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Ginnie Mae updates MBS program risk parameters
On January 25, Ginnie Mae issued an All Participant Memorandum (APM 18-02) announcing updates to multiple chapters of their MBS Guide. According to the memo, effective immediately, Chapters 3, 5, 9, 10, and 18 now provide expanded information about acceptable risk parameters for Ginnie Mae portfolios and applicable non-compliance consequences. Specifically, Chapter 3 is updated to include examples of violations of program requirements that Ginnie Mae considers outside of acceptable risk parameters, such as:
- “Rates of delinquency that are above the thresholds published in Chapter 18(3)(C) or that otherwise pose a risk to an Issuer’s responsibility to advance P&I payments to security-holders”;
- “‘Run-off’ portfolios, or business models that involve the recurring sale of substantially all the servicing created by issuance”;
- “Heavily-concentrated portfolios”; and
- “Recurring issuance of multi-issuer program packages that exhibit prepayment activity that is substantially different from that of comparable packages.”
Chapter 3 also includes examples of non-compliance restrictions that may be imposed, including but not limited to, requiring an Issuer’s portfolio to be recalibrated to fall within acceptable risk parameters.
Other MBS Guide updates include:
- Chapter 5. Expansion on risks associated with non-compliance of MBS program requirements, such as, (i) “denial of authority to issue additional securities;” and (ii) “the imposition of civil money penalties.”
- Chapter 9. Participation in a multiple Issuer pool is considered an event of non-compliance if Ginnie Mae has restricted, in writing, the Issuer’s ability to participate.
- Chapter 10. GinnieNET must be used for paperless electronic processing of pools submitted for immediate transfer of Issuer responsibility. Ginnie Mae reserves the right to reevaluate an Issuer’s participation in the Pools Issued for Immediate Transfer (PIIT) program based on compliance with Chapter 3’s applicable risk parameters.
Chapter 18. Failure to maintain delinquency rates may result in denial of participation in multiple Issuer pools, the PIIT program, and/or the imposition of additional financial obligations.
10th Circuit says FDCPA does not cover non-judicial foreclosures
On January 19, the U.S. Court of Appeals for the 10th Circuit affirmed a lower court decision that the Fair Debt Collection Practices Act (FDCPA) does not cover non-judicial foreclosures in Colorado. In affirming the District Court’s dismissal of the case, the 10th Circuit reasoned that non-judicial foreclosures in Colorado do not constitute an attempt to collect money from a debtor because the state only allows the trustee to obtain payment from the sale of the foreclosed property and a deficiency judgment must be sought through a separate action. According to the opinion, in 2014, a mortgage servicer hired a law firm to initiate a non-judicial foreclosure and the law firm sent the homeowner a letter indicating that it “may be considered to be a debt collector attempting to collect a debt.” The homeowner then filed a complaint in District Court against the firm and the mortgage servicer for FDCPA violations, which was subsequently dismissed. The 10th Circuit reasoned that the mortgage servicer was not considered a debt collector under the law because servicing initiated prior to the loan’s default and the law firm’s communications with the homeowner never attempted to induce payment. The opinion acknowledges that many courts are split on this topic and emphasizes that the holding does not apply to judicial foreclosures.
FTC announces charges against mortgage loan modification operation
On January 19, the FTC issued a press release announcing charges against a mortgage loan modification operation for allegedly violating the FTC Act and the Mortgage Assistance Relief Services Rule by making false promises to consumers for services designed to prevent foreclosures or reduce interest rates or monthly mortgage payments. According to the charges, the defendants contacted consumers using doctored government logos on correspondence, which misrepresented an affiliation with the government’s Making Home Affordable loan modification program. Additionally, the defendants allegedly made unlawful claims that they had “special relationships with particular lenders” and instructed consumers to stop paying their mortgages without actually obtaining the promised loan modifications. As alleged by the FTC, this resulted in many consumers paying substantial interest charges, incurring penalties for paying the defendants rather than making mortgage payments, and in some instances, losing their homes to foreclosure. On January 10, a federal judge in the U.S. District Court for the District of Nevada temporarily restrained and enjoined the defendants’ alleged illegal practices and froze their assets at the request of the FTC.
House passes HMDA relief for small banks
On January 18, by a vote of 243-184, the House passed H.R. 2954, to amend HMDA to exempt low-volume mortgage lenders from certain disclosure requirements. If enacted, the bill would exempt depository institutions from maintenance of records and disclosure requirements if, (i) for closed-end mortgage loans, “the depository institution originated less than 500 closed-end mortgage loans in each of the 2 preceding calendar years”; and (ii) for open-end lines of credit, “the depository institution originated less than 500 open-end lines of credit in each of the 2 preceding calendar years.” On January 19, the bill was received in the Senate and referred to the Committee on Banking, Housing, and Urban Affairs.
City of Philadelphia’s discriminatory lending lawsuit moves forward
On January 16, a federal judge in the U.S. District Court for the Eastern District of Pennsylvania denied a national bank’s motion to dismiss the City of Philadelphia’s (City) claims that the bank engaged in alleged discriminatory lending practices in violation of the Fair Housing Act (FHA). As previously covered in InfoBytes, the City filed a complaint in May of last year against the bank alleging discrimination under both the disparate treatment and disparate impact theories. The City asserted that the bank’s practice of offering better terms to similarly-situated, non-minority borrowers or refusing to make loans in minority neighborhoods has led to foreclosures and vacant homes, which in turn, has resulted in a suppression of property tax revenue and increased cost of providing services such as police, fire fighting, and other municipal services. In support of its motion to dismiss, the bank argued, among other things, that the City’s claim (i) is time barred; (ii) improperly alleges the disparate impact theory; and (iii) fails to allege proximate cause as required by a recent U.S. Supreme Court ruling (see previous Special Alert here).
While the court expressed “serious concerns about the viability of the economic injury aspect of the City’s claim with regard to proximate cause,” the court found that the bank “has not met its burden to show why the City’s entire FHA claim should be dismissed.” Consequently, the court held that the case may proceed to discovery beyond the two-year statute of limitations period for FHA violations in order to provide the City an opportunity to prove whether the bank’s policy caused a racial disparity that constituted a violation continuing into the limitations period.
Fed terminates foreclosure enforcement actions, fines five banks CMPs
On January 10, the Federal Reserve Board (Fed) announced the termination of ten enforcement actions for legacy mortgage loan servicing and foreclosure processing activities, along with the issuance of more than $35 million in combined civil money penalties (CMPs) against five of the ten banks. Combined with penalties previously assessed against other supervised firms (see previous InfoBytes coverage here), the Fed’s mortgage servicing enforcement actions have totaled approximately $1.1 billion in penalties. The CMPs assessed against the five banks range from $3.5 million to $14 million.
According to the Fed, the termination of the ten enforcement actions is a result of “evidence of sustainable improvements in the firms’ oversight and mortgage servicing practices.” Under the terms of the previously issued consent orders, in addition to the CMPs, the banks were required to (i) improve residential mortgage loan servicing oversight, and (ii) correct deficiencies in residential mortgage loan servicing and foreclosure processing for banks with Fed supervised-mortgage servicing subsidiaries.
The Fed also announced the termination of two related joint enforcement actions (see here and here) with the OCC, FDIC and FHFA (a party to only one of the actions) against key mortgage servicing service providers. According to the announcement, the terminations were a result of proof of “sustainable improvements” in the companies’ foreclosure-related practices.
U.S. government, national bank parties enter $5 million False Claims Act settlement
On January 5, the U.S. Government reached a $5 million settlement with a national bank and its affiliates (together, the bank parties) to resolve a lawsuit concerning allegations that the bank parties violated the False Claims Act (FCA) by engaging in improper foreclosure-related practices. The settlement is not an admission of liability by the bank parties. Specifically, as previously covered in InfoBytes, the lawsuit primarily alleged that the bank parties knowingly used rubber-stamped surrogate signed endorsements and false mortgage assignments to support false claims for mortgage insurance from the Federal Housing Administration. The lawsuit also asserted a reverse FCA claim alleging that the bank parties made false statements when entering into the 2012 National Mortgage Settlement. The U.S. Government, the bank parties, and the relator who initially brought the suit stipulated to the dismissal with prejudice concerning 39 “Implied Certification and False Statement Claims,” along with all claims brought or that could have been brought by the relator, but without prejudice as to any other claims that could be brought by the U.S. Government. Under the terms of the settlement agreement, the bank parties are required to pay $3.4 million to the U.S. Government—$891,000 of which will be paid to the relator who originally brought the suit. In addition, the bank parties will pay the relator an additional $1.6 million in attorneys’ fees and litigation costs and expenses.
Mortgage servicer agrees to pay $45 million in nationwide settlement
On January 3, a mortgage servicer entered into a $45 million settlement with 49 state attorneys general and the District of Columbia for alleged mortgage servicing delinquencies. The settlement resolves a complaint, filed on the same day in the D.C. District Court, that alleges that between 2009 and 2012 the servicer, among other things, failed to (i) timely and accurately apply payments; (ii) maintain proper documentation to establish standing for foreclosure; (iii) respond to borrower complaints and reasonable requests for assistance; (iv) properly process loan modification applications; and (v) properly oversee third party vendors responsible for foreclosure operations. The $45 million settlement payment includes $30.4 million in restitution to homeowners; $5 million in attorney’s fees and investigative costs and fees payable to the state attorneys general whose offices led the investigation; and almost $9 million in administrative penalties to state mortgage regulators. In addition to the settlement payments, the settlement also requires the mortgage servicer to comply with a set of “Servicing Standards” outlined in the consent judgment and to submit quarterly reports to the state attorneys general Executive Committee for a period of three years.
In response to the settlement, the mortgage servicer stated that it admits no wrongdoing and is currently using the adopted new Servicing Standards.
District Court Allows Government to Intervene in False Claims Act Litigation
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.
International bank settles with California AG for $125 million for RMBS misrepresentations
On December 22, the California Attorney General announced a $125 million settlement with an international bank to resolve allegations of misrepresentations while selling residential mortgage-backed securities to California’s public employee and teacher pension funds. According to Attorney General Xavier Becerra’s office, an investigation found that descriptions of the RMBS “failed to accurately disclose the true characteristics of many of the underlying mortgages” to the state investors. Additionally, the international bank allegedly failed to adequately perform due diligence checks to remove poor quality loans from the investment pool, leading to millions of dollars of loss to the pension funds.