Showing posts with label regulator. Show all posts
Showing posts with label regulator. Show all posts
Wednesday, February 22, 2012
Thursday, February 9, 2012
Housing regulator acted on "ideology": lawmakers (Reuters)
WASHINGTON (Reuters) – Two Democratic lawmakers on Wednesday accused the regulator of Fannie Mae and Freddie Mac from blocking the firms from reducing principal on the mortgages they back for reasons of "ideology."
Representatives Elijah Cummings and John Tierney claimed that analysis from the regulator itself, the Federal Housing Finance Agency, showed that principal reduction would serve the interest of U.S. taxpayers, who have bailed the firms out to the tune of $169 billion.
They said the analysis directly contradicted testimony from the acting director of the agency, Edward DeMarco, who has said loan forbearance - which grants temporary suspensions of payments to borrowers, but does not reduce their obligations - provides the same benefit for homeowners at a lower cost to taxpayers.
"It appears that your refusal to follow Congress' direction and allow principal reduction programs is based more on ideology and the fear of political backlash than on a straightforward analysis of the interests of American taxpayers," the lawmakers wrote in a letter to DeMarco.
The Obama administration, some Federal Reserve officials and Democrats on Capitol Hill have pressured the FHFA to allow reductions in loan balances for borrowers who are "underwater," meaning their loan balance exceeds the value of their home.
DeMarco has argued that allowing principal writedowns would go against his primary mandate of protecting assets of at the two mortgage finance firms, which were seized by the government in September 2008 as home loan losses spiraled.
Cummings and Tierney also said a former Fannie Mae official had come forward and claimed the company had started to develop a pilot program to slash loan balances for troubled borrowers in 2010. According to the letter, the pilot program was canceled shortly before it was set to launch because of resistance from senior executives, the unnamed former employee said.
The program had preliminary approvals from officials at Fannie Mae, FHFA, and the Office of the Comptroller of the Currency, which regulates national banks, according to the former employee.
Two weeks ahead of its launch, the program was "terminated by senior officials at Fannie Mae who were 'philosophically opposed' to the concept of reducing principal," the former employee told congressional staff.
"FHFA stands by its analysis of principal forgiveness. We will soon respond to the congressmen's' letter," FHFA spokesperson Corinne Russell said.
Fannie Mae declined immediate comment on the letter.
Last year, Cummings, the top Democrat on the House Oversight and Government Reform Committee, had asked DeMarco to explain his thinking in deciding not to offer principal reductions.
DeMarco provided lawmakers with an analysis completed in 2010. In a letter dated January 20 that accompanied the analysis, DeMarco again signaled that principal forbearance might be a cost-effective way for Fannie and Freddie to dampen the foreclosure crisis.
Fannie Mae and Freddie Mac own or guarantee roughly half of all outstanding mortgages in the United States. Some economists, consumer groups and affordable housing advocates argue that more aggressive actions by the firms to help troubled borrowers would minimize taxpayer losses in the long run by preventing defaults in the near term.
(Reporting by Margaret Chadbourn; editing by Leslie Adler, Gary Crosse)
Wednesday, February 1, 2012
U.S. regulator kicks off foreclosure sales plan (Reuters)
WASHINGTON (Reuters) – The regulator for housing finance firms Fannie Mae and Freddie Mac said on Wednesday investors could now sign up to pre-qualify to bid on foreclosed properties held by the government-controlled firms.
In a plan to help the struggling U.S. housing market by clearing a backlog of foreclosed properties, investors could purchase homes to convert them into rental units under the program.
The Federal Housing Finance Agency said it will announce the first transaction during a pilot phase of the so-called REO initiative in the "near term."
(Reporting by Jason Lange and Margaret Chadbourn)
Tuesday, January 24, 2012
Fannie, Freddie writedowns too costly: regulator (Reuters)
WASHINGTON (Reuters) – The regulator for Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) told lawmakers that forcing the government-controlled mortgage firms to write down the principal on underwater home loans would require more than $100 billion in fresh taxpayer funds.
In a letter sent on Friday to the Republican and Democratic leaders of a House of Representatives government oversight panel, the Federal Housing Finance Agency explained why it has long opposed principal reductions for borrowers who owe more than their homes are worth. In that situation, the mortgage is deemed "underwater."
