR REHEARING AND DISPOSITION THEREOF IF FILED
DENNIS DELIA, Appellant,
v. Case No. 5D14-78
GMAC MORTGAGE CORPORATION, Appellee. ________________________________/ Opinion filed October 17, 2014
Appeal from the Circuit Court for Orange County,
Lawrence R. Kirkwood, Judge
George M. Gingo and James E. Orth, Jr., Titusville, for Appellant.
Allyson L. Smith, Albertelli Law, Tampa, for Appellee. PALMER, J.
Dennis Delia (homeowner) appeals the final judgment of foreclosure entered by the trial court in favor of GMAC Mortgage Corporation (bank). Because the bank failed to introduce any evidence on the element of adequate protection for its lost note, we reverse.
The bank filed a complaint against the homeowner seeking foreclosure of a mortgage on real property. At trial, the bank advised the court and the homeowner that it was not in possession of the loan documents and that it intended to re-establish the note and mortgage through testimony at trial. The bank then presented testimony related to the issue of how the loan documents became lost and to the issue of the authenticity of its copies of the loan documents.
The homeowner contends that the trial court reversibly erred in concluding that the bank sustained its burden of proving that it possessed standing to proceed on its lost note theory because the bank failed to submit any evidence on the issue of adequate protection. We agree.1
Section 673.3091, Florida Statutes (2013), governs the enforcement of lost notes: 673.3091. Enforcement of lost, destroyed, or stolen instrument
(1) A person not in possession of an instrument is entitled to enforce the instrument if: (a) The person seeking to enforce the instrument was entitled to enforce the instrument when loss of possession occurred, or has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred; (b) The loss of possession was not the result of a transfer by the person or a lawful seizure; and (c) The person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.
(2) A person seeking enforcement of an instrument under subsection (1) must prove the terms of the instrument and the person’s right to enforce the instrument. If that proof is made, s. 673.3081 [proof of signatures and status as holder in due course] applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means. (Emphasis added). Section 702.11(1), Florida Statutes (2013), explains the concept of adequate protection: 702.11. Adequate protections for lost, destroyed, or stolen notes in mortgage foreclosure (1) In connection with a mortgage foreclosure, the following constitute reasonable means of providing adequate protection under s. 673.3091, if so found by the court: (a) A written indemnification agreement by a person reasonably believed sufficiently solvent to honor such an obligation; (b) A surety bond; (c) A letter of credit issued by a financial institution; (d) A deposit of cash collateral with the clerk of the court; or (e) Such other security as the court may deem appropriate under the circumstances.
Any security given shall be on terms and in amounts set by the court, for a time period through the running of the statute of limitations for enforcement of the underlying note, and conditioned to indemnify and hold harmless the maker of the note against any loss or damage, including principal, interest, and attorney fees and costs, that might occur by reason of a claim by another person to enforce the note.
In this case, the bank failed to present any evidence on the issue of adequate protection. Accordingly, we are constrained to reverse the foreclosure judgment and to remand this matter for establishment of the lost note and mortgage. See Guerrero v. Chase Home Fin., LLC, 83 So. 3d 970, 974 (Fla. 3d DCA 2012) (remanding for establishment of the lost note and mortgage when the bank failed to sustain its burden presenting evidence proving that the homeowners would be adequately protected against loss).
It seems as if we keep unraveling more of the big deception that is called MERS …
In Pennsylvania, it would seem that more and more Recorders of Deeds are starting to “get it” … and joining Montgomery County Recorder of Deeds Nancy Becker in filing suit against MERS, MERSCORP and the banking interests that enriched themselves utilizing this “beta model” at the apparent expense of the Recorders, based on the ruling by Judge Joyner that MERS and MERSCORP were acting as agents for the principals involved in recorded Mortgages in Pennsylvania … and as agents (nominees) they are as liable as the principals they represent for violation of the Pennsylvania Recording Statutes.
As to whether or not damages arise is anyone’s guess; however, that has yet to be proven. In this latest round of litigation, the major banking institutions are also being dragged into the mix and being made to fess up to their alleged misdeeds, as principles for this boondoggle we call “securitization”.
The Bank of New York Mellon Corp., acting as a trustee for a pool of home loans, has hit JPMorgan Chase Bank NA and others with a New York suit seeking $475 million over alleged misrepresentations made in the sale of $959 million in residential mortgage loans.
