Report: DOJ Pushing to Charge Individuals for Roles in Mortgage Meltdown

Attorney General Eric Holder has given U.S. attorneys across the country 90 days to judge whether or not they want to bring cases against specific individuals for their alleged roles in 2008’s mortgage crisis, according to reports.

Speaking at a National Press Club event on Tuesday, Holder said federal prosecutors who have previously brought charges against firms for selling toxic mortgage-backed securities will be given an opportunity to investigate individual employees for potential charges, Reutersreported.

Holder reportedly told the assembled press that prosecutors will have 90 days to report back on “whether they think they are going to successfully bring criminal or civil cases against those individuals.”

The announcement marks a policy shift for Holder, whose department has taken criticism from consumers and politicians with its failure to go after bank executives and some institutions following the crash. In early 2013, he famously remarked at a Senate committee hearing that the size of some institutions makes it difficult to prosecute them without impacting the economy.

He walked those comments back later, saying, “If we find a bank or financial institution that has done something wrong, if we can prove it beyond a reasonable doubt, those cases will be brought.”

The timing of the attorney general’s announcement is also bound to raise questions: With Holder on his way out, the ultimate decision to prosecute would be made by his replacement, who right now is slated to be Loretta Lynch.

“Once again, it appears as though the Administration is looking to bully the mortgage banks, or should I say bankers, instead of restoring faith and confidence into the mortgage banking system,” said Ed Delgado, President and CEO of the Five Star Institute.  “Despite hundreds of billions paid in fines and penalties, it’s not enough.   Today’s announcement from U.S. Attorney General Eric Holder to seek action against mortgage bankers, just as he is about to leave office, is nothing more than one last attempt to impugn and embarrass an already beleaguered industry.

“Now names and people’s lives have to be destroyed, but to what end? To satisfy what agenda? It begs the question: will a single family benefit from this action? Will a foreclosure be reversed? Or has the matter of seeking justice become politicized to the point, where unless a mortgage executives name and face appear on the cover of the New York Times, charged with some criminal act, there simply will be no measure of satisfaction in the eyes of the government.  It’s a shame that taxpayer money is being spent to further a cause without a means to an end.”

A message left with the department’s Office of Public Affairs was not immediately returned.

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Distressed Home Sales, Foreclosure Inventory Decline Substantially

Sales of distressed homes (REO and short sales) fell to their lowest level in seven years and foreclosure inventory dropped by 34 percent year-over-year in December 2014, according to CoreLogic‘s February 2015 The MarketPulse report released on Tuesday.

Distressed home sales (REO and short sales) made up 12.8 percent of total home sales in December 2014, the lowest percentage reported for any one month since December 2007 at the beginning of the financial crisis. December’s percentage was a 2.8 percent decline from the same month a year earlier and a decline of 1.2 percent from a month earlier, according to CoreLogic. REO sales accounted for 8.8 percent of December’s distressed home sales share while short sales accounted for 4 percent.

“The ongoing shift away from REO sales is a driver of improving home prices, as REOs typically sell at a larger discount than do short sales, ” CoreLogic senior economist Molly Boesel said. “There will always be some amount of distress in the housing market, so one would never expect a 0 percent distressed sales share, and by comparison, the pre-crisis share of distressed sales was traditionally 2 percent.”

Distressed home sales hit their peak in January 2009 when they accounted for 32.4 percent of all home sales (REO sales made up 28 percent of that share).

The five states with the largest distressed home sales shares were Michigan (23.6 percent), Florida (22.4 percent), Illinois (20.8 percent), Maryland (18.7 percent), and Connecticut (18.6 percent). The state that experienced the largest year-over-year decline in distressed home sales share in December was Nevada, which saw a decline of 9.6 percent. The state that experienced the largest decline in distressed home sales share in December from its peak was California, which reported a decline of 56.9 percent from its peak total reached in January 2009 of 67.4 percent.

Out of the nation’s 25 largest Core Based Statistical Areas (CBSAs), the top three in distressed home sales share were all located in Florida: Miami-Miami Beach-Kendall was tops with 24.7 percent, followed by Orlando-Kissimmee-Sanford with 24.2 percent and Tampa-St. Petersburg-Clearwater at 24 percent. Rounding out the top five were Chicago-Naperville-Arlington Heights, Illinois (23.6 percent) and Las Vegas-Henderson-Paradise, Nevada (19.8 percent).

Meanwhile, CoreLogic reported that about 552,000 residential homes, or about 1.4 percent of all homes with a mortgage nationwide, were in some state of foreclosure in December 2014 – a 34 percent decline from December 2013, when 840,000 homes (2.1 percent of all homes with a mortgage) were in foreclosure.

December marked 38 consecutive months of year-over-year declines in foreclosure inventory and 23 straight months with year-over-year declines of 20 percent or more, according to CoreLogic. Also experiencing large year-over-year declines were the 12-month sum of foreclosures, which totaled approximately 563,000 for the entire year of 2014 – a decline of 14.9 percent from the sum of completed foreclosures for 2013. The number of seriously delinquent mortgage loans (those 90 days or more overdue or in foreclosure) fell to 1.6 million in December 2014, a decline of 21.6 percent from the same month a year earlier.

JPMorgan Chase Settles for $50 Million With DOJ Over Robo-Signing, Other Violations

JPMorgan Chase Bank has agreed to pay more than $50 million to more than 25,000 homeowners in bankruptcy as part of a settlement with the Department of Justice‘s U.S. Trustee Program (USTP), according to an announcement from the DOJ on Tuesday.

The amount Chase agreed to in the proposed settlement will include cash payments, mortgage loan credits, and loan forgiveness to the homeowners in bankruptcy. Chase has agreed to change its internal operations, and an independent compliance reviewer will conduct oversight to ensure that Chase is complying with the terms of the settlement.

The settlement is subject to court approval by the U.S. Bankruptcy Court of the Eastern District of Michigan, where it was filed.

Chase acknowledged as part of the settlement that it filed more than 50,000 payment change notices in bankruptcy courts nationwide that were improperly signed by persons who had not checked the notices for accuracy, a practice commonly known as “robo-signing.” According to DOJ, more than 25,000 of the notices were signed in the names of either former bank employees or employees who were not part of the accuracy checking process, and the remaining notices were signed by third party vendors on matters that were not related to the accuracy checking process.

Also as part of the settlement, Chase acknowledged that it failed to file timely, accurate mortgage payment change notices and provide timely, accurate escrow statements.

“It is shocking that the conduct admitted to by Chase in this settlement, including the filing of tens of thousands of documents in court that never had been reviewed by the people who attested to their accuracy, continued as long as it did,” Acting Associate Attorney General Stuart F. Delery said. “Such unlawful and abusive banking practices can deprive American homeowners of a fair chance in the bankruptcy system, and we will not tolerate them.”

Chase’s payments, credits, and contributions which total more than $50 million will include: $22.4 million in credits and second lien forgiveness to approximately 400 homeowners who received inaccurate notices of payment increase while they were in bankruptcy; $10.8 million through credits or refunds for payment increases or decreases that were not filed in a timely manner or noticed to more than 12,000 homeowners in bankruptcy ; $4.8 million to more than 18,000 homeowners who did not receive accurate or timely escrow statements; $4.9 million (approximately $600 per loan) to more than 8,000 homeowners whose escrow payments were not applied in a manner consistent with escrow payments Chase provided; and contributing $7.5 million to the American Bankruptcy Institute’s endowment for financial education and support for the Credit Abuse Resistance Education Program.

“This settlement should signal once again to banks and mortgage servicers that they cannot continue to flout legal requirements, compromise the integrity of the bankruptcy system and abuse their customers in financial distress,” Director Cliff White of the U.S. Trustee Program said.  “It should be acknowledged that Chase responded to the U.S. Trustee’s court actions by conducting an internal investigation and taking steps to mitigate harm to homeowners.  But years after uncovering improper mortgage servicing practices and entering into court-ordered settlements to fix flawed systems, it is deeply disturbing that a major bank would still make improper court filings and fail to provide adequate and timely notices to homeowners about payments due. Other servicers should take note that the U.S. Trustee Program will continue to police their practices and will work to ensure that those who do not comply with bankruptcy law protections for homeowners will pay a price, just as Chase has done in this matter.”

As part of the settlement, Chase agreed to change its technology, policies, procedures, internal controls, and other oversight systems in order to prevent the problems addressed in the settlement from recurring. Also, Amy Walsh, a partner with the law firm Morvillo LLP, will serve as the independent reviewer to ensure that Chase is complying with the terms of the settlement.

This is not the first settlement between JPMorgan Chase and the Justice Department. In November 2013, the bank agreed to a then-record $13 billion settlement with the DOJ over the packaging and selling of faulty residential mortgage-backed securities in the run-up to the financial crisis.

Freddie Mac Announces First Seriously Delinquent Loan Sale of 2015

In the first bulk sale of seriously delinquent mortgage loans from its portfolio in 2015, Freddie Mac announced on Tuesday it has auctioned off 1,975 deeply delinquent non-performing loans with an aggregate unpaid balance of approximately $392 million.

