Friday, July 30, 2010

FYI: Illinois Enacts Statewide HAMP Compliance Requirement

As referenced in our prior update below, the Illinois legislature passed an amendment to its foreclosure statute allowing a borrower to undo a foreclosure sale if the borrower proves s/he applied for a HAMP loan modification, and that the property was nevertheless sold in material violation of the HAMP program guidelines.  

Illinois Governor Pat Quinn signed the legislation into lawA copy of the amendments to the Illinois Mortgage Foreclosure Law are attached.  

Specifically, the court that entered the foreclosure judgment is required to aside a foreclosure sale, if the mortgagor proves by a preponderance of the evidence that:  (i) the mortgagor has applied for assistance under the HAMP; and (ii) the mortgaged real estate was sold in material violation of the program's requirements for proceeding to a judicial sale. These provisions are scheduled to become inoperative on January 1, 2013 for all foreclosure actions filed after December 31, 2012, in which the mortgagor did not apply for assistance under the HAMP on or before December 31, 2012.

The Illinois legislature's website shows the effective date of the amendments as July 23, 2010.

Let me know if you have any questions.  Thanks.
 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.

 

Our updates are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 


From: Ralph T. Wutscher [mailto:rwutscher@krw-llp.com]
Sent: Monday, June 21, 2010 7:54 AM
To: Ralph Wutscher
Cc: SoCalOffice; D.C. Office; Chicago Office
Subject: FYI: Illinois to Enact Statewide HAMP Compliance Requirement; Local/County Mediation Requirements Starting

The Illinois legislature passed an amendment to its foreclosure statute allowing a borrower to undo a foreclosure sale if the borrower proves s/he applied for a HAMP loan modification, and that the property was nevertheless sold in material violation of the HAMP program guidelines.  Copies of the amendment and bill status are attached.  Illinois Governor Pat Quinn is expected to sign the legislation into law shortly, and the amendments should become effective on January 1, 2011.

Separately, two Illinois counties also are implementing mandatory foreclosure mediation programs.

Foreclosure Mediation Program - Cook County, IL (Chicago area)

The Cook County Mortgage Foreclosure Mediation Program provides free assistance to Cook County homeowners in foreclosure.  A copy of the Fact Sheet for the program is attached.  Although the program officially started in April of 2010, implementation is beginning now.

In order to qualify, the borrowers must:  (1) be residents of Cook County, Illinois; (2) have received a foreclosure summons from the Cook County Court; and  (3) live in the building in foreclosure – which may be a single-family home, single-family condominium or apartment building with four or fewer units. 

The qualified borrowers are directed to call the toll-free help line to schedule a free meeting with a housing counselorAfter meeting with a housing counselor, homeowners will have the opportunity to meet with an on-site attorney to discuss the housing counselor’s recommendations and prepare for a court date that will determine whether the foreclosure case can be mediated with the lender.

Program assistance is provided by the Chicago Bar Foundation, Illinois Housing Development Authority, The Chicago Community Trust, The Center for Conflict Resolution, the Chicago Legal Clinic and Chicago Volunteer Legal Services.

Foreclosure Mediation Program - Will County, IL (Joliet area, southwest of Chicago)

Similarly, the Will County mortgage foreclosure mediation program provides free assistance to Will County homeowners in foreclosure.  A copy of the announcement for the program is attached.  The program was announced on June 7, 2010, and is being set up for implementation now.

Under rules approved by the Illinois Supreme Court and promulgated by the Twelfth Judicial Circuit (Will County), all residential foreclosure actions are automatically scheduled for a mandatory pre-mediation conference within 60 days.  

Along with the summons, defendant borrowers will be given a form explaining the mandatory mediation program. The form will state that the case will be evaluated by an outside mediator for possible loan modification or other resolution. It will also state that if modification is not deemed feasible or if the borrower does not want to save the home, then mediation may still be used to assist the parties in discussing a consent foreclosure in which the lender will waive any deficiency against the borrowers.  The form also will advise the borrower to bring certain financial information, and will contain a list of local counseling agencies available to assist borrowers in foreclosure.  All financial information will be held in confidence by the mediator and not disclosed to any other party without the consent of the borrower.

An independent mediator will determine at the pre-mediation hearing whether the borrower meets initial criteria of having greater monthly income than expenses in order to qualify for a loan workout or modification. If the borrower does not meet the criteria or does not wish to keep the house, the mediator may seek to determine whether the borrower can deed the property to the lender or consent to a judgment waiving any deficiency judgment against the borrower.  If the borrower meets initial criteria for a loan modification or wishes to surrender the property in a consent foreclosure or other arrangement, the mediator will scheduled a mediation conference within 30 days.

At the mediation conference, a representative of the lender must appear in person with full settlement authority and participate in good faith in the mediation process. Failure to attend or to participate in good faith will result in sanctions by the court, including possible dismissal of the action. If the borrower fails to appear without excuse, the mediation will be terminated and the matter will be referred back to the trial court.  Any agreement will be reduced to writing and signed by the parties and their counsel.

The Circuit Court may retain jurisdiction of the case for a trial period. If the borrower fails to successfully modify the loan, or if no agreement is reached, the foreclosure will resume in the Circuit Court.

The Will County Chief Judge has compiled a list of qualified mediators, who are either retired judges or attorneys with a minimum of five years experience in the mortgage foreclosure field. Any mediator will be prohibited from practice in residential mortgage foreclosure proceedings in the Twelfth Circuit in any capacity, including bidders at the Sheriff’s sales. Mediators will be paid $150 for each file. To finance the program, the Supreme Court has authorized an increase in the filing fees paid by a plaintiff for all foreclosures in the Twelfth Judicial Circuit (Will County) from $276 to $426.

 
Let me know if you have any questions.  Thanks.
 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.

 

Our updates are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 

 

Wednesday, July 28, 2010

FYI: 7th Cir Says Loan Mod Communications by Servicer Can Violate FDCPA

The U.S. Court of Appeals for the Seventh Circuit recently reversed a district court's decision to dismiss a lawsuit brought by a mortgage borrower against a loan servicing company under the FDCPA, holding that the plaintiff's complaint sufficiently alleged that certain loan modification communications that did not explicitly demand payment were nevertheless "sent in connection with an attempt to collect a debt," and in violation of the FDCPA.  A copy of the opinion is attached.

Plaintiff brought this action against the servicer of her mortgage loan, alleging that two letters she received regarding her mortgage loan, after she was in default on the loan, violated the FDCPA.  In the first letter, the servicer offered plaintiff the opportunity to discuss "foreclosure alternatives," and requested certain financial information.  The second letter was from a third party that had partnered with the servicer, and also asked plaintiff to complete and return a financial information form to the servicer. 

Plaintiff then filed this class action lawsuit against the servicer, alleging that the servicer violated the FDCPA by: (1) using deceptive means to obtain her personal information through the use of a third party; (2) communicating directly with plaintiff despite knowing she was represented by an attorney; and (3) communicating with a third party about plaintiff's mortgage without plaintiff's consent.  The district court granted the servicer's motion to dismiss, on the grounds that the claims were not made "in connection with the collection of" plaintiff's debt, as required to state the claims under the FDCPA.  The dismissing the case, the lower court ruled that a communication is made "in connection with the collection of any debt" only if it explicitly demands payment, which the communications at issue did not do.  This appeal followed, and the Seventh Circuit reversed and remanded.

As you may recall, in order for the FDCPA to apply, at least two threshold criteria must be met: (1) the defendant must qualify as a "debt collector;" and (2) the communication by the debt collector that forms the basis of the suit must have been made “in connection with the collection of any debt.”  Here, the parties agreed that the loan servicer is a debt collector under the statute.  Accordingly, the issue for the Seventh Circuit on appeal was whether the subject communications were made in connection with the collection of a debt.  In reversing and remanding the district court's holding, the Court first noted that there is no "bright-line rule for determining whether a communication from a debt collector was made in connection with the collection of a debt."  Looking to its prior decisions for guidance, the Court held that a demand for payment is "just one of several factors that come into play in the commonsense inquiry" of whether a communication is in connection with the collection of a debt, noting that the nature of the parties' relationship and the purpose and context of the communications (viewed objectively) are also important factors to consider.

Ultimately, the Court held that the context and content of the letters to the plaintiff here were sufficient to bring her claim within the scope of the FDCPA.  Important to the Court's decision was the fact that the plaintiff was in default on her loan when the letters were sent, and the servicer's letter to plaintiff was its "opening communication in an attempt to collect [plaintiff's] defaulted home loan - by settlement or otherwise."  Even though the communication did not explicitly ask for payment, it was an offer to discuss repayment options, which, according to the Court, qualifies as a communication in connection with an attempt to collect a debt.  Moreover, the third party's letter was sent for the purpose of encouraging plaintiff to contact the loan servicer to discuss debt-settlement options, and accordingly was also a communication in connection with an attempt to collect a debt.  Finally, the Court held that the servicer's communication with the third party was also "plainly" in connection with the collection of a debt.
Let me know if you have any questions.  Thanks.
 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.

 

Our updates are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 

 

FYI: Feds Issue SAFE Act Final Rules

Various federal banking agencies issued the attached final rules regarding the registration requirements under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) for residential mortgage loan originators who are employees of national and state banks, savings associations, Farm Credit System institutions, credit unions, and certain of their subsidiaries
 
As you may recall, the SAFE Act requires residential mortgage loan originators who are employees of agency-regulated institutions to be registered with the Nationwide Mortgage Licensing System and Registry. The NMLS is a database created by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators to support the licensing of mortgage loan originators by the states. As part of this registration process, residential mortgage loan originators must furnish to the registry information and fingerprints for background checks. The SAFE Act generally prohibits employees of agency-regulated institutions from originating residential mortgage loans unless they register with the registry.
The final rules are being issued by the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision, Farm Credit Administration, and National Credit Union Administration, as to their regulated institutions.  The agencies’ final rules establish the registration requirements for residential mortgage loan originators employed by agency-regulated institutions and requirements for these institutions, including the adoption of policies and procedures to ensure compliance with the SAFE Act and final rules.
 
Pursuant to the SAFE Act, the final rules also require that each residential mortgage loan originator obtain a unique identifier through the registry that will remain with that residential mortgage loan originator, regardless of changes in employment. This is intended to enable consumers to easily access employment and other background information about registered mortgage loan originators from the NMLS registry. Under the final rules, registered mortgage loan originators and agency-regulated institutions must provide these unique identifiers to consumers.

The final rules take effect on October 1, 2010.
 
The agencies anticipate that the NMLS registry could begin accepting federal registrations as early as January 28, 2011. Employees of agency-regulated institutions must not register until the agencies instruct them to do so. The agencies will provide an advance announcement of the date when the registry will begin accepting federal registrations, and agency-regulated institutions and their applicable employees will have 180 days from that date to comply with the initial registration requirements.
 
Let me know if you have any questions.  Thanks.
 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.

 

Our updates are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 

FYI: 6th Cir Upholds Dismissal of Cleveland's "Subprime Nuisance" Lawsuit

The U.S. Court of Appeals for the Sixth Circuit recently affirmed a district court's decision to dismiss pursuant to Fed. R. C. P. 12(b)(6) a public nuisance lawsuit filed by the City of Cleveland against 22 financial entities.  In the lawsuit, the City claimed the Defendants' alleged public nuisance - the financing, purchasing and pooling of subprime mortgages - led to a foreclosure crisis in Cleveland.  A copy of the opinion is attached.

The City of Cleveland, Ohio brought this public nuisance suit against 22 financial entities it claims are responsible for a large portion of the subprime lending market in Cleveland and nationally, arguing that such subprime lending is an alleged public nuisance because it led to a foreclosure crisis and consequently the alleged devastation of Cleveland's neighborhoods and economy.  The City claimed that although the defendants did not necessarily originate such mortgages, the financing, purchasing and pooling of the loans alone constituted a public nuisance.  The lawsuit, brought in Ohio state court, was removed to the Northern District of Ohio by one of the defendants, who asserted diversity of citizenship.  The City's motion to remand was denied.  The district court later dismissed the complaint pursuant to Fed. R. Civ. P. 12(b)6) on four independent grounds: (1) preemption; (2) the economic loss rule; (3); unreasonable interference of a public right; and (4) the City did not satisfy the directness requirement of proximate cause.  This appeal followed.

In affirming the district court's decision to dismiss the lawsuit, the Sixth Circuit first looked to the City's argument that the case should have been remanded to state court because the defendants' removal was defective.  The Court held, however, that the City had waived its right to pursue this issue on appeal and, nevertheless, the district court still properly declined to remand the case because its ruling conformed with the rule of unanimity, under which all defendants must consent to removal.

Next, the Court addressed the district court's decision to dismiss the matter on proximate cause grounds.  More specifically, the district court found that the City did not satisfy the directness requirement of proximate cause which "requires some direct relation between the injury asserted and the injurious conduct alleged."  The directness analysis is distinct from foreseeability and applies even if the defendants intentionally caused the course of events.  Accordingly, the City's assertion that the Defendants "knew about the consequences of subprime lending" was irrelevant to the Court's directness analysis. 

In determining whether the complaint sufficiently pleaded proximate cause, the Court focused on the three factors laid out in the U.S. Supreme Court's seminal ruling on directness in Holmes v. Sec. Investor Prot. Corp., which was adopted by the Ohio Supreme Court.  The first Holmes factor states that "indirectness adds to the difficulty of determining which damages can be attributed to the defendant's misconduct."  Here, the Court noted that the injuries alleged by the City could have been caused by many other factors unconnected to the defendants' conduct, not the least of which was the home buyers' voluntary choice to enter into a subprime mortgage and to default on their loans and the fact that the original lenders were the actors that ultimately made the decision to provide the mortgages.  Moreover, the alleged damages were also not directly caused by the defendants, as, among other reasons, homeowners were responsible for maintaining their properties, "drug dealers and looters made independent decisions" to engage in criminal conduct and properties not subject to subprime loans also entered into foreclosure.  The remote connection between the alleged misconduct and the alleged injury would make it impossible to ascertain the amount of the City's damages attributable to the violation.

The Court also ruled that the City's claim failed under the third Holmes factor, which looks to whether more immediate victims can sue to the extent that the defendants violated any laws.  Here, a suit could be brought by the individual mortgagors, or other home owners who were injured because their neighborhood declined due to foreclosed home.  Accordingly, the Court held that "other potential claims obviate the need for this court to allow Cleveland's claim to proceed."

Ultimately, the Court held that the connection between the alleged harm and the alleged misconduct was too indirect to warrant recovery their "proximate cause holding clearly resolves this case, and we therefore do not need to address the district court's remaining reasons for dismissing the complaint."
Let me know if you have any questions.  Thanks.
 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.

 

Our updates are available on the internet, in searchable format, at: http://updates.kw-llp.com

 



From: Ralph T. Wutscher [mailto:rwutscher@krw-llp.com]
Sent: Sunday, July 18, 2010 6:41 PM
To: Ralph Wutscher
Cc: SoCalOffice; D.C. Office; Chicago Office
Subject: FYI: Goldman Sachs Settles "Subprime Securitizer" Lawsuit with SEC for $550M

The Securities and Exchange Commission announced that Goldman Sachs will pay $550 million, and reform its business practices, in order to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.
 
A copy of Goldman's consent to the settlement is available at:
 
A copy of the proposed final judgment against Goldman is available at:

In its complaint, the SEC alleged that Goldman misstated and omitted key facts regarding a synthetic collateralized debt obligation (CDO) it marketed that hinged on the performance of subprime residential mortgage-backed securities. Goldman allegedly failed to disclose to investors material information about the CDO (known as ABACUS 2007-AC1), particularly the role that hedge fund Paulson & Co. Inc. played in the portfolio selection process and the fact that Paulson had taken a short position against the CDO.

In agreeing to the SEC's largest-ever penalty paid by a Wall Street firm, Goldman also acknowledged that its marketing materials for the subprime product contained incomplete information.  However, Goldman agreed to settle the SEC's charges without admitting or denying the allegations, by consenting to the entry of a final judgment that provides for a permanent injunction from violations of the antifraud provisions of the Securities Act of 1933.  Of the $550 million to be paid by Goldman in the settlement, $250 million would be returned to harmed investors through a Fair Fund distribution and $300 million would be paid to the U.S. Treasury.

The landmark settlement also requires remedial action by Goldman in its review and approval of offerings of certain mortgage securities, including the role and responsibilities of internal legal counsel, compliance personnel, and outside counsel in the review of written marketing materials for such offerings. The settlement also requires additional education and training of Goldman employees in this area of the firm's business. In the settlement, Goldman acknowledged that it is presently conducting a comprehensive, firm-wide review of its business standards, which the SEC has taken into account in connection with the settlement of this matter.

The settlement is subject to approval by the Honorable Barbara S. Jones, of the U.S. District Court for the Southern District of New York.  If approved, the settlement would resolve only the SEC's enforcement action against Goldman related to the ABACUS 2007-AC1 CDO, but not any other past, current or future SEC investigations against the firm, and not the SEC's litigation against Fabrice Tourre, a vice president at Goldman.

Let me know if you have any questions.  Thanks.
 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.

 

Our updates are available on the internet, in searchable format, at: http://updates.kw-llp.com


 


From: Ralph T. Wutscher [mailto:rwutscher@krw-llp.com]
Sent: Thursday, June 24, 2010 3:49 PM
To: Ralph Wutscher
Cc: SoCalOffice; dcoffice@kahrlwutscherllp.com; chicagooffice@kahrlwutscherllp.com
Subject: FYI: Morgan Stanley Settles "Subprime Securitizer" Dispute with MA AG for $102M

Pursuant to the settlement, Morgan will provide pay $58 million to more than 1000 Massachusetts homeowners, $23 million to the Massachusetts Pension Fund for investment losses, and $19.5 million in taxpayer money to the Commonwealth’s General Fund.

As a result of a lengthy investigation, the Attorney General’s Office alleged that Morgan entered the subprime arena in Massachusetts by offering funding to retail lenders that specialized in loans to less-qualified borrowers.  Morgan provided billions of dollars to subprime lender New Century Mortgage, which alleged used Morgan funds to target lower-income borrowers and to supposedly lure them into loans that "consumers predictably could not afford to pay."  The MA AG claimed that the loans often were "unsustainable because of payment shock or poor underwriting," and that "borrowers would have to refinance in the short term or face foreclosure."  Some Morgan Stanley investment bankers allegedly referred to New Century as Morgan’s “partner” in the subprime lending business.

In addition to the $102 million in financial compensation, the settlement also requires Morgan to change its business practices going forward and to provide information and materials needed in the Attorney General’s ongoing investigation of the subprime securitization marketplace.

Today’s settlement is the latest in a series of actions brought by the Attorney General’s Office in response to the economic and lending crisis.  AG Coakley’s Office has been a national leader in bringing actions on behalf of homeowners and taxpayers against companies relating to their role in the subprime marketplace, including Goldman Sachs, Fremont, and Option One (see our updates, below).

Allegations in the Assurance of Discontinuance (attached) include that Morgan provided warehouse lending to New Century, and after New Century made the loans, Morgan would place the loans into a securitization pool, and then act as the underwriter selling investments backed by the subprime loans in the pool.

As part of this securitization process, Morgan employed third party due diligence providers to review the quality of New Century’s loans.  During this review, Morgan allegedly learned:

  • New Century allegedly repeatedly violated the Massachusetts Division of Banks’ “borrower best interest” standard when it made subprime loans, and thus made loans that violated Massachusetts law.
  • New Century allegedly calculated the Debt to Income (DTI) ratio for borrowers based only on the initial “teaser rate” for the loans, rather than the fully indexed interest rate that would kick in after the teaser period expired.  When calculated using the fully indexed rate, almost 40% of the loans failed Morgan’s own internal underwriting standards for whether the borrower could pay them.
  • The large majority of New Century loans supposedly failed the basic test of their own underwriting guidelines and could only be approved as “exception” loans, which required the presence of “compensating factors.”  Sample reviews by Morgan vendors showed that many of these loans violated the guidelines in several different ways, and about one-third of the randomly sampled loans lacked compensating factors to justify the extension of credit.
  • Appraisals used by New Century to value the collateral backing the loans (the homes) allegedly were often significantly different from BPOs that Morgan obtained to check New Century’s figures.  
  • New Century originated a large number of “stated income loans.”  In fact, a Morgan employee allegedly noted that New Century overused stated income loans to the point of abuse.

All of these due diligence discoveries underscored the riskiness and/or uncertainty relating to New Century’s loans and whether borrowers would be able to pay them back.  According to the MA AG, it is illegal under Massachusetts law to make loans without reasonably assessing a borrower’s ability to pay the loan according to its terms.    

In late 2005 and early 2006, Morgan began rejecting greater numbers of New Century loans as a result of the due diligence findings.  After New Century suggested it would shift its business elsewhere, Morgan allegedly began again to include a wider range of New Century loans in its purchase pools.  A Morgan Stanley senior banker allegedly purchased loans that Morgan’s own internal due diligence team initially rejected, and Morgan allegedly waived vendor concerns regarding a substantial number of the New Century loans identified as having material problems. 

Moreover, as New Century finally spiraled towards bankruptcy, its risky lending practices exposed to the public, Morgan Stanley continued to lend money to the subprime originator even when other banks would no longer provide New Century with cash.  During early March 2007, Morgan Stanley provided millions of dollars that the AG claims "New Century used directly to finance a last round of unsustainable predatory loans in Massachusetts." 