About 22 percent of U.S. home mortgages have negative equity totaling about $750 billion, meaning that about one in five U.S. home mortgages is "underwater" with the amount owed exceeding the home's value, according to CoreLogic, a financial information and analytics company based in Santa Ana, California.
The Federal Housing Finance Agency said it had determined that such reductions would be more costly for Fannie Mae and Freddie Mac than forbearance, which was the less expensive option by comparison. The two mortgage firms have been using forbearance to help borrowers struggling to make payments.
Forbearance lets the borrow reduce or suspend payments on a loan for a specific amount of time.
The regulator, also known as the FHFA, has been under pressure from Democrats to permit the writedown of principal by the two government-controlled mortgage finance providers as a way to help some of the millions of U.S. homeowners whose mortgages are "underwater."
Representative Elijah Cummings of Maryland, the top Democrat on the House Oversight and Government Reform Committee, has pushed the housing regulator to explain its thinking in deciding not to offer principal reductions.
PRESERVING ASSETS A CONCERN
The FHFA, however, has maintained that widespread principal forgiveness would undercut the finances of Fannie and Freddie, which have already received about $169 billion in taxpayer aid. Republicans have supported the FHFA's decision.
"FHFA has a statutory responsibility as conservator to preserve and conserve the assets and property of the regulated entities," FHFA's acting director, Edward DeMarco, wrote in the letter to lawmakers dated January 20.
The Obama administration wants to secure widespread principal reductions in a legal settlement between the government and some of the biggest mortgage servicers. The settlement is aimed at cleaning up alleged foreclosure abuses.
"Given that any money spent on this endeavor would ultimately come from taxpayers and given that our analysis does not indicate a preservation of assets for Fannie Mae and Freddie Mac substantial enough to offset costs, an expenditure of this nature at this time would, in my judgment, require congressional action," DeMarco said in the letter.
In 2008, Fannie Mae and Freddie Mac were taken over by the government as mortgage losses mounted. Millions of loans issued during the housing bubble, many of them made to subprime borrowers with spotty credit histories, soured after the housing bust -- yet they remain on Fannie's and Freddie's books. Delinquencies on those loans continue to rise.
Fannie Mae and Freddie Mac own or guarantee roughly half of all outstanding mortgages in the United States. Of the approximately 30 million mortgages guaranteed by the two firms, close to 3 million of those loans were held by underwater borrowers as of last summer, according to an analysis provided in the letter.
Another barrier to principal writedowns, aside from pushing losses at the two firms even higher, DeMarco said, was the cost associated with new technology and training to servicers that would be needed to launch a program that offers principal forgiveness.
The FHFA told lawmakers that forbearance is a less costly option. Principal forbearance limits accounting losses and allows Fannie and Freddie to recoup the principal at some later point, according to the regulatory agency's letter.
"The net result of the analysis is that forbearance achieves marginally lower losses for the taxpayer than forgiveness, although both forgiveness and forbearance reduce the borrower's payment to the same affordable level," the FHFA's letter said.
The housing regulator also assured lawmakers that the FHFA remains committed to helping borrowers stay in their homes and will continue to work on such principal forbearance plans and government initiatives to modify or refinance loans.
The Federal Reserve, in a white paper to Congress earlier this month, said writedowns "had the potential to decrease the probability of default" and "improve migration between labor markets."
However, the Fed stopped short of endorsing such an initiative and noted concern that writing down loan balances would create a moral hazard - the concept that rescue efforts breed further behavior that exacerbates the existing problem - and could prompt other borrowers to stop making timely loan payments.
(Reporting By Margaret Chadbourn; Editing by Jan Paschal)
Friday, January 13, 2012
House Democrats want new housing regulator (Reuters)
WASHINGTON (Reuters) – More than two dozen House Democrats called on Wednesday for President Barack Obama to unseat the acting regulator of housing finance agencies Fannie Mae and Freddie Mac, saying he has failed to take steps that would aggressively address the nation's housing crisis.
The group of 28 Democrats, led by Representative Dennis Cardoza, are all from California, which has been hard hit by the housing market's collapse. In their letter, the lawmakers urged Obama to replace Edward DeMarco as acting director of the Federal Housing Finance Agency and to immediately nominate a new director.