The loans that were sold in the auction were an average of three years delinquent on mortgage payments, according to Freddie Mac, meaning that the borrowers for all the loans are all likely in some stage of mitigation – either loan modification, a foreclosure alternative such as a short sale or deed-in-lieu of foreclosure, or actually in foreclosure. Loans that were modified and later became delinquent made up about 24 percent of the aggregate pool, according to Freddie Mac.

The loans were offered as three separate pools. The winning bidder for both Pool No. 1 and Pool No. 2 was Pretium Mortgage Credit Partners/Loan Acquisition, LP. The winning bidder on Pool No. 3 was Bayview Acquisition, LLC.

Pool No. 1 included 752 non-performing loans with an aggregate unpaid balance of $136.2 million and a broker price opinion loan-to-value of 74 percent; Pool No. 2 included 468 non-performing loans with an aggregate UPB of $102.4 million and a BPO LTV of 100 percent; and Pool No. 3 included 755 non-performing loans with an aggregate UPB of $153.1 million and a BPO LTV of 135 percent. According to Freddie Mac, the average loan size on the aggregate of the three loan pools was $198,400, and the average note rate was 5.39 percent. The aggregate weighted average LTF was 96.1 percent of the property value based on BPOs, according to Freddie Mac. The winning bidders must meet certain servicer qualification requirements.

Freddie Mac first announced the auction for these three pools of deeply delinquent loans on January 21, with Bank of America Merrill Lynch, Credit Suisse and The Williams Capital Group acting as advisors for the transaction. The conservator for both Freddie Mac and its fellow GSE, Fannie Mae, is requiring the two Enterprises to reduce the number of delinquent loans in their portfolios. Fannie Mae has yet to sell any of its delinquent loans in bulk quantity; Freddie Mac sold its first bundle of delinquent loans for $659 million in July 2014.

CFPB’s Perceived Overreach, Lack of Accountability Discussed in Congressional Hearing

Two major subjects discussed during Tuesday’s hearing entitled “The Semi-Annual Report of the Consumer Financial Protection Bureau” before the House Committee on Financial Services were the Republicans’ perceived lack of accountability on the part of the Bureau as well as whether or not the Bureau’s efforts have been overreaching.

CFPB Director Richard Cordray testified during the hearing Tuesday to discuss the Bureau’s achievements in its nearly four-year existence as well as answer questions from members of the Committee. Republicans, many of which are members of the Committee, have repeatedly made efforts to reform the CFPB in the last three and a half years. One of the Bureau’s most vocal critics has been U.S. Representative Jeb Hensarling, the Chairman of the House Committee on Financial Services.

“The CFPB undoubtedly remains the single-most most powerful and least accountable federal agency in all of Washington,” Hensarling said during Tuesday’s hearing. “. . . Americans are losing both their financial independence and the protection of the rule of law. The Bureau is fundamentally unaccountable to the president, since the director can only be removed for a cause; fundamentally accountable to Congress, because the Bureau’s funding is not subject to appropriations; fundamentally unaccountable to the courts because Dodd-Frank requires courts to grant the CFPB deference regarding its interpretation of federal consumer financial law. Thus, the Bureau regrettably remains unaccountable to the American people. That is why we need CFPB on budget and led by a bipartisan commission. Your testimony is not the equivalent to accountability.”

Representative Randy Neugebauer (R-Texas), who will be the keynote speaker at the Five Star Government Forum in Washington D.C. on March 18, said he believes the pendulum has swung too far in the other direction.

“Consumer protection must be done in a smart, tailored and politically neutral manner,” Neugebauer said. “It should not be used to advance ideological policies. If the pendulum of consumer protection swings too far, you have nothing left to protect. . . Some of my Democratic colleagues allege that Republicans want to get rid of the CFPB. I look back over the last five years and see a field of proposals to restructure the CFPB, not to get rid of it.”

Neugebauer said he planned to introduce several bills to refocus the CFPB, including one to introduce a balanced process into the Bureau’s decision-making.

“Many have forgotten that Elizabeth Warren, our former colleague Barney Frank, and even the president originally supported a board leadership structure,” Neugebauer said.

Among the Bureau’s achievements Cordray touted were the new rules implemented to protect consumers in the mortgage industry.

“Our Ability-to-Repay rule, also known as the Qualified Mortgage rule, put new guardrails in place to prevent the kind of sloppy and irresponsible underwriting that had precipitated the crisis,” Cordray said. “Our mortgage servicing rules offered new and stronger protections to homeowners facing foreclosure. And our other rules addressed significant problems in the mortgage market deemed in need of repair. During this period, we continued our extensive work on regulatory implementation by providing tools and resources to assist industry in implementing our final rule to consolidate and streamline mortgage disclosure forms at both the application stage and the closing stage.”

Cordray described attempts to make the Bureau more accountable as a “natural back and forth” between the Bureau and Congress.

“I think this is in many respects a natural back and forth between the Congress, which has the rightful and important responsibility of oversight, and an executive agency like our own, which is of course ultimately accountable to the Congress, both for carrying out the statute that Congress has enacted that is the law we’re supposed to implement and to make sure that you have the information you need to be able to oversee our operations,” Cordray said. “There’s no disagremeent about that. There’s no resentment about that. It can be a lot of work to respond to aggressive oversight, but I don’t begrudge it. I think it’s an appropriate role of Congress.”

After praising the Bureau’s “remarkable” efforts that have resulted in directly refunding $5.8 billion dollars to more than 15 million consumers that were reportedly harmed by predatory practices, Committee Ranking Member Maxine Waters (D-California) turned her remarks toward criticizing the Republican’s efforts to make the Bureau more accountable.

“I cannot imagine staff time and resources that the Bureau has spent responding to your frivolous requests – at the expense of helping our nation’s consumers,” Waters said. “But that’s precisely the Republican playbook. They want the CFPB to be wasting resources digging out from under a deluge of requests – so that the payday lenders, debt collectors and other predators can continue victimizing the American people unabated. Mr. Chairman (Hensarling), your party pretends to care about the huge challenges of income inequality and minority access to credit, vilifying this agency as ‘hurting the very people we are trying to help.'”

Not all Democrats are on board with the CFPB’s lack of accountability to Congress. In February, bipartisan legislation was re-introduced by Representatives Steve Stivers (R-Ohio) and Tim Walz (D-Minnesota) that would create an independent inspector general for the CFPB that would be appointed by the president and confirmed by the Senate. Currently, the CFPB shares an inspector general with the Federal Reserve – a position that is appointed by the Fed chair and not subject to Senate approval.

Ocwen Agrees to Sell Agency MSR Portfolio Worth $45 Billion

Ocwen Financial has signed a letter of intent to sell the mortgage servicing rights for $45 billion worth of Agency performing loans, according to an announcement on Ocwen’s web site late Monday night.

The portfolio consists of about 277,000 performing loans owned by Fannie Mae. The approximate unpaid balance of the loans is approximately $45 billion. According to the announcement, Ocwen expects the deal to close by the middle of the year. The transaction is subject to approval from Fannie Mae as well as the Enterprise’s conservator, the Federal Housing Finance Agency, and other customary conditions. Ocwen expects the loan servicing to transfer over the second half of 2015.

Monday’s announcement came less than a week after Ocwen announced it was selling an MSR portfolio worth $9.8 billion in performing Agency loans to Dallas-based Nationstar. That portfolio contained approximately 81,000 performing residential mortgage loans owned by Freddie Mac.

These two transactions together represent approximately $55 billion in unpaid principal balance for which Ocwen has agreed in the last week to sell the mortgage servicing rights. Both of the transactions are expected to be completed in the next six months. According to Ocwen’s announcement, the Atlanta-based servicer expects the two transactions will generate approximately $550 million in proceeds and “accelerate Ocwen’s strategy to reduce the size of its Agency servicing portfolio.”

Ocwen did not name the buyer in the $45 billion transaction announced Monday, though Ocwen President and CEO Ron Faris did say last week that his company was looking forward to “exploring additional MSR transactions with Nationstar.”

Also announced on Monday, Ocwen entered into an amendment to its $1.3 billion Senior Secured Term Loan to remove certain restrictions on asset sales and permanently increase a financial covenant. To repay cash received from asset sales, Ocwen has agreed to an accelerated repayment schedule.

“We are pleased with the actions of our term loan investors. They have been supportive of Ocwen and recognize the importance and benefit of executing on our strategy,” Faris said. “Additionally, their willingness to enter into an amendment with Ocwen is an affirmation that the Company is, and always has been, in compliance with all of its SSTL covenants.”

Ocwen’s regulatory troubles over the last year have been well-documented. The Atlanta-based non-bank mortgage servicer agreed to a $150 settlement with the New York Department of Financial Services in December 2014. That settlement included the departure of chairman Bill Erbey, who founded the company more than 30 years ago.