Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On January 3, the District Court for the Southern District of Florida granted the U.S. Government’s motion to intervene in a False Claims Act (FCA) lawsuit against a national bank. The lawsuit, filed by a foreclosure attorney and relator, alleges that the national bank submitted false claims in violation of the FCA in two ways. First, the lawsuit alleges that the national bank knowingly used rubber-stamped surrogate signed endorsements and false mortgage assignments to support false claims for mortgage insurance from FHA. Second, the lawsuit asserts a reverse FCA claim alleging that the national bank made false statements when entering into the 2012 National Mortgage Settlement. On December 21, the U.S. Government requested to intervene to assist in “effectuating and formalizing” a proposed settlement between the relator and the national bank that would resolve the matter.
On March 31, the office of Massachusetts AG Maura Healey launched a new webpage designed to help eligible homeowners clear property titles in order to refinance or sell their properties. The webpage follows a $2.7 million settlement with four national banks that allegedly foreclosed on Massachusetts property without having the legal authority to do so. Because the alleged unlawful foreclosures affected thousands of Massachusetts titles, the new webpage is intended to “[enable] consumers to file online complaints and have their title issues reviewed by the banks in a single process.”
On June 10, the U.S. Court of Appeals for the District of Columbia affirmed the district court’s decision not to enjoin the federal government from pursuing alleged False Claims Act violations against a bank that argued such claims were precluded by the terms of the National Mortgage Settlement. United States v. Bank of Am. Corp., No 13-5112, 2014 WL 2575426 (D.C. Cir., Jun. 10, 2014). The bank sought to halt a suit filed by the government in the Southern District of New York (SDNY), in which the government alleges that the bank’s certification of loans as eligible for FHA insurance under the FHA’s Direct Endorsement Lender Program violated the False Claims Act. The bank asserted that the National Mortgage Settlement contains a comprehensive release for certain liability with respect to its alleged FHA mortgage lending conduct. The appeals court held that the agreement releases only the narrower category of liability for loans based on allegations that the bank’s annual certification was false without regard to whether any such loans contain material violations of HUD-FHA requirements, , and held that distinct loan-level violations for such loans would provide an independent basis for liability. However, the appeals court agreed that the SDNY must construe the government’s complaint and “ensure that the claims are litigated in a manner that comports with the [National Mortgage Settlement] Release’s limitations.” The appeals court agreed with the bank that some of the government’s claims “tread on the verge of the released claims, referencing false annual certifications explicitly.” The appeals court noted that the government repeatedly conceded that, to comport the SDNY suit with the National Mortgage Settlement release terms, “material violations do need to be demonstrated with respect to individual loans,” and cautioned the government that, should prosecution of its claims depart from that concession, the bank may seek appropriate relief.
On March 18, the National Mortgage Settlement (NMS) Monitor Joseph Smith Jr., announced that four banks subject to the NMS satisfied the consumer relief and refinancing obligations established by the agreement. The monitor filed reports in the U.S. District Court for the District of Columbia certifying the banks’ compliance. The monitor had previously certified satisfaction by a fifth bank. The monitor stated that in many cases the banks exceeded the agreement’s requirement that the majority of the relief be provided through first and second lien modifications—among the five banks, 37% of credited total relief was in the form of first lien principal forgiveness and 15% was in the form of second lien principal forgiveness. Refinancing assistance made up 17% of total credited relief, while the remaining 31% of relief included assistance for short sales and deeds in lieu of foreclosure.
On December 19, the CFPB and attorneys general for 49 states and the District of Columbia, and a nonbank mortgage servicer, filed a proposed consent order in the U.S. District Court for the District of Columbia, pursuant to which the servicer will be required to provide $2 billion in principal reduction to certain borrowers and refund $125 million to nearly 185,000 borrowers who were foreclosed upon.
The agreement is modeled on the 2012 national mortgage servicing settlement between five banks and federal and state authorities, and it is the first such agreement with a nonbank mortgage servicer. The proposed order would resolve allegations that the servicer, and two other servicers it acquired in recent years, engaged in unfair or deceptive acts or practices in the servicing of residential mortgages and foreclosure processing in violation of state consumer protection laws and the Consumer Financial Protection Act. Those allegations are detailed in a complaint filed by the CFPB and states on the same day.
