FHFA News Release: "$200 Billion in Recovery Excessive"

Washington, DC - The FHFA is seeking financial recovery from recently filed lawsuits according to its press release today.  It went on to say, "at this time, it would be premature and potentially misleading to estimate the size of any potential recoveries" and that "press reports that FHFA is seeking nearly $200 billion in damage are excessive." 


Full Press Release

Fed's Sue 17 Banks

Washington, DC -- The Federal Housing Finance Agency (FHFA), as conservator for Fannie Mae and Freddie Mac (the GSEs), today filed lawsuits against 17 financial institutions, certain of their officers and various unaffiliated lead underwriters.  The suits allege violations of federal securities laws and common law in the sale of residential private-label mortgage-backed securities (PLS) to the Enterprises.  


Complaints have been filed against the following lead defendants, in alphabetical order: 

1. Ally Financial Inc. f/k/a GMAC, LLC 
2. Bank of America Corporation 
3. Barclays Bank PLC 
4. Citigroup, Inc. 
5. Countrywide Financial Corporation
6. Credit Suisse Holdings (USA), Inc. 
7. Deutsche Bank AG
8. First Horizon National Corporation 
9. General Electric Company
10. Goldman Sachs & Co.
11. HSBC North America Holdings, Inc.  
12. JPMorgan Chase & Co.
13. Merrill Lynch & Co. / First Franklin Financial Corp.  
14. Morgan Stanley
15. Nomura Holding America Inc.
16. The Royal Bank of Scotland Group PLC 
17. Société Générale  

There are 17 separate suits all relating to mortgage origination and mortgage-backed securitization. Being separate actions the allegations vary from case to case.  Here's a sampling of allegations:

• Loan-to-Value Data Was Materially False
• Owner Occupancy Data Was Materially False
• The Originators of the Underlying Mortgage Loans Systematically Disregarded Their Underwriting Guidelines
• Failure To Conduct Proper Due Diligence
• Defendants Incentivized to Fund Risky Residential Mortgage Loans
• Material Misrepresentations and Omissions in the Offering Materials
• Fraud

Fannie and Freddie want out of the bad deals.  Specifically FHFA is asking the courts for: 

• Rescission and recovery of the consideration paid for the GSE Certificates, with interest thereon; 
• Each the GSE's monetary losses, including any diminution in value of the GSE Certificates, as well as lost principal and lost interest payments thereon; 
• Attorneys’ fees and costs; 
• Prejudgment interest at the maximum legal rate; 
• and in some cases Punitive damages. 

Plaintiffs' Counsel is Quinn Emmanuel Urquhart & Sullivan, LLP and Kasowitz Benson Torres & Friedman LLP


Follow this link to view legal filings: FHA Filings in PLS Cases, September 2, 2011

US / FHFA vs Big Banks

The New York Times reports today that the Federal Housing Finance Agency is poised to bring suit against a dozen major banks for misrepresenting the quality of mortgage securities the banks marketed through Fannie Mae and Freddie Mac. 

Banks included under the proposed suit include Bank of America, JP Morgan Chase, Goldman Sachs, Deutsche Bank, among others.

This potential federal action is in addition to suits previously brought by 50 states attorneys-general as litigation continues to swirl in the beleaguered mortgage sector.  

Read more:

NYT - US is set to Sue a Dozen Big Banks Over Mortgages

Market Watch - US said Ready to Sue Big Banks over Mortgages

Hand In Glove

The convergence of a couple of items in the news...


Washington, DC - The Federal Housing Finance Agency (FHFA), in its capacity as conservator of Fannie Mae and Freddie Mac (the Enterprises), today filed an Appearance and Conditional Objection regarding the proposed settlement between Bank of America and a consortium of 22 investors being considered by a court in New York. 


This pleading was filed to obtain any additional pertinent information developed in the matter.  The conservator is aware of no basis upon which it would raise a substantive objection to the proposed settlement at this time.  News Release


Meanwhile...         [Excerpt: Article by Nelson Schwartz, New York Times]


NYC, NY - On Tuesday, several homeowners filed suit in the Federal District Court in Manhattan seeking to block a proposed $8.5 billion settlement between Bank of America and major mortgage investors including BlackRock, Pimco and the Federal Reserve Bank of New York. The suit claims that the deal fails to address widespread servicing problems and would actually speed up foreclosures.


