By David P. Renovitch
Months in the works, 49 state attorneys general today announced the largest mortgage settlement deal ever and the second largest settlement in history, trailing only the $206 billion settlement reached in 1998 with the tobacco giants. With the exception of Oklahoma, every state joined in the $25 billion settlement with five of the largest mortgage services in the United States.
The servicers are required to commit at least $17 billion towards reducing the principal on loans for certain borrowers who are currently unable to afford their monthly mortgage payment but could afford it if the principal amount on the loan were reduced. Some estimates show that based on the incentives, these servicers could end up paying as much as $32 billion for reducing the principal on these types of loans.
The servicers also committed $3 billion to refinance “underwater” homes (when a borrower owes more than what the home is worth).
The servicers will also pay $4.25 billion to the states as a penalty for the “robosigning” practices that were exposed. $1.5 billion of this amount will go to borrowers who were foreclosed upon between January 1, 2008 and December 31, 2011. This will amount to approximately $2,000.00 per homeowner. The servicers will also pay $750 million to the federal government as a penalty.
The settlement also contains provisions to make major changes in how mortgage servicers handle foreclosures. The key changes are to require a single point of contact for borrowers, establish case review and paperwork processing requirements and deadlines, and restrict “dual tracking” (where banks pursue loan modifications and foreclosure simultaneously).
Critics are quick to point out that the overall amount of the settlement is minor in comparison to the alleged illegal and criminal activity.
However, it should be pointed out that while these servicers may have had employees or agents sign affidavits without adequate personal knowledge of what they were signing, no one is alleging that these servicers actually foreclosed on borrowers who were actually current on their payments. In fact, those situations are extremely rare, and if they were occurring with any greater degree of frequency, you can be certain the media would be all over it.
It is important to reflect on the recent housing market crisis and make reasonable efforts to improve the mortgage industry. No doubt, economists and other experts will debate this and offer suggestions and legislation for years to come.
Posted by Attorney David P. Renovitch. Renovitch has extensive litigation experience in matters related to insurance companies and their insureds, real estate, construction, banking and lending, especially in the areas of title litigation, recoupment and mechanic’s lien litigation.
02/10/12 7:53 AM
Litigation, Real Estate | Comment (0) |
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Major Mortgage Settlement Reached
By David P. Renovitch
Illinois Attorney General Lisa Madigan has filed a lawsuit in Cook County Court alleging Standard & Poor’s committed consumer fraud in causing the housing market to crash. S&P is a credit-rating company that graded mortgage-backed investments in the years leading up to the housing market crash. Madigan alleges S&P did not exercise proper independence and objectivity when it gave high ratings to mortgage-backed investments it knew were unworthy and risky. The lawsuit alleges S&P did so to increase its own profit and market share.
Madigan stated S&P “… used every trick possible to give deals high ratings in order to retain clients and generate revenue. The mortgage-backed securities that helped our market soar – and ultimately crash – could not have been purchased by most investors without S&P’s seal of approval.” The lawsuit cites numerous internal emails and conversations among S&P employees as evidence of its misrepresentations. For example, in one email, an employee stated an investment “could be structured by cows and we would rate it.” The lawsuit also cites to congressional testimony by a former managing director at S&P who testified that “profits were running the show” and ratings were assigned to risky investments to help drive profit margins for their clients.
Mortgage-backed securities are financial products made up of a pool of mortgages that are bundled and sold as a security. They are backed by residential mortgages. Pension fund and 401(k) managers relied upon S&P ratings to make decisions as to whether these were appropriate investments for their clients.
Madigan has been successful in the past in her efforts to go after lenders following the housing market crash. In December of 2011, Madigan and the U.S. Department of Justice agreed to a $335 million settlement with Countrywide for discriminating against minorities during the sub-prime mortgage lending binge. In 2008, she headed up a lawsuit against Countrywide leading to a nationwide $8.7 billion settlement over predatory lending practices. She also reached a $39.5 million settlement with Wells Fargo over deceptive marketing of risky loans called Pay Option ARMS.
Posted by Attorney David P. Renovitch. Renovitch has extensive litigation experience in matters related to insurance companies and their insureds, real estate, construction, banking and lending, especially in the areas of title litigation, recoupment and mechanic’s lien litigation.
01/31/12 9:55 AM
Litigation, Real Estate | Comment (0) |
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S&P Sued for Allegedly Contributing to Housing Collapse
By David P. Renovitch
Deal Did Not Include Details on Practices that Led to Housing Market Collapse
A federal judge in Manhattan refused to approve a $285 million settlement entered into between the Securities and Exchange Commission and CitiGroup, Inc. The SEC sued CitiGroup alleging that in 2006 and 2007, it sold $1 billion in mortgage-related securities without telling investors that it was betting against those same securities. In other words, CitiGroup anticipated a collapse in the housing market and sought to unload securities that would lose value as a result of the collapse.
Judge Jed S. Rakoff rejected the settlement because CitiGroup did not have to admit or deny any allegations. The Judge ruled that without knowing more details of the facts, both he and the public have no way of knowing whether this is a reasonable settlement or whether such practices should be corrected. In its Order, Judge Rakoff stated “If the allegations of the Complaint are true, this is a very good deal for CitiGroup; and even if they are untrue, it is a mild and modest cost of doing business.” The Judge noted that investors lost more than $700 million in these transactions.
This decision is seen as a fairly dramatic shift in a very long-standing policy of permitting the SEC to reach settlements without any admission of wrongdoing. The SEC settles hundreds of enforcement cases each year, usually by getting the company to pay a fine or reimburse investors without admitting or denying any charges. The Judge hinted at his motivation for deviating from precedent by stating “… in any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth.”
The SEC has decided to file an appeal citing “… legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits.” The SEC also cited the break from decades of precedent.
There is, indeed, a growing sense of frustration as economists and other experts seek to learn the factors and variables that led to the collapse of the housing market. Obtaining accurate information is critical to determining what, if anything, needs to be fixed.
Posted by Attorney David P. Renovitch. Renovitch has extensive litigation experience in matters related to insurance companies and their insureds, real estate, construction, banking and lending, especially in the areas of title litigation, recoupment and mechanic’s lien litigation.
12/29/11 12:43 PM
Banking and Finance, Real Estate | Comment (0) |
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Judge Rejects SEC Settlement with CitiGroup
By David P. Renovitch
Two of the largest players in the mortgage industry, Fannie Mae and Freddie Mac, are eliminating their respective foreclosure attorney networks in an effort to establish more uniform foreclosure practices. Fannie Mae currently has 191 law firms in its Retained Attorney Network. The Federal Housing Finance Agency, which oversees Fannie and Freddie, instructed the two companies to “transition away” from the current law firm approval network and allow servicers to choose firms that “meet certain minimum, uniform criteria.”
This change was prompted by a report released earlier this month by the inspector general citing failure on the part of FHFA to stop abuses by Fannie-and Freddie-approved attorneys despite warnings. Some of the approved firms have been accused of mishandling paperwork for evictions and foreclosures, including falsifying signatures on affidavits submitted to the courts. The so-called robo-signing scandal which erupted last year led numerous services to temporarily suspend foreclosures.
Fannie Mae and Freddie Mac are government-controlled mortgage companies and have received over $170 billion in taxpayer assistance since they were placed in conservatorship three years ago.
Posted by Attorney David P. Renovitch. Renovitch has extensive litigation experience in matters related to insurance companies and their insureds, real estate, construction, banking and lending, especially in the areas of title litigation, recoupment and mechanic’s lien litigation.
10/24/11 6:00 AM
Business Law, Litigation, Real Estate | Comments Off |
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Fannie, Freddie Phase Out Approved Attorney Networks