"FHFA has consistently and erroneously interpreted its mandate far too narrowly and as such has failed to take adequate action to help homeowners," the letter said.
Fannie Mae and Freddie Mac, two congressionally chartered companies charged with providing liquidity to the U.S. housing market, were seized by the government in September 2008 as mortgage losses mounted.
DeMarco, a career civil servant who was named acting director of the FHFA in August 2009, has defended the steps he has taken as conservator as being well within the authority Congress has mandated.
DeMarco, who has never been selected as the FHFA'S permanent director, has argued that the roughly $169 billion in taxpayer-funded support paid out to Fannie Mae and Freddie Mac since they were seized was meant to get them back on their feet, not to provide relief to the housing market.
The Democratic call for a new leader at FHFA comes just days after Obama made a critical recess appointment of Richard Cordray as the director of the newly created Consumer Financial Protection Bureau over Republican opposition.
"We urge that you take the same action to put in place a permanent director to the FHFA," the Democrats wrote.
The lawmakers said DeMarco has limited Fannie and Freddie from helping the troubled housing market by taking too narrow a view of his mission to protect the financial health of the two firms.
"There are steps that the FHFA can take to help prevent future foreclosures while also protecting taxpayers," the letter read. "Installing a permanent director of the FHFA will allow the FHFA to move forward to make key decisions that will help keep families in their homes and improve our economy."
The Obama administration had nominated North Carolina's banks commissioner, Joseph Smith, to be the FHFA's permanent director in November 2010, but Smith withdrew his name a few months later due to staunch Republican opposition. No new nominee has since been named.
(Reporting By Margaret Chadbourn; Editing by Leslie Adler)
Saturday, November 5, 2011
Regulator rebuts critics on housing help (Reuters)
WASHINGTON (Reuters) – Fannie Mae's and Freddie Mac's regulator on Saturday rejected criticism he was obstructing a housing recovery by taking too narrow a view of his mission to protect the financial health of the two massive, taxpayer-supported mortgage firms.
Edward DeMarco, acting director of the Federal Housing Finance Agency, argued the $141 billion in taxpayer funds Fannie Mae and Freddie Mac had received since they were seized by the government in 2008 were meant to get the companies back on their feet, not to provide "broad relief" to the housing market.
"FHFA has been aggressively trying to assist the housing market to ensure that the country continues to have a liquid and stable and functioning secondary mortgage market," DeMarco said in an interview with C-SPAN public affairs television that was set to air on Sunday.
"Some of those things that are being advocated for us to do really go beyond what Congress has given us the authority to do and the funds that have been provided," he said.
Fannie Mae and Freddie Mac, the two largest sources of U.S. mortgage finance, were placed in government conservatorship in September 2008 as mortgage losses skyrocketed. Along with the Federal Housing Administration, they provide the funds for 90 percent of all new mortgages.
Some Democratic lawmakers and former Obama administration officials have taken aim at DeMarco's position on the mandate of the two government-sponsored enterprises, or GSEs. They argue FHFA needs to do more to halt the record pace of foreclosures and cut loan balances for the estimated 11 million U.S. borrowers who owe more than their homes are worth.
Lawrence Summers, a former top economic adviser to President Barack Obama, said in a Reuters column last Sunday that DeMarco had "taken a narrow view of the public interest" in his efforts to protect Fannie Mae and Freddie Mac's health.
"FHFA has not acted on its conservatorship mandate to insure that the GSEs act to stabilize the nation's housing market, and taken no account of the reality that the narrow financial interest of the GSEs depends on a national housing recovery," Summers wrote.
NEW INITIATIVE
In the interview, DeMarco touted a new initiative by his agency to widen a federal program that offers mortgage aid to so-called underwater borrowers.
The effort -- a retooling of the Home Affordable Refinance Program, or HARP -- aims to make it easier for borrowers who hold loans backed by Fannie Mae and Freddie Mac to refinance.
"Mortgage rates came down, but there was a set of borrowers who were not able to refinance," DeMarco said. "Given the changes we've made, we estimate that maybe at least we're roughly doubling what we've already seen come through the program."
When HARP was unveiled in March 2009, the Obama administration predicted it would help 5 million borrowers. But so far, fewer than 895,000 have refinanced through the program.
DeMarco defended the steps he had taken as being well within his "statutory authority" to oversee the two firms.
The regulator said he was now focusing on a way to sell foreclosed properties held by Fannie Mae and Freddie Mac to investors willing to convert them into rental properties. "We're turning to this as the next priority," DeMarco said.
But he stood firm against suggestions the regulator open the door to principal reductions on loans backed by Fannie Mae and Freddie Mac.
"On a stand-alone basis, principal forgiveness doesn't accomplish our conservator mandate relative to the loan modifications tools and techniques that we have in place right now," DeMarco said.
He said it was up to Congress and the administration to decide how to restore the housing market.
"That policy debate needs to take place and we need to await an act of Congress to give us clear direction on where we're going forward and what the timeline for that is," he said. "The longer this goes on, the harder it is for FHFA to know what to do."
(Editing by Tim Ahmann and Peter Cooney)
Saturday, September 3, 2011
Regulator sues major banks over subprime bonds (Reuters)
By Margaret Chadbourn and Jonathan Stempel Margaret Chadbourn And Jonathan Stempel – 1 hr 39 mins ago
WASHINGTON/NEW YORK (Reuters) – A regulator sued 17 large banks and financial institutions on Friday over losses on about $200 billion of subprime bonds, which may hamper a broader government settlement of the mortgage mess left over from the housing crisis.
The lawsuits by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, surprised investors, dragging down bank shares and could add billions of dollars of legal costs at perhaps the worst possible time for the industry.
Friday's lawsuits reflects how different parties, including investors, banks and different government groups are fighting over who should bear losses from a housing crisis that in 2008 drove the economy into its worst recession in decades.
The FHFA accused Bank of America Corp and its Countrywide and Merrill Lynch units, Barclays Plc, Citigroup Inc, Goldman Sachs Group Inc, JPMorgan Chase & Co, Royal Bank of Scotland Group Plc and others of misrepresenting the checks they had done on mortgages before bundling them into securities.
According to the lawsuits, the securities should have never been sold because the underlying mortgages did not meet investors' criteria. As more borrowers fell behind or went into foreclosure, the securities' value fell, causing losses.
Nearly all the banks that were sued declined to comment or were not immediately available for comment. Others called the charges unfounded.
"Fannie Mae and Freddie Mac are the epitome of a sophisticated investor, having issued trillions of dollars of mortgage-backed securities and purchased hundreds of billions of dollars more," said Mayura Hooper, a spokeswoman for defendant Deutsche Bank AG, in a statement.
A Bank of America spokesman said Fannie Mae and Freddie Mac are trying to shift responsibility to banks after earlier blaming losses on other factors. A spokesman for Ally Financial Inc, once known as GMAC, called the FHFA claims "meritless."
Bank of America faces three FHFA lawsuits, covering losses on more than $57 billion of securities. JPMorgan faces claims related to $33 billion of securities and Royal Bank of Scotland was sued over $30.4 billion of securities.
Several large banks are also negotiating with all 50 U.S. state attorneys general on a comprehensive settlement to address mortgage abuses and limit future mortgage litigation.
"This new litigation could disrupt the AG settlement," said Anthony Sanders, finance professor at George Mason University and a former mortgage bond strategist.
Banks might resist settling if they knew litigation from other regulators could deplete capital, he said.
Before the FHFA lawsuits had even hit a court docket, financial experts offered blunt expectations for the outcome.
"The lawsuits will be settled," said Sean Egan, managing director of Egan-Jones Ratings Co, an independent credit ratings firm. "The end result will be a further outflow of cash from the banks, and more importantly an additional black eye."
A TWIST
FHFA director Edward DeMarco is looking to minimize future losses for Fannie Mae and Freddie Mac, which are owned by the government after being seized on September 7, 2008.
The FHFA filed the suits before a three-year statute of limitations expired. Fannie Mae and Freddie Mac are pillars of U.S. mortgage finance.
Wells Fargo & Co, the largest U.S. bank not sued by the FHFA, entered a "tolling" agreement waiving its right to claim the FHFA waited too long to sue, a person with knowledge of the matter said. The bank said Wells Fargo might have done this to give it time negotiate its own settlement, the person added.
FHFA spokeswoman Corinne Russell and Wells Fargo spokeswoman Mary Eshet declined to comment.
The KBW Bank Index closed down 4.5 percent on Friday, nearly doubling the losses of the broader market. Bank of America led the index lower, dropping 8.3 percent.
Bank shares also came under pressure from signs the Federal Reserve could start selling short-term debt on its books and buy long-dated bonds to push longer-term yields lower.
Such a move, known as "operation twist," would hurt banks whose profit margin is tied to the short-term rates at which they fund and the longer-term rates at which they invest.
Major banks already face potential payouts of tens of billions of dollars to settle regulatory charges of abusive mortgage lending and foreclosure practices, and other investor lawsuits over mortgage debt losses.
Such payouts would reduce earnings and weaken capital levels, perhaps harming the ability of banks to lend money and provide much-needed life to a stalled housing market and weakened economy.
Whether to take action for mortgage bond problems had been under discussion since Fannie Mae and Freddie Mac were placed in conservatorship, a person familiar with the matter said.
While the ultimate amount FHFA will seek is still unclear, that person said it could top the $20 billion settlement being discussed by the banks and the state attorneys general.
Arthur Wilmarth, a George Washington University law professor, said the banks might argue Fannie Mae and Freddie Mac knew how risky the securities they bought were.
If the companies had reason to know mortgages were "essentially being given to anyone with a pulse, then banks could argue they were at least partially at fault," he said.
A BLIZZARD
The blizzard of litigation against banks is hurting share prices because investors are unable to estimate the ultimate scope of a given bank's legal liabilities.
Bank of America, for example, had intended its proposed $8.5 billion settlement in June with investors in Countrywide mortgage securities to resolve most litigation tied to its disastrous 2008 takeover of that home loan provider.
But many parties are objecting, and that settlement did not stop insurer American International Group Inc from suing the bank for $10 billion over its own alleged losses.
Nor did it stop Nevada's attorney general from threatening to withdraw from an $8.4 billion nationwide settlement with the bank. The AG now wants to sue the bank, accusing it of reneging on promises to modify mortgages.
Meanwhile, the U.S. Justice Department in May sued Deutsche Bank, accusing it of misleading a U.S. housing agency into believing loans it made qualified for federal insurance.
The FHFA's lawsuits follow an initial lawsuit in July against UBS AG seeking to recover $900 million of losses incurred on $4.5 billion of debt.
One legislator praised the expected FHFA lawsuits.
Brad Miller, a Democratic congressman from North Carolina, said: "Not pursuing those claims would be an indirect subsidy for an industry that has gotten too many subsidies already."
Since Fannie Mae and Freddie Mac were seized, taxpayers have spent more than $140 billion to keep them afloat.
(Reporting by Margaret Chadbourn in Washington and Jonathan Stempel in New York; additional reporting by Clare Baldwin and Lauren Tara LaCapra in New York; Additional writing by Ben Berkowitz and Dan Wilchins; editing by Matthew Lewis, John Wallace and Andre Grenon)
Wednesday, August 31, 2011
Nevada, U.S. regulator challenge BofA on mortgages (Reuters)
NEW YORK (Reuters) – Bank of America Corp's mortgage practices came under fresh fire as state and federal regulators questioned whether the largest U.S. bank is doing what it must to address perceived harm to homeowners and investors.
Nevada's attorney general on Tuesday accused the bank of repeatedly violating its $8.4 billion agreement with that state and others to address fraudulent lending charges involving its Countrywide unit, which it bought in 2008.
Catherine Cortez Masto, the state attorney general, asked a federal judge in Reno, Nevada, to let her back out of that accord and sue Bank of America on behalf of homeowners in Nevada, which has one of the nation's highest foreclosure rates and percentages of borrowers who owe more than their homes are worth.
Separately on Tuesday, the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, as well as dozens of investors lodged objections to Bank of America's proposed $8.5 billion settlement with investors in Countrywide mortgage-backed securities, an agreement negotiated by the trustee Bank of New York Mellon Corp.
Among the other objectors was Goldman Sachs Group Inc, which said it lacks enough information to know whether the accord treats all "similarly situated" investors equally.
And in a third proceeding, a group of homeowners sued to block that $8.5 billion accord, saying it would speed up foreclosures and prolong mortgage abuses. That group asked for a court order requiring the bank to follow servicing policies that are "higher than current industry standards."
In her proposed complaint, the Nevada attorney general said Bank of America still engages in "a pattern and practice" of misleading consumers about such matters as why it denies mortgage modifications, or begins foreclosures while modification requests are pending.
Bank of America was to help 400,000 borrowers modify their home loans under the 2008 accord.
But Masto called the process "chaotic," even accusing the Charlotte, North Carolina-based bank of reprimanding workers for spending "too much time" on the phone -- an average of seven to 10 minutes -- with individual customers.
"Defendants' deceptive practices have resulted in an explosion of delinquencies and unauthorized and unnecessary foreclosures" in Nevada, Masto said in court papers. "The state no longer can get the benefit of its original settlement."
It is unclear how the allegations might affect long-running negotiations on a potential multibillion-dollar settlement with regulators nationwide to improve foreclosure practices at several big banks, including Bank of America.
"We disagree that there has been any material breach of the consent decree and will continue to vigorously defend this action." Bank of America spokeswoman Jumana Bauwens said in response to the Nevada filings.
Lawrence Grayson, another bank spokesman, declined to comment on the other litigation matters, as did Bank of New York Mellon spokesman Kevin Heine.
INVESTOR, HOMEOWNER CLAIMS
The settlement with mortgage-backed securities covers 530 mortgage pools from the former Countrywide Financial Corp, the largest U.S. mortgage lender before Bank of America bought it.
Bank of New York Mellon had negotiated the accord, covering $174 billion of unpaid principal balances, with 22 big investors including the Federal Reserve Bank of New York, BlackRock Inc and Allianz SE's Pimco.
But some other investors say the payout is too low, or they lack enough information to know whether the accord is fair.
In a court filing, the FHFA called it a "positive" that the settlement calls for improving loan servicing and fixing deficient documentation, and said the support of many large market participants is "encouraging."
Still, the FHFA said it lacks enough information about the accord, and wants to be ready to voice a "substantive" objection "should a now unforeseen issue arise."
Fannie Mae and Freddie Mac in 2010 guaranteed 70 percent of single-family mortgage-backed securities that were issued, and provided $1.03 trillion of market liquidity, an FHFA report to Congress in June shows.
"The FHFA sounds like it wants to preserve its right to contest refinements that could expose Fannie and Freddie to greater losses," said Kathleen Engel, associate dean at Suffolk University Law School in Boston and co-author of "The Subprime Virus."
Marc Kasowitz, a lawyer for the FHFA, did not immediately respond to a request for comment.
Meanwhile, the homeowners, who say they have received default notices, seek class-action status for Countrywide borrowers from 2004 to 2008 whose loans are in the trusts and are serviced by Bank of America."
"The settlement agreement will speed up foreclosures, perpetuate existing servicing abuses in the system, and undermine federal programs designed to stabilize the housing market," the complaint said.
"It is not clear the borrowers have standing," Engel said. "They certainly may be aggrieved by servicing problems, but they have to show the settlement itself causes them harm, either new injury or the loss of legal rights."
A lawyer for the homeowners did not immediately respond to a request for comment.
DOZENS OF OBJECTIONS
Bank of America paid $2.5 billion to buy Countrywide, but writedowns and legal costs have pushed the estimated cost of that purchase to more than $30 billion.
Several dozen objections to the $8.5 billion settlement were filed ahead of a Tuesday deadline to intervene in the case, which is overseen by New York State Supreme Court Justice Barbara Kapnick in Manhattan.
Some of the challenges were filed simultaneously in federal court, where some of the objectors hope to move the case.
American International Group Inc, the insurer suing Bank of America for $10 billion in a separate MBS case, is among the objectors. Others include the Federal Deposit Insurance Corp, attorneys general of New York and Delaware, and various banks, insurers, investment funds and pension funds.
US Bancorp, trustee for a $1.75 billion Countrywide mortgage pool, this week separately sued Bank of America to force it to buy back the underlying loans.
The Nevada case is Nevada v. Bank of America Corp et al, U.S. District Court, District of Nevada, No. 11-00135. The New York state case is In re: The Bank of New York Mellon, New York State Supreme Court, New York County, No. 651786/2011. The New York federal case is The Bank of New York Mellon et al v. Walnut Place LLC et al, U.S. District Court, Southern District of New York, No. 11-05988. The homeowner case is Iesu et al v. The Bank of New York Mellon et al, U.S. District Court, Southern District of New York, No. 11-06078. (Reporting by Jonathan Stempel; Additional reporting by Joe Rauch in Charlotte, N.C.; editing by Carol Bishopric, Gary Hill)
Thursday, August 11, 2011
Regulator sues Goldman Sachs over risky mortgages (AP)
LOS ANGELES – The U.S. regulator of credit unions on Tuesday sued Goldman Sachs & Co. for more than $491 million in damages over losses incurred by two failed credit unions that purchased mortgage-backed securities underwritten by the investment bank.
The complaint filed by the National Credit Union Administration in U.S. District Court in Los Angeles is the latest lawsuit brought by the federal regulatory agency against a major bank as it seeks to recover billions in losses related to risky mortgage-backed securities that brought down credit unions in recent years.
Buyers of mortgage-backed securities, mostly banks, pension funds and other big investors, made money from the investments if the underlying debt was paid off. But as U.S. homeowners started falling behind on their mortgages and defaulted in droves in 2007, the securities failed and their buyers lost billions.
In the complaint, which also names as defendants several issuers of mortgage-backed securities, regulators claim that the documents used in offering the securities contained untrue statements or omissions as to how risky the investments were.
As a result, U.S. Central Federal Credit Union in Lenexa, Kan., and Western Corporate Federal Credit Union in San Dimas, Calif., acquired the mortgage-backed securities, believing the risk of loss was minimal, according to the complaint.
However, even though virtually all of the securities had a triple-A rating, they represented a substantial risk of losses, the NCUA claims. And when the investments' market value plummeted, the credit unions — two of the nation's largest — failed.
The NCUA placed the two credit unions into conservatorship in March 2009. In October of 2010, it placed them into involuntary liquidation.
Goldman Sachs declined to comment Tuesday.
The NCUA says it may sue five to 10 other banks in coming weeks. In June, regulators sued JPMorgan Chase & Co. and Royal Bank of Scotland PLC.
Factoring in the latest lawsuit, regulators are seeking to recover nearly $2 billion in damages.
Any recoveries from the lawsuits would reduce the total losses resulting from the failure of Western Corporate, U.S. Central and three other failed corporate credit unions: Southwest Corporate, Members United Corporate and Constitution Corporate, the NCUA said.
Corporate credit unions provide financing and investment services to the much larger population of retail credit unions.
Shares of The Goldman Sachs Group Inc. added 50 cents to $123.30 in aftermarket trading. The shares ended the regular trading session up $5.07, or 4.3 percent, to $122.73.
Saturday, July 30, 2011
Fannie/Freddie regulator sues UBS on $900 million loss (Reuters)
NEW YORK (Reuters) – The regulator for Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) sued UBS AG (UBSN.VX) (UBS.N) to recover more than $900 million of losses after the Swiss bank misled the housing agencies into buying $4.5 billion of risky mortgage debt.
In announcing Wednesday's lawsuit, the U.S. Federal Housing Finance Agency said it also plans more lawsuits to recover additional losses by Fannie Mae and Freddie Mac from investments in private-label debt.
Last July, the FHFA issued 64 subpoenas to banks, seeking details about subprime and other mortgage debt that Fannie Mae and Freddie Mac bought when the housing market was healthy.
The UBS case is part of a push by Washington to hold banks responsible for the nation's housing problems. It is also the latest effort to prop up the government-sponsored enterprises (GSEs), whose September 2008 federal seizure has so far cost taxpayers more than $135 billion.
"From the issuance of 64 subpoenas last year to the filing of this lawsuit and further actions to come, we continue to seek redress for the losses suffered," FHFA Acting Director Edward DeMarco said in a statement.
The GSEs remain crucial to the housing market, having in 2010 guaranteed 70 percent of single-family mortgage-backed securities that were issued, and provided $1.03 trillion of market liquidity, an FHFA report to Congress last month shows.
UBS spokesman Peter McKillop had no immediate comment. FHFA spokeswoman Corinne Russell declined further comment.
