Potential Third Wave of LBHI Claims Reduced by U.S. District Court in New York

There is potentially a third round of claims Lehman Brothers Holdings, Inc. (“LBHI”) may make against brokers and correspondents who originally sold loans to Lehman Brothers Bank, FSB, Aurora Loan Services, Inc. or LBHI. These claims could be from loans that were then sold to trusts who securitized pools of residential loans between 2002 and 2008. They are “potential” because LBHI has been litigating these claims made in their bankruptcy by RMBS Trustees since 2009 and over 600,000 were just effectively rejected by the United States Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”) and the United States District Court Southern District of New York (“U.S. District Court”). U.S. Bank National Association, Wilmington Trust Company, Wilmington Trust, National Association, Law Debenture Trust, and Deutsche Bank National Trust (collectively the “RMBS Trustees”) filed more than 300 proofs of claim in LBHI’s bankruptcy in September 2009. These trustees are the designated trustees for trusts created between 2002 and 2008 to securitize pools of residential mortgage loans and claims arise from 405 trusts and approximately one million mortgage loans. In December 2014, the Bankruptcy Court established a Protocol Order in this matter that detailed a multi-step process for reviewing the RMBS Trustee’s claims on a loan-by-loan basis. Like the ADR Indemnification Procedures Order in the Fannie Mae and Freddie Mac matter, it also ordered the RMBS Trustees and LBHI to go through a mandatory mediation process to clarify the remaining claims. The RMBS Trustees had a large job of analyzing the loans on a loan by loan basis and only submitted a review of a subset of the entire... read more

Two New Executive Orders Aim to Dismantle or Scale Back Regulations Put in Place After the 2008 Financial Crisis

President Donald Trump will be signing two new Executive Orders today that aim to begin the dismantling of many of the financial laws and regulations put into place after the 2008 financial crisis. The Executive Orders will not result in any immediate substantive changes to the existing regulations, but President Trump is directing members of his administration to scrutinize and evaluate former President, Barack Obama’s regulatory action with the goal of eliminating what President Trump believes to be burdensome and unnecessarily restrictive rules on financial services firms and institutions as well as customers. President Trump is signing these Orders after a midday meeting with executives from JPMorgan Chase, Blackstone, IBM, Tesla, and General Motors. The timing of the Orders is relevant as President Trump is seeking to solicit recommendations from such executives for how to change the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into federal law by former President, Barack Obama in July 2010. At least for now, the Trump Administration is acknowledging that scrapping Dodd-Frank completely may not be possible even though President Trump has referred to the act as a “disaster.” This could be just one more indication that the power and authority of the Consumer Financial Protection Bureau will be reduced significantly during Trump’s time in office. National Economic Council director, Gary Cohn, told the Wall Street Journal, “Americans are going to have better choices and Americans are going to have better products because we’re not going to burden the banks with literally hundreds of billions of dollars of regulatory costs every year.”   He added, “The banks are going to be able to... read more

Correspondent Lenders Get Big Win in Minnesota State Court Action against the ResCap Liquidating Trust

On February 1, 2017, Honorable Ivy S. Bernhardson, Judge of the District Court in the County of Hennepin, State of Minnesota, issued an Order granting defendants partial summary judgment against Residential Funding Company, LLC (“RFC”) and the ResCap Liquidating Trust (“ResCap”).  Judge Bernhardson granted the motion for partial summary judgment that defendants Quicken Loans, Inc., GSF Mortgage Corporation, and Guaranteed Rate, Inc. (together, “Defendants”) filed against RFC and ResCap relating to RFC’s claimed damages.  Defendants argued that the repurchase provision in RFC’s Client Guide authorizes only the remedy of repurchase, and that the damages formula provided in the Client Guide to ascertain an individual loan’s repurchase price is not applicable where RFC does not or cannot seek repurchase of such a loan from correspondent lenders such as Defendants.  Defendants argued that RFC’s sale of the at-issue loans to third parties renders recovery under the repurchase provisions of the Client Guide inapplicable.  Judge Bernhardson agreed with Defendants and held that RFC is not entitled to loan-level monetary damages calculated pursuant to the repurchase provision of the Client Guide because the plain language of the Client Guide prohibits calculating such loan-level losses under the repurchase provision given that there are no loans for Defendants to repurchase from RFC at this point.   This decision is a much welcomed development for those correspondent lenders currently defending RFC’s and ResCap’s lawsuits and claims.  Judge Berhardson’s decision means that RFC cannot simply invoke its contractual right to declare an event of default and then demand damages that are calculated pursuant to the repurchase price formula in the Client Guide.  Instead, in pursuing its claims for... read more