Along with the monetary settlement, the agreement requires the servicer to implement numerous servicing policy changes, which incorporate the standards established in the national servicing settlement and add requirements related to transferred loans. The servicing requirements included in the settlement are in addition to new servicing standards the CFPB finalized earlier this year, which take effect on January 10, 2014. Compliance with the agreement will be overseen by the monitor of the national settlement. The agreement does not include releases for any potential claims of criminal liability and does not prohibit private actions.
On October 16, Joseph A. Smith, Jr., the National Mortgage Settlement Monitor, announced that his office filed with the U.S. District Court for the District of Columbia reports on credited consumer relief and refinancing provided through December 31, 2012 by four of the five servicers subject to the National Mortgage Servicing Settlement. A summary report and fact sheet released by the Monitor provide additional detail about the relief certification procedures and a breakdown of each servicer’s relief activities.
On October 10, a bank holding company announced that it has agreed in principle, on behalf of itself and certain affiliates, to resolve mortgage-related allegations by the federal government. The company reached agreements in principle with HUD and the DOJ to settle (i) certain civil and administrative claims arising from FHA-insured mortgage loans originated over a six-and-a-half year period and (ii) certain alleged civil claims regarding the company’s mortgage servicing and origination practices as part of the National Mortgage Servicing Settlement. Pursuant to the agreements in principle, the company committed to $500 million of consumer relief, a $468 million cash payment, and the implementation of certain mortgage servicing standards. The company also reached an agreement in principle with the Federal Reserve Board to impose a $160 million civil monetary penalty, in conjunction with an April 2011 Consent Order.
On October 2, New York Attorney General Eric Schneiderman (NY AG) announced actions to address alleged failures by two servicers to comply with certain of the 304 servicing standards established by the National Mortgage Servicing Settlement. In May, the NY AG threatened to sue both servicers based on borrower complaints that the servicers were not fulfilling their settlement obligations. The NY AG now has initiated proceedings to enforce the terms of the settlement against one of the banks, alleging numerous servicing deficiencies. In exchange for the NY AG suspending planned legal action against the second servicer, that servicer entered an agreement pursuant to which it is required to, among other things, (i) designate staff with decision-making authority to every housing counseling and legal services agency within the NY AG’s Homeowner Protection Program, (ii) revise the letters it uses to request from borrowers missing documents or information needed to complete a loan modification, (iii) halt the sale of mortgage servicing rights to third parties on New York mortgages when borrowers are already in negotiations for a loan modification or are making trial payments on a loan modification, and (iv) allow borrowers' attorneys permission to negotiate loan modifications directly with bank staff, as opposed to the bank's outside foreclosure lawyers.
On October 2, Joseph A. Smith, Jr., the Monitor of the National Mortgage Servicing Settlement announced four new metrics his office will use to measure the settling servicers’ compliance with the agreement’s servicing standards. Two of the metrics take effect on January 1, 2014 and are intended to (i) ensure borrowers are provided contact information for new “single points of contact” and (ii) ensure that servicers’ monthly billing statements are accurate and detailed. Compliance testing on two additional metrics related to servicers’ communications to borrowers regarding the requirements for loan modification applications will begin on April 1, 2014. Those metrics are meant to (i) ensure that the servicers do not reject a borrower’s loan modification application or proceed with a foreclosure for at least 30 days while the borrower is responding to requests for additional documents and (ii) ensure the servicers communicate modification denials and make loss mitigation alternatives available.
On August 21, Senator Elizabeth Warren (D-MA) sent a letter to Attorney General Eric Holder raising concerns about the provisions of the National Mortgage Settlement that relate to the government’s release of potential FHA-related False Claims Act-based claims against the settling servicers. Senator Warren’s letter questions the settlement amount that the government obtained for the release of such claims. The Senator calls for a “clearer and more public accounting of the [alleged] damages FHA incurred” as a result of the settling servicers’ conduct, and presses DOJ more broadly on its enforcement approach to large financial institutions. Senator Warren is seeking information and documents relating to the DOJ’s assessment of any potential FHA claims and the process by which it agreed to settle those claims.
- Sherry-Maria Safchuk to discuss UDAAP at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable