Compliance

The Senate late Thursday afternoon passed the Dodd-Frank Wall Street Reform bill by a 60-39 vote, clearing the way for the president to sign the historic measure next week.

The United States District Court for the Northern District of Ohio denied certifying a Real Estate Settlement Procedures Act class action lawsuit on March 11, 2010. The Carter v. Welles-Bowen Realty, Inc., case No. 3:05 CV 7427, consolidated No. 3:09 CV 400, 2010 WL 908464 (Northern District of Ohio) is a case where the plaintiffs asserted that Welles-Bowen Realty, Inc was engaged in operating illegal affiliated business arrangements (aka sham AfBAs) which is a violation of RESPA Section 8(a) and 8(b) (12. U.S.C. 2607 (a) and (b))

The Securities and Exchange Commission recently charged a New York-based investment adviser and three of his affiliated firms with fraudulently managing investment products tied to the mortgage markets as they came under pressure in 2007.

A group of investors is suing Fortuno, Inc., a Lodi, Calif.-based buyer of foreclosed homes and its outside marketing executives, alleging they illegally "enticed" the group to invest in the purchase and re-sale of REOs in Ohio and Michigan with the promise of high returns upon flipping the properties.

A group of investors is suing Fortuno, Inc., a Lodi, Calif.-based buyer of foreclosed homes and its outside marketing executives, alleging they illegally "enticed" the group to invest in the purchase and re-sale of REOs in Ohio and Michigan with the promise of high returns upon flipping the properties.

The Federal Deposit Insurance Corp. has filed a $300-million negligence lawsuit against four former executives at IndyMac Bank FSB, accusing them of granting loans to homebuilders who were unlikely to repay the loans.

A New Jersey loan modification company and its owners have agreed to a judgment of $5,051,253 to settle civil charges they defrauded homeowners who sought help in avoiding mortgage foreclosure.

Three anti-government zealots were indicted by a federal grand jury in connection with an alleged scheme to extort money from public officials and top executives of Mid-Hudson Valley Federal Credit Union, after the lender foreclosed on one of their homes.

Mortgage fraud is a serious problem - still. Of course, credit standards are much higher today than a few years ago, and it is difficult for a borrower to obtain a mortgage by fibbing about his income or otherwise doctoring his loan application. But where there is a will to defraud, fraudsters will find a way.

Federal Housing Administration mortgage volume could get a boost from regulatory reform, because loans insured by government agencies are fully exempt from the bill's risk-retention requirement.

Morgan Stanley & Co. Thursday afternoon agreed to pay $102 million to Massachusetts homeowners and the state, settling allegations that it aided and abetted subprime lender New Century Financial Corp. in taking advantage of consumers. State attorney general Martha Coakley, announcing the settlement at a press conference, said Morgan provided billions of dollars in credit lines to New Century "which used Morgan funds to target lower-income borrowers and lure them into loans that consumers predictably could not afford to repay." She added that some Morgan executives referred to New Century as Morgan's "partner" in subprime lending. The Irvine, Calif.-based NCFC filed for bankruptcy in early 2008. For much of the decade it was one of the largest subprime lenders in the nation, according to figures compiled by National Mortgage News. As part of the settlement, Morgan agreed to "change its business practices" and to provide the AG's office with "information and materials" as part of its ongoing probe of subprime lenders and the securitization process. In a court filing AG Coakley notes that other Wall Street firms are under investigation regarding their securitization practices. Morgan agreed to the deal without admitting or denying any wrongdoing.

The Office of Thrift Supervision's watchdog said the agency was ineffective in regulating BankUnited -- a major player in the payment option ARM market -- before the thrift's 2009 failure and improperly allowed the Florida lender to backdate a capital infusion. The Treasury Department's inspector general said in a report that while the $13 billion-asset thrift's failure stemmed largely from high-risk lending, the OTS failed to clamp down on BankUnited's aggressive strategy. "OTS did not impose limits or restrict BankUnited's concentration and growth in high-risk option" adjustable-rate mortgages, said the report, which was made public Thursday. The inspector general report, which was required because the failure caused a "material loss" to the Deposit Insurance Fund, said the OTS also "did not adequately assess" poor underwriting at the thrift and failed to address BankUnited's "inaccurate risk-weighting." "We also found that OTS improperly directed the thrift to backdate a capital infusion from its holding company," the IG said. The report followed past criticism of the agency for allegedly encouraging backdating at troubled thrifts, which forced the dismissal of two senior OTS officials, former West Regional Director Darrel Dochow and former Senior Deputy Director Scott Polakoff.

Morgan Stanley & Co. Thursday afternoon agreed to pay $102 million to Massachusetts homeowners and the state, settling allegations that it aided and abetted subprime lender New Century Financial Corp. in taking advantage of consumers. State attorney general Martha Coakley, announcing the settlement at a press conference, said Morgan provided billions of dollars in credit lines to New Century "which used Morgan funds to target lower-income borrowers and lure them into loans that consumers predictably could not afford to repay." She added that some Morgan executives referred to New Century as Morgan's "partner" in subprime lending. The Irvine, Calif.-based NCFC filed for bankruptcy in early 2008. For much of the decade in was one of the largest subprime lenders in the nation, according to figures compiled by National Mortgage News. As part of the settlement, Morgan agreed to "change its business practices" and to provide the AG's office with "information and materials" as part of its ongoing probe of subprime lenders and the securitization process. In a court filing AG Coakley notes that other Wall Street firms are under investigation regarding their securitization practices. Morgan agreed to the deal without admitting or denying any wrongdoing.

Web-based LOS Avista Solutions has integrated with verification service company Kroll Factual Data. This integration was done at the request of joint clients to allow Avista Solutions' customers to pull credit through Kroll without leaving the Avista Agile LOS. The Avista Agile platform lets users create loan applications online through the system or import applications from external loan origination software. The consumer website portal allows lenders to provide their customers online loan application, status updates, loan officer webpages and online disclosure. Now Avista users will have access to Kroll's credit service, which provides reports in both PDF and text file formats.

Some nonbank mortgage lenders that pass the state LO tests required under the SAFE Act plan to market their expertise and use it as a competitive advantage against commercial banks. "It's definitely a plus in our favor," said Marc Savitt, a former past president of the National Association of Mortgage Brokers. "We can wave that piece of paper around and say, 'Hey, we're certified.'" Bodhi Kraus, for one, said his company, Priority Lending Mortgage Corp. in Santa Rosa, Calif., plans to highlight the fact that its loan officers are licensed on its business cards and mailings, and may even tout the licensing in its radio advertisements. "We advertise and make the phones ring," said Kraus, Priority's vice president. "We just don't have the employees to take" the calls. Under the Secure and Fair Enforcement Licensing Act, part of the Housing and Economic Recovery Act of 2008, loan officers working for state-supervised mortgage firms must now meet minimum standards for licensing and registration, including several hours of education and passing a test. Nonbanks say the requirements can be costly and time consuming, which puts them at a disadvantage to depositories, which are exempt from the SAFE Act. But Glen Corso, managing director of the Community Mortgage Banking Project, a trade group for independent lenders, said a number of companies he works with plan to use the licensing as a competitive tool, as a way to tell consumers that their loan officers are well qualified.

In the wake of a criminal indictment against the owner of Taylor Bean & Whitaker, the inspector general for the Department of Housing Urban Development is projecting at least $3 billion in losses for the government, perhaps more. In a brief interview with National Mortgage News, HUD IG Michael Zerega said the nonbank lender "cooked their books," adding "they called loans performing when they weren't." The IG's office has been investigating Ocala, Fla.-based TBW since 2008. The nonbank was a top-ranked FHA lender, and GNMA issuer. It pledged MBS and other assets as collateral for warehouse lines of credit made by commercial banks. On Wednesday, just after the Securities and Exchange Commission announced that it had filed a civil suit against TBW CEO and owner Lee Bentley Farkas, the Justice Department filed a 16-count indictment against him. The criminal allegations echo charges in the civil complaint, namely that TBW, under Farkas, created $400 million of "fake mortgages," and then sold them to its chief warehouse lender, Colonial Bank. (Last spring TBW tried to buy a controlling stake in Colonial using borrowed money and TARP funds. The deal eventually fell apart with both companies failing.) The indictment says Farkas "and others" carried out a "massive fraud," saying at least $1.9 billion in losses have already occurred. An attorney for Farkas said his client would plead not guilty.

The Justice Department is now investigating 3,000 cases of reported mortgage fraud nationwide, more than double its caseload of two years ago. At a press conference Thursday, Attorney General Eric Holder gave a tally of "Operation Stolen Dreams," a 100-day-old task force whose work has resulted in 1,215 criminal indictments and 191 civil enforcement actions. "The breadth of the fraud is truly astonishing, which is why we launched an unmatched effort to fight it," said Holder. "The staggering totals from this sweep highlight the mortgage fraud trends we are seeing around the country. We have seen mortgage fraud take on all shapes and sizes-from schemes that ensnared the elderly to fraudsters who targeted immigrant communities. We have seen cases that have resulted in dozens of foreclosures and millions in losses, as well as fraudsters who have bankrupted entire companies and national lenders who were not playing by the rules." DOJ has requested $178 million in its fiscal-year 2011 budget to fight mortgage fraud, an increase of more than $18.4 million.

The Securities and Exchange Commission Wednesday accused the former owner of Taylor Bean & Whitaker with orchestrating a massive equity and MBS fraud tied to his firm's warehouse borrowings from Colonial Bank, a depository it tried to take control of last summer using TARP money. In a civil complaint, the SEC says TBW owner and CEO Lee Farkas created $1.5 billion worth of "fictitious" whole loans and impaired MBS which were pledged to the bank's balance sheet and served as collateral for warehouse lines of credit. The government says the nonbank ran into "liquidity problems" and began over-withdrawing on its warehouse lines which led to the equivalent of a check "kiting" scheme at the bank. The agency says the scam predated TBW's attempted takeover of Colonial, a troubled bank, by about 18 months. In the spring of last year TBW tried to buy a controlling stake in the Alabama-based warehouse lender, using $200 million of its own money (most of it borrowed using servicing rights as collateral) and $100 million from private investors. These investors included several nonbanks that also were warehouse clients of Colonial. The bank, which failed last summer, was at one point the nation's largest warehouse provider. Using TBW's $300 million investment, Colonial had applied for $550 million of Troubled Asset Relief Program funds to stabilize its capital position. Farkas could not be reached for comment. TBW filed for bankruptcy protection last fall.

Language in the "base text" document of the regulatory reform bill could allow residential borrowers to sue their lender—without a statute of limitations—if the mortgage banker violates the anti-steering provisions of the law. According to an analysis of the base text conducted by K&L Gates, "in the case of judicial or nonjudicial foreclosure or any other action to collect on a loan, it appears that a consumer has a perpetual federal right to assert such a violation by a creditor as a matter of defense by recoupment or set off in an amount equal to the monetary damages that could be asserted against the original creditor." The base text is an amalgamation of the House and Senate versions of the bill. The law firm notes that several provisions from the House bill pertaining to residential mortgage lending that were not in the Senate Bill are included in the initial base document. The anti-steering language is designed to prevent lenders from pushing borrowers into certain loans—regardless of their ability to repay—because the loan officer might receive higher compensation for delivering such a loan. The law firm is telling clients, "There is a lot to be digested in the base document, but it is important to stress that it is the starting point for negotiations among the conferees."