In May, the government filed a fraud lawsuit accusing Deutsche Bank AG (DBKGn.DE) of misleading the Federal Housing Administration into believing many low-quality mortgages issued by the German bank's MortgageIT unit qualified for insurance. Deutsche Bank is seeking to dismiss that case.
"UNTRUTHS"
According to the UBS complaint, Fannie Mae and Freddie Mac lost more than 20 percent of their investment in over $4.5 billion of residential mortgage-backed securities that the bank sold in 16 securitizations from September 2005 to August 2007.
Filed in the U.S. District Court in Manhattan, the complaint also said UBS failed to do adequate due diligence, and hid or misstated the quality of the underlying loans and underwriting, as well as borrowers' ability to make payments.
Many of the loans were issued by lenders that later failed or went bankrupt, including American Home Mortgage Investment Corp, IndyMac Bancorp Inc and New Century Financial Corp.
According to the complaint, a review of 966 randomly chosen loans from two "triple-A" rated securitizations in 2006 and 2007 found that 78 percent were not underwritten properly.
By May 2011, the complaint said, these securitizations were rated "CCC" by Standard & Poor's and "Ca" by Moody's Investors Service, among the lowest junk grades.
"Fannie Mae and Freddie Mac did not know of the untruths and omissions," the complaint said. "If the GSEs would have known of those untruths and omissions, they would not have purchased the GSE certificates."
The lawsuit seeks to recoup Fannie Mae's and Freddie Mac's losses and undo the purchases, among other remedies.
Other banks including Bank of America Corp (BAC.N) and its Countrywide unit have faced lawsuits by investors who claim to have lost money on mortgage-backed debt.
Republican lawmakers in Washington have been trying to reduce taxpayer support for Fannie Mae and Freddie Mac and attract more private capital to the $10.6 trillion residential mortgage market. The Treasury Department pledged in December 2009 to provide unlimited aid to the GSEs through 2012.
The case is Federal Housing Finance Agency v. UBS Americas Inc et al, U.S. District Court, Southern District of New York, No. 11-05201.
(Reporting by Jonathan Stempel; Editing by Gerald E. McCormick, Richard Chang and Matthew Lewis)
Wednesday, June 22, 2011
US regulator sues JPMorgan, RBS in subprime probe (AFP)
NEW YORK (AFP) – A US regulator on Monday sued Wall Street bank JPMorgan Chase and Britain's Royal Bank of Scotland, seeking to recover more than $800 million in losses incurred during the subprime mortgage crisis.
The National Credit Union Administration said it was pursuing the two big banks for actions that led to the collapse of five big credit unions.
In its lawsuit, the NCUA charged the securities firms of the two banks had violated federal and state laws and made misrepresentations in the sale of hundreds of securities to the credit unions, a type of financial institution owned and run by its members.
"NCUA has a responsibility to do everything in our power to seek maximum recoveries from those involved in the issuing, underwriting and sale of the faulty securities that resulted in the failures of five of the largest wholesale credit unions," NCUA board chairman Debbie Matz said in a statement.
The regulator vowed to sue other banks that had sold credit unions mortgage-backed securities which plummeted in value during the financial crisis, without specifying which banks would be targeted.
"We expect to file additional actions and seek a total amount of damages in the billions of dollars," Metz said.
"Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions."
Wall Street banks have generally managed to avoid criminal repercussions from the sale of mortgage-backed securities before 2008, although they have been targeted in civil suits.
When it became clear that many of these securities were backed by delinquent subprime borrowers defaulting on their mortgages -- even though they had been branded low-risk by investment banks and ratings agencies -- the global financial system went into a tailspin.
The leading US financial markets regulator, the Securities and Exchange Commission, has sued only one individual, Goldman Sachs employee Fabrice Tourre, for his role in selling mortgage-backed securities.
Shares of JPMorgan Chase dropped 0.9 percent on Monday, although they were also driven down by fears of contagion from the European debt crisis.
JPMorgan Chase did not respond to a request for comment on the lawsuit.
The five credit unions that failed after the crisis -- US Central, Western Corporate, Southwest Corporate, Members United Corporate, and Constitution Corporate -- were wholesale credit unions that provided services to smaller retail credit unions.
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