Suing as the trustee of JP Morgan Mortgage Acquisition Trust Series 2006-WMC3, BNY Mellon seeks redress from WMC Mortgage LLC as successor-by-merger to WMC Mortgage Corp., JP Mortgage Acquisition Corp. and JPMorgan Chase Bank, for alleged breaches of contractual…
IN THE DISTRICT COURT OF APPEAL FIRST DISTRICT, STATE OF FLORIDA
ANASTACIA S. LACOMBE and MAX P. LACOMBE Appellants
v.
DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee for LONG BEACH MORTGAGE LOAN TRUST Appellee
Opinion filed October 14, 2014. An appeal from the Circuit Court for Duval County.
A. C. Soud, Jr. , Judge.
Austin T. Brown of Parker & DuFresne, P.A., Jacksonville, for Appellant.
Jeffrey S. York and N. Mark New, II of McGlinchey Stafford, Jacksonville and Latoya O. Fairclough, Choice Legal Group, P.A., Fort Lauderdale, for Appellee.
PER CURIAM. The Lacombes, defendants below,appeal the final judgment of foreclosure against them and in favor of Deutsche Bank National Trust Co., as Trustee for Long Beach Mortgage Loan Trust 2006-2 (“Deutsche Bank”).
Appellants assert that the evidence presented at the bench trial was insufficient to support the trial court’s judgment because Deutsche Bank’s documents and witness did not prove the bank ’s standing to bring the foreclosure action.
We agree and the judgment is thus reversed.
Because the final judgment was based on a bench trial and Appellants challenge the sufficiency of the evidence to support the judgment, the general rule requiring specific contemporaneous objection to preserve the asserted error for appeal does not apply. Rather, rule 1.530(e), Florida Rules of Civil Procedure allows review of the sufficiency of the evidence despite any deficiencies in the objections made at trial and absence of post – trial motions. Rule 1.530(e) applies to appeals challenging the sufficiency of the evidence in mortgage foreclosure actions after bench tr ial. See Correa v. U.S. Bank N.A. , 118 So. 3d 952, 954 (Fla. 2d DCA 2013).
Accordingly, Appellants’ challenge to the sufficiency of the evidence is properly before this court.
I’m only starting to dig into the AIG bailout trial by reading the transcripts and related exhibits. That means I am behind where the trial is now. However, that gives me the advantage of contrasting what is in the documents with the media reporting to date. And what is really striking is the near silence on the core argument in this case.
The Starr International v. the United States of America suit is, at its core, about whether an insolvent borrower still has the right to the protection of law. It’s thus a high-end, big-ticket replay of the same form of arguments that homeowners fighting foreclosure often tried in court to obtain a mortgage modification: we don’t dispute that we aren’t able to meet our obligations, but the party foreclosing on us needs to go through the proper steps to take possession of our house. In the mortgage borrower’s case, that meant establishing standing, as in proving that they really were the proper party to initiate the foreclosure. In the case of Starr, the AIG executive enrichment vehicle controlled by former CEO Hank Greenberg, the argument is that even though AIG was insolvent, the bailout, which included through a series of maneuvers getting control of 79.9% of AIG stock, was impermissible.
Let me stress I’m no fan of Greenberg. But you can’t ask for the rule of law to operate in one place and not another. We’ve seen the administration repeatedly bend over backwards to give banks all sorts of free or super cheap waivers for bad conduct and not enforce regulations against them, yet borrowers are held in court to strict terms of their agreements and face unreasonably high hurdles when they try to fight abusive conduct.
The Federal Housing Finance Agency (FHFA) has posted a Request for Input on “the proposed structure for a Single Security that would be issued and guaranteed by Fannie Mae or Freddie Mac.” The FHFA states it is most concerned with achieving “maximum secondary market liquidity” ( Request for Input, at 8 )
I am skeptical about the reasons for this move to a Single Security and whether it will achieve maximum liquidity. Moreover, it is unclear to me that this move reflects an urgent need for the FHFA, the two companies, originating lenders or borrowers. While I have no doubt that it could slightly increase liquidity and slightly decrease the cost of credit, I do not see this move as having a meaningful effect on either.
This move is consistent, however, with a move toward a new model of government-supported housing finance, one that could contemplate an end to Fannie and Freddie as we know them and the beginning of a more utility-like securitizer. If, indeed, the FHFA is taking this step, it should be more explicit as to its reasons for doing so.
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