InfoBytes Blog

Obama Administration Announces New Mortgage-Related and Financial Fraud Programs

On January 27, the U.S. Attorney General officially introduced a special unit that will coordinate federal and state government investigations into residential mortgage-backed securities (RMBS). The unit is being co-chaired by multiple senior officials from the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), as well as New York Attorney General Eric Schneiderman. It will consist of at least fifty-five DOJ attorneys and other investigative staff, and will include the active participation by numerous additional federal and state entities, including the Consumer Financial Protection Bureau. According to a memorandum issued by Attorney General Holder, the working group will focus on, among other things, (i) alleged misrepresentations concerning the quality of mortgages backing the RMBS; (ii) alleged failures by trustees to manage adequately the assets within securitized pools of loans; and (iii) alleged failures by RMBS sponsors to repurchase problematic loans or remit loan proceeds to RMBS trusts. In his remarks introducing the new unit, Attorney General Holder noted that civil subpoenas recently have been issued to eleven financial institutions in connection with this new group's efforts.

The announcement follows President Obama's January 24 State of the Union Address during which he announced this and other mortgage-related and financial fraud initiatives. In his speech, the President publicly asked the U.S. Attorney General to create a special investigative unit comprised of federal prosecutors and state attorneys general to expand existing government investigations of “the abusive lending and packaging of risky mortgages that led to the housing crisis.”  The President also outlined a plan he will submit to Congress to expand government support for mortgage refinancing. The costs of the program would be covered by a fee imposed on large financial institutions. Finally, the President announced his intention to establish a “Financial Crimes Unit of highly trained investigators to crack down on large-scale fraud,” and called for Congress to enhance statutory penalties for financial fraud. Previously, Securities and Exchange Commission (SEC) Chairman Mary Shapiro wrote to Congress seeking higher fraud penalties (see InfoBytes, December 2, 2011)

State Attorney General RMBS

CFPB and FTC Announce Memorandum of Understanding to Coordinate Regulatory Activities

On January 23, the CFPB and the FTC announced that the agencies had entered into a memorandum of understanding (MOU) to facilitate coordination of the agencies’ consumer financial rulemaking, enforcement, and supervision activities. The MOU establishes regular meetings between the two entities, as well as processes for providing notice of enforcement activities. Under the MOU, the CFPB and the FTC will be able to share consumer complaint information, and the FTC can request CFPB examination reports and confidential supervisory information.

CFPB FTC

DOJ Releases Memorandum on Legality of Recess Appointments

On January 12, the Department of Justice Office of Legal Counsel, which is responsible for providing legal advice to the President, released the memorandum it prepared in advance of the President’s recent decision to appoint Richard Cordray as CFPB Director. In short, the memorandum finds when the Senate is in a periodic pro forma session in which no business is to be conducted, the President may (i) conclude that the Senate is unavailable to perform its advise-and-consent function and (ii) exercise his power to make recess appointments. Pro forma sessions do not have the legal effect of interrupting an intrasession recess otherwise long enough to qualify as a "Recess of the Senate” under the Constitution. The conclusions are based on three considerations explored in detail in the memorandum: (i) the original understanding of the framers and the “longstanding views” of the executive and legislative branches with regard to the practical availability of the Senate to consider nominees, (ii) the inconsistent result of allowing pro forma sessions to prevent Presidential recess appointments given the purpose of the recess appointment clause and historical practice in similar situations, and (iii) the need to preserve constitutional separation of powers.

CFPB

Utah Federal Court Extends "Complete Preemption" Doctrine to National Banking Act

On June 18, the U.S. District Court for the District of Utah issued a memorandum opinion explaining its June 11 order to vacate a preliminary injunction entered by a Utah state court, which had enjoined a defendant national bank and its trustee services company from conducting foreclosure sales in Utah (the order to vacate was reported in InfoBytes, June 18, 2010). Cox v. ReconTrust Co., N.A., No. 2:10-CV-492, 2010 WL 2519716 (D. Utah June 18, 2010). In Cox, the plaintiff, a borrower who was facing foreclosure, originally filed suit in state court claiming that the defendants, both national banks licensed under the National Banking Act (NBA), (i) were foreign companies not registered to transact business in Utah, (ii) were not qualified to act as trustees under Utah code, and (iii) violated the Real Estate Settlement Procedures Act (RESPA). Citing the federal claim under RESPA, the defendants removed the case to federal court. Thereafter, the borrower voluntarily dismissed her RESPA claim and moved for remand. Rejecting the motion for remand, the district court found that it retained original jurisdiction because the state law claims were subject to complete preemption under the NBA. The district court concluded that Congress intended for the NBA to exclusively control how national banks transact business nationwide and act as trustees and, thus, provided removal jurisdiction. This interpretation of the NBA also defeated the preliminary injunction because the NBA preempted the borrower’s state law claims that a national bank must be registered with Utah as a foreign corporation to foreclose on a property and must comply with Utah’s statutory requirements for trustees.