"There is growing realization that this settlement needs more scrutiny," said Keith Fleischman, the lawyer for the four homeowners in the suit.  "It needs to address the housing crisis itself."   Full Article: Homeowners Seek to Bloc BOA Settlement


Stay tuned.

Fannie Plays Hardball with PMI Insurers

This story began last summer when the US Treasury announced its rules for the Home Affordable Foreclosure Alternatives Program (HAFA).  To speed up the short sale approval process Treasury wanted Fannie and Freddie to have designated authority over servicers and private mortgage insurance (PMI) providers.  In order for that to happen the servicers and PMI providers had to "sign on".  Treasury could hold a big gun to their heads, "if don't sign on you can't do business with Fannie or Freddie".  But they couldn't make delegated authority mandatory.


With its announcement early this week Fannie dropped the hammer on three PMI providers by suspending them as "approved mortgage insurers".  Per Fannie:

On August 22, 2011, Fannie Mae announced the suspension of PMI Mortgage Insurance Co., PMI Insurance Co., and PMI  Mortgage Assurance Co., as approved mortgage insurers. 

The pool of Fannie-approved PMI providers has now shrunk to three national insurers: Genworth, MGIC and United Guaranty.  Will this limited supply chain result in less flexibility in mortgage underwritng?  Competition usually brings about more competitive products and services.  Limiting competition tends to work the other way.


We'll see.


Links:
Fannie Mae Service Announcement
Acceptable Mortgage Insurers

Bottoming - Are We There Yet?

House Prices Fall 0.6% in 2011 Q2 

Washington, DC – The Federal Housing Finance Agency (FHFA) announced U.S. house prices were 0.6 percent lower in the second quarter than in the first quarter of 2011, per the house price index (HPI).   The HPI is calculated using home sales price information from Fannie Mae- and Freddie Mac-acquired mortgages.


Not exactly what homeowners and those of us in the real estate biz are looking to hear.  Is this price slide a double dip?  Seems we're hearing the term used more often, unofficially.   Probably not so much a double-dip, as it is a double-whammy.  


Home prices have been hit from both the supply-side and the demand-side.  Supply is over-stocked with foreclosure inventory.  And the demand-side is hurt by high unemployment, mortgages being harder to get and consumer confidence being low.  There's no question that housing recovery in this market remains a slow process.     

The FHFA went on to say, "Over the past four quarters, seasonally adjusted prices fell 5.9 percent. The quarterly decrease came despite an increase in FHFA’s seasonally adjusted monthly house price index for June of 0.9 percent.  The June HPI was 18.8 percent below its April 2007 peak."

Link: FHFA 8/24/11 Press Release

FHFA / HUD Seek REO HELP!!!

Washington, DC  --   The Federal Housing Finance Agency (FHFA), in consultation with the U.S. Department of the Treasury and Department of Housing and Urban Development (HUD), has announced  a Request  For Information (RFI), seeking input on new options for selling single-family real estate owned (REO) properties held by Fannie Mae and Freddie Mac  (the Enterprises), and the Federal Housing Administration (FHA).


The RFI’s objective is to help address current and future REO inventory.  It will explore alternatives for maximizing value to taxpayers and increasing private investment in the housing market, including approaches that support rental and affordable housing needs.

The Enterprises will continue to market individual REO properties for sale while FHFA and the Enterprises seek other solutions.


"The RFI calls for approaches that achieve the following objectives:

• reduce the REO portfolios of the Enterprises and FHA in a cost-effective manner;
• reduce  average loan loss severities to the Enterprises and FHA relative to individual distressed property sales;
• address property repair and  rehabilitation needs;
• respond to economic and real estate conditions in specific geographies;
• assist in neighborhood and home price stabilization efforts; and
• suggest analytic approaches to determine the appropriate disposition strategy for individual properties, whether sale, rental, or, in certain instances, demolition.

FHFA, Treasury and HUD anticipate respondents may best address these objectives through REO to rental structures, but respondents are encouraged to propose strategies they believe best accomplish the RFI’s objectives.  Proposed strategies, transactions, and venture structures may also include:

• programs for previous homeowners to rent properties or for current renters to become owners (“lease-to-own”);
• strategies through which REO assets could be used to support markets with a strong demand for rental units and a substantial volume of REO;
• a mechanism for private owners of REO inventory to eventually participate in the transactions; and
• support for affordable housing.

Link to RFI