Monday, February 29, 2016

Consolidation of Brooklyn Foreclosure Cases Leads to Concern

Advocates for homeowners are concerned that consolidating about 12,000 Brooklyn foreclosure cases under three judges could bring more delays or compromise the quality of adjudication.

Though motions for summary judgment, default judgment and orders of reference had previously been spread out among 27 judges, Justice Lawrence Knipel, the administrative judge for civil matters in Brooklyn Supreme Court, decided last month to funnel the cases to Justices Noach Dear, Mark Partnow and Acting Justice Peter Sweeney.

Dear will handle foreclosure matters exclusively, while the other two justices will have their motion practice focused on foreclosures but will continue their trial work.

"If the existing amount of work for 25 judges is now concentrated among three, how is the work going to get done without either impairing quality of work or grinding things to a halt?" asked Jacob Inwald, director of foreclosure prevention for Legal Services NYC.

In support of the reassignments, Knipel noted how more than a year ago, he consolidated all guardianship matters with one judge. Supreme Court Justice Leon Ruchelsman brought about 450 cases to an annual or final accounting last year, compared with the approximately 250 cases that six judges resolved in years past.

"It works when you have dedicated people," Knipel said, later adding that he was "more than reasonably confident we're going to see significant improvement."

Spurred by Chief Judge Janet DiFiore's call for "objective, self-critical analysis" of court operations, Knipel said foreclosure motions have been "substantially slowed" because of the competing caseloads of the 27 judges in the Individual Assignment System.

Each IAS justice in Brooklyn at any moment has about 2,000 cases where they oversee motion practice, plus their trial work.

Out of Brooklyn Supreme Court's roughly 54,000 pending civil cases, Knipel said about 11,800 are foreclosures.

As result, Dear, who had overseen consumer debt cases in Civil Court before his election to Supreme Court, now has more than 6,000 residential foreclosure cases but no other assignments.

Knipel acknowledged consumer debt cases are a "different animal" than foreclosure cases. But he said Dear has "demonstrated an ability to manage a large calendar."

Sweeney is taking on about 2,000 of the oldest residential foreclosure cases, which are seven to nine years old. Partnow is being assigned the remaining non-residential, non-commercial cases.

Six other judges will resolve motions, which can require hearings, such as homeowner claims that lenders negotiated without good faith.

If a lack of good faith is found, the judge will keep the case through disposition. If not, the case will go back to Dear.

Knipel said he was open to revisiting the plan as it unfolds.

But attorneys for homeowners are wary.

"It is work to decide motions. It is work to conference cases. Human time is finite," Inwald said, noting that delays ultimately mean a larger debt incurred by the homeowner. "Time is definitely money in this context. The harm is very, very real."

TO READ THE FULL STORY BY: Andrew Keshner of the New York Law Journal- CLICK HERE.

Morgan Stanley To Pay $3.2B To Settle US Mortgage Claims

Morgan Stanley has agreed to pay $3.2 billion to settle civil allegations the New York-based bank misled customers about the quality of mortgage-backed securities that soured during the nation's financial crisis, federal and state officials said Thursday.

The settlements mark the latest in a string of penalties against major banks as the U.S. Department of Justice and state attorneys general complete investigations into evidence the financial institutions' marketing and sales practices helped fuel the crisis.

“Morgan Stanley touted the quality of the lenders with which it did business and the due diligence process it used to screen out bad loans.  All the while, Morgan Stanley knew that in reality, many of the loans backing its securities were toxic," said acting U.S. Attorney Brian Stretch of California's northern federal district.

Morgan Stanley said its previous financial set-asides for the settlements would prevent the payments from affecting the bank's 2016 earnings. "We are pleased to have finalized these settlements involving legacy residential mortgage-backed securities matters," the bank said.

The bank in February 2015 said it had reached agreement in principle on a $2.6 billion settlement resolving mortgage-related claims by DOJ's Civil Division and federal prosecutors in California. But the settlement, which affected the bank's fourth-quarter 2014 earnings, wasn't immediately finalized amid negotiations on documentation outlining the bank's conduct.