LBHI Files and Serves its Second Amended Complaint on AMLG Clients

In late December 2016, Lehman Brothers Holding, Inc. (“LBHI”) began filing and serving its Second Amended Complaint.  The new complaint has now been served on all AMLG clients involved in the omnibus adversary proceeding pending in the Bankruptcy Court in the Southern District of New York.  AMLG attorneys are currently working with other attorneys representing various other defendants in this litigation to prepare a unified, cogent strategy for challenging the Second Amended Complaint.  The defense motions will be served in various stages pursuant to Judge Chapman’s Case Management Order, with the first motions being filed in March 2017.  Hearings on the motions have not yet been scheduled by the court. AMLG represents more defendants in the LBHI litigation than any other law firm in the United States, allowing us to achieve scales of efficiency which saves our clients fees and costs, particularly as it relates to common legal issues, discovery, deposition attendance, and court appearances. AMLG anticipates that LBHI will continue to file amended complaints to include more of the 3000 counter parties.  If you are served with a complaint, be sure to seek legal counsel immediately, as unforgiving response deadlines exist in the federal court system.  For more information on how to protect your rights or take advantage of our legal team’s expertise and cost savings, please contact Tracy... read more

FHA Releases Guidance on Use of Professional Employer Organizations

On November 28, 2016, the Federal Housing Administration (“FHA”) published Mortgagee Letter 2016-18, “Mortgagee Use of Professional Employer Organizations.” The purpose of this Mortgagee Letter is to clarify HUD requirements for mortgagees that contract with professional employer organizations and similar entities for human resources services. The guidance outlines permissible and impermissible uses of contractors, as well as the standard for use and required documentation for use of contractors. This Mortgagee Letter replaces previously issued guidance contained in HUD Handbook 4000.1 governing the use of contractors by FHA-approved mortgagees. The updated guidance is effective immediately. To read the full Mortgagee Letter, click... read more

CFPB Updates Mortgage Servicing Small Entity Compliance Guide

Last week the Consumer Financial Protection Bureau (“CFPB”) published an updated version of its Mortgage Servicing Small Entity Compliance Guide. The updated Guide incorporates amendments made to the mortgage servicing rules and regulations contained in Regulation X and Regulation Z. These amendments were released by the CFPB in August 2016, but the clock did not start ticking on their effective date until they were published in the Federal Register. The amendments were published in the Federal Register on October 19, 2016. Accordingly, most of the amended regulations will be effective on October 19, 2017. The amendments related to successors in interest and periodic statements for borrowers in bankruptcy will be effective on April 19, 2018.  The CFPB’s Mortgage Servicing Small Entity Compliance Guide provides a summary of the amended rules, along with official commentary and interpretations. The updated Guide can be accessed on the CFPB’s Mortgage Servicing implementation webpage. To read more about updated mortgage servicing rules, please click... read more

CFPB Warns Mortgage Lenders and Brokers They May be Out of Compliance with HMDA

Last month, the CFPB issued warning letters to 44 mortgage lenders and brokers warning that they may be in violation of the Home Mortgage Disclosure Act (“HMDA”) and its implementing regulation, Regulation C. HMDA and Regulation C require certain qualifying financial institutions to collect, record, and report data regarding their housing related lending activities. The CFPB identified the 44 lenders and brokers by reviewing available bank and nonbank mortgage data. The warning letters stated that the recipients should review their current practices to ensure they are in compliance with all relevant laws. The companies were encouraged to respond to the Bureau to advise if they have taken, or will take, steps to ensure compliance with HMDA and Regulation C, or alternatively to provide an explanation if they think the HMDA reporting requirements do not apply to them. It is important to note that the CFPB made no determination that a legal violation did, in fact, occur. As a mortgage banking focused law firm, AMLG continues to be involved with our clients’ implementation of the amended HMDA reporting requirements which will begin going into effect next year. If you need assistance with HMDA-related issues, including deciphering the reporting requirements applicable to your organization, assistance with implementation, updates to your policies and procedures, and/or counsel regarding fair lending best practices, please contact us by clicking here.  AMLG clients and newsletter readers may receive a complimentary copy of the firm’s HMDA Reporting Implementation Checklist by clicking... read more

CFPB Issues Updated Guidance on Vendor Management and Oversight

The CFPB recently issued Compliance Bulletin 2016-02, which updates the Bureau’s guidance on vendor management and oversight. The Bulletin clarifies that the depth and formality of the risk management program put in place to monitor service providers may vary depending on the type of service(s) being performed and the performance of the service provider in complying with federal consumer financial laws and regulations. Specifically, the Bureau noted that the size, scope, complexity, importance, and potential for consumer harm were factors to take into consideration when assessing the scope of a vendor risk management and oversight program. Consistent with previous guidance, the Bulletin noted that in order to limit the potential for statutory or regulatory violations and related consumer harm, supervised banks and nonbanks should take steps to ensure that their business arrangements with service providers do not present unwarranted risks to consumers and outlined a number of recommended actions. Interestingly, the Bureau continued to emphasize the potential for UDAAP (Unfair, Deceptive and Abusive Acts or Practices) violations inherent in third party service provider relationships, an area we have seen the Bureau enforce heavily via enforcement actions in the past few years. As a mortgage banking focused law firm, AMLG continues to be involved in our clients’ vendor management efforts. If you need assistance setting up or strengthening your company’s vendor management oversight program, updating your related policies and procedures, negotiating related contracts, or more, please contact AMLG by clicking... read more

Another Win for Lenders Against a Former Subsidiary of Lehman Brothers Holdings, Inc. (“LBHI”)

On October 24, 2016, in a hard fought lawsuit in Utah, a long awaited decision came down against Aurora Bank, FSB (“Aurora”) and Aurora Loan Services (“ALS”) in favor of Security National Mortgage Company (“Security National”). Security National won a several million dollar judgment in Utah against Aurora and ALS on December 24, 2014. After a motion for summary judgment in this Utah case, which involved a 2007 Indemnification Agreement between Security National and Aurora, the court held that Lehman Bank could only assign rights for losses it had suffered. Lehman Bank had no losses because of the way they structured their transactions with LBHI, and it had been fully compensated by LBHI. This case is significant to AMLG clients, and any defendant involved in the LBHI litigation pending in the Southern District of New York, and is being watched, because the ruling  based on depositions of several LBHI and Aurora key executives essentially renders the assignments under which LBHI is pursuing all 3,000 counterparties in New York worthless. The basic premise is that you can only assign the rights you possess. If Lehman Bank had no damages then it assigned LBHI no damages to pursue. All this time since 2014, the parties in Utah have been fighting over claims of an offset, or reduction in the amount awarded to Security National in 2014, and a demand that Security National continue to pay Aurora under the Indemnification Agreement. Finally,  Aurora and ALS lost, leaving Security National entitled to recover several million dollars from LBHI. All they have to do now is collect. If you are facing claims by LBHI,... read more

Court Ruling Provides Security for Lenders Around RESPA Section 8 Issues

Last week, the D.C. Circuit Court of Appeals issued its much-anticipated decision in PHH Corp. v. CFPB. The 100+ page decision offered thoughtful analysis on the myriad of issues at play in the matter, including the constitutionality of the CFPB’s single director structure. Perhaps the ruling with the greatest impact on the mortgage compliance industry though was the Court’s finding that the CFPB violated due process by retroactively enforcing an alternative interpretation of RESPA Section 8 which deviated from the long-standing interpretation set forth by HUD. As the Court summarized, “In its order in this case, the CFPB thus discarded HUD’s longstanding interpretation of Section 8 and, for the first time, pronounced its new interpretation. And then the CFPB applied its new interpretation of Section 8 retroactively against PHH, notwithstanding PHH’s reliance on HUD’s prior interpretation. The CFPB sanctioned PHH for previous actions that PHH had taken in reliance on HUD’s prior interpretation, even though PHH’s conduct had occurred before the CFPB’s new interpretation of Section 8.” (emphasis in original) The D.C. Circuit Court of Appeals found that not only did the CFPB violate “bedrock due process principles” by retroactively applying a new interpretation of the statute, but that the CFPB had also misinterpreted Section 8(c) of RESPA. The Court confirmed that Section 8(c) of RESPA indeed carves out a safe harbor for certain types of payments between settlement service providers and found the CFPB’s recent interpretation that it does not provide a “substantive exemption” to be “a facially nonsensical reading of Regulation X.” Specifically, the Court held that Sections 8(a) and 8(c) of RESPA as read together, “allow captive reinsurance... read more

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