Skip to main content
Menu Icon Menu Icon

InfoBytes Blog

Financial Services Law Insights and Observations


Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • Acting Director Otting says FHFA structure is unconstitutional, will not defend before 5th Circuit


    On January 14, acting Director of the FHFA, Joseph Otting, filed a supplemental brief with the U.S. Court of Appeals for the 5th Circuit stating the agency will no longer defend the constitutionality of the FHFA’s structure in the upcoming en banc rehearing. As previously covered by InfoBytes, in July 2018, the 5th Circuit concluded that the FHFA’s single-director structure violates Article II of the Constitution because the director is too insulated from removal by the president. In August, while the agency was still under the leadership of Mel Watt, it petitioned the court for an en banc rehearing, challenging the constitutionality holding. Now, according to the supplemental brief, the FHFA states it “will not defend the constitutionality of [the Housing Economic Recovery Act’s] for-cause removal provision and agrees with the analysis in [the relevant portion] of Treasury’s Supplemental Brief that the provision infringes on the President’s control of executive authority.” The en banc rehearing, which will address the constitutionality issue as well as the plaintiff’s other statutory claims in the case, is scheduled for January 23.

    Courts Fifth Circuit Appellate HERA FHFA Single-Director Structure

    Share page with AddThis
  • FHFA and CFPB release dataset from National Survey of Mortgage Originations

    Federal Issues

    On November 8, the FHFA and the CFPB announced the release of a new loan-level dataset that was collected through the National Survey of Mortgage Originations (NSMO). Since 2014, in each quarter, FHFA and the CFPB send the NSMO survey to borrowers who recently obtained a mortgage to gather feedback on their experiences, perceptions, and future expectations of the mortgage market. This is the first public release of the compiled NSMO data. The NSMO is a component of the National Mortgage Database, which the FHFA and the CFPB launched in 2012 to help regulators better understanding mortgage market trends to support policymaking and research efforts and to fulfill the mortgage survey and mortgage market monitoring requirements of the Housing and Economic Recovery Act (HERA) and the Dodd Frank Act. 

    Federal Issues FHFA CFPB Mortgages Mortgage Origination HERA Dodd-Frank

    Share page with AddThis
  • D.C. Circuit: Investors Can’t Challenge Agreement Distributing Fannie/Freddie Net Worth to Treasury


    On February 21, the U.S. Court of Appeals for the District of Columbia Circuit held that stockholders of Fannie Mae and Freddie Mac (the Companies) could not challenge dividend-allocating terms that FHFA negotiated on behalf of the Companies because the Housing and Economic Recovery Act (HERA) strictly limits judicial review of actions authorized thereunder. Perry Capital LLC v. Mnuchin, No. 14-5243, 2017 WL 677589 (D.C. Cir. Feb. 21, 2017).

    In 2008, Fannie and Freddie were placed into conservatorship with FHFA, which then entered into a stock purchase agreement with Treasury to obtain emergency capital for Fannie and Freddie. In exchange, Treasury received preferred shares of stock from Fannie and Freddie that provided for a quarterly dividend of 10 percent of the total funds drawn from Treasury. After Fannie and Freddie began routinely borrowing from Treasury to pay the dividends, FHFA and Treasury amended the stock purchase agreement in 2012 so that repayment would be based on the Companies’ profits rather than mandatory dividends. The stockholder-plaintiffs in this action sought to challenge the 2012 amendment–in particular, arguing that the 2012 amendment exceeded the authority granted to FHFA under HERA and constituted “arbitrary and capricious conduct” in violation of the Administrative Procedure Act. One class of stockholders also argued that the amendment constituted a breach of fiduciary duty and certain terms and covenants of the Companies’ stock certificates. The district court had dismissed both complaints on the motions of FHFA and Treasury.

    The D.C. Circuit opinion noted that Section 4617(f) of HERA expressly states that “no court may take any action to restrain or affect the exercise of powers or functions of the Agency as a conservator or a receiver.” The court interpreted this language to prohibit any court from “wielding [its] equitable relief to second-guess either the dividend-allocating terms . . . or FHFA’s business judgment.” And although an exception to this bar on judicial review has been recognized where an agency is found to have exceeded or violated its statutory powers or functions, the court determined that FHFA’s actions were within its statutory powers or functions.

    Although the majority of the stockholders’ claims were rejected, the stockholders’ contract-based claims regarding liquidation preferences and dividend rights were remanded to the district court for further proceedings.

    Courts Banking Fannie Mae FHFA Freddie Mac HERA Department of Treasury

    Share page with AddThis
  • Second Circuit Upholds District Court Decision, Applies New York's Six-Year Limitations Period on Contractual Claims


    On November 16, the Court of Appeals for the Second Circuit affirmed the Southern District of New York’s decision to dismiss a leading global bank’s complaint against a nonbank mortgage lender alleging breach of contractual obligations to repurchase mortgage loans that violated representations and warranties. Deutsche Bank Nat’l Trust Co. v. Quicken Loans Inc., No. 14-3373 (2nd Cir. Nov. 16, 2015). The bank, under its right as Trustee of the loans, alleged that the lender breached aspects of representations and warranties contained in a 2006 Purchase Agreement, including those related to (i) borrower income; (ii) debt-to-income ratios; (iii) loan-to-value and combined loan-to-value ratios; and (iv) owner occupancy. The bank’s complaint also alleged that it sent the lender a series of notification letters between August 2013 and October 2013 demanding cure or repurchase of the loans, which the lender allegedly failed to do without justification. The bank challenged the District Court’s decision by arguing that New York’s six-year statute of limitations on contractual claims did not apply because the terms of the representations and warranties contained an “Accrual Clause” placing future obligations on the lender. However, the Second Circuit upheld the District Court’s ruling, concluding that the bank’s Accrual Clause only constituted a procedural demand and did not delay the accrual of the cause of action. Specifically, the Second Circuit found that the representations and warranties guaranteed the characteristics and quality of the loans at the time the loans were sold in 2006. As such, the six-year statute of limitations “began to run on the date the [representations and warranties] became effective and were either true or false at that time.” The Second Circuit also found that the Housing and Economic Recovery Act (HERA), which in part delays accrual of claims brought by the Federal Housing Finance Agency (FHFA), did not apply. Because FHFA only filed the summons in state court, and the Trustee filed the federal complaint and prosecuted the action, the Second Circuit found the case was not “brought” by FHFA and thus HERA did not apply.

    FHFA HERA SDNY Second Circuit

    Share page with AddThis
  • FHFA OIG Calls for Oversight of Counterparty Compliance with Consumer Protection Laws


    On March 26, the FHFA Office of Inspector General (OIG) issued a report that concludes the FHFA has failed to actively oversee how Fannie Mae and Freddie Mac monitor counterparty compliance with federal and state consumer protection laws. The OIG review found that the FHFA is vulnerable to questions about why it does not have a strategy to monitor the Enterprises’ activities to assess whether they are aligned with the public interest as reflected in federal and state laws and regulations, and that the Enterprises’ failure to pursue seller repurchase demands related to mortgages in default with no material underwriting deficiencies—but that were originated in violation of consumer protection laws—may result in losses to the Enterprises that could be avoided or mitigated. The OIG concludes that given the FHFA’s duty under HERA to ensure that the activities of the Enterprises are consistent with the public interest, the FHFA should develop and implement a risk-based plan to monitor the Enterprises’ oversight of their counterparties’ compliance with contractual requirements, including consumer protection laws. According to the report, the FHFA has begun to put together a plan to address this oversight role.

    Freddie Mac Fannie Mae FHFA OIG HERA

    Share page with AddThis

Upcoming Events