The new agreements cover the bank's handling of residential mortgage-backed securities between 2005 and 2007, just before the financial crisis erupted. A statement of facts issued with the settlements said Morgan Stanley failed to tell investors that some of the mortgages "did not comply with underwriting guidelines" or "had understated loan-to-value ratios." Additionally:

  • A Morgan Stanley valuation due diligence official sent a June 2006 email that warned a colleague not to mention that some mortgage-backed securities the bank marketed to investors had "slightly higher risk tolerance." The official added: "We are running under the radar and do not want to document these types of things."
  • A July 2006 email from the bank's due diligence team to a bank official included a list of problem loans and said: "I assume you will want to do your 'magic' on this one?"
  • An email from a loan originator about an October 2006 loan pool urged a Morgan Stanley employee to "[p]lease, Mitigate, mitigate, mitigate!!!" a reference to the process the bank used to decide whether higher-risk loans should be packaged in  mortgage securities.

The settlement includes $550 million for New York, $400 million worth of consumer relief and $150 million in cash, said New York Attorney General Eric Schneiderman. He said the penalties would "deliver resources to the families and communities that need them the most, while helping New Yorkers avoid foreclosure, and spurring the construction of more affordable housing."

Other major U.S. banks that negotiated settlements over similar mortgage-related misconduct paid even higher penalties in recent years.

Friday, February 5, 2016

HSBC Reaches $470M Deal With US, States Over Banking Abuses

Banking giant HSBC has reached a $470 million settlement with the federal government and nearly all states over mortgage lending and foreclosure abuses that officials say contributed to the country's economic meltdown, the Justice Department announced Friday. 

 The agreement requires the bank to pay $100 million and to provide an additional $370 million in consumer relief to borrowers and homeowners, including reducing mortgage interests rates as well as the principal on mortgages for homeowners who are at risk of default. The deal also requires the bank to improve standards for how it services loans and handles foreclosures. 

 Officials say those changes are intended to discourage past banking practices, such as robosigning and poor-quality loans, that played a part in the financial crisis starting in 2007 in which millions of Americans lost their homes to foreclosure. "This settlement illustrates the department's continuing commitment to ensure responsible mortgage servicing," Benjamin Mizer, head of the Justice Department's Civil Division, said in a statement. "The agreement is part of our ongoing effort to address root causes of the financial crisis." 

 The settlement involves the departments of Justice and Housing and Urban Development and the Consumer Financial Protection Bureau. Attorneys general from 49 states plus the District of Columbia signed on. The $100 million payment will go to the federal government and to an escrow fund administered by the states to make payments to borrowers who lost their homes to foreclosure between 2008 and 2012. 

The $370 million in relief to homeowners already is flowing, the Justice Department said. An independent monitor will also be appointed to oversee the bank's compliance with the settlement terms. The civil settlement includes no criminal penalties, though the Justice Department says the state and federal government still have the option of pursuing criminal enforcement.

The full story can be found here:

Wednesday, February 3, 2016

Wells Fargo officially reaches $1.2B settlement over its FHA lending

The Settlement Resolves claims for the time period between 2001-2010

NEW YORK -- San Francisco bank Wells Fargo Wednesday said it has agreed to fork over $1.2 billion to settle allegations that it fraudulently certified loans in connection with a government insurance program.

In a 2012 lawsuit, the U.S. government accused Wells Fargo of sticking it with "hundreds of millions of dollars" in Federal Housing Authority insurance claims as a result of years of "reckless" underwriting and fraudulent loan certification.

As a result, FHA had to pay out insurance claims on thousands of FHA-insured mortgages that defaulted, the government said.

On Wednesday, Wells Fargo said it had "reached an agreement in principle" with the parties that brought the complaint, including the U.S. Department of Justice, the U.S. Manhattan Attorney’s Office the U.S. Attorney’s Office for the Northern District of California, and the U.S. Department of Housing and Urban Development.

The settlement is expected to retroactively ding the bank's 2015 net income by $134 million, or 3 cents a share, to $22.9 billion, or $4.12 a share, the bank said.

The lawsuit alleged that Wells Fargo recklessly underwrote loans backed by FHA insurance from at least 2001 to 2010.

In that time, the bank certified over 100,000 FHA loans as meeting HUD’s requirements and therefore eligible for FHA insurance, even though the loans had not been properly underwritten and did not meet HUD’s requirements, the lawsuit said.

Wells Fargo also internally identified 6,558 seriously deficient loans that it was required to self-report. But rather than reporting the loans as required, the bank concealed 6,320 of these improperly certified loans, the government alleged.

Eight years after the mortgage meltdown of 2008, big banks continue to pay hefty fines for their alleged contributions to the crisis, including faulty underwriting and their handling of risky mortgage-backed securities, or loans bundled and then sold in slices to investors.

Last month, Goldman Sachs announced a $5.1 billion tentative settlement of a federal and state investigation of the investment for its handling of mortgage-backed securities leading up to the financial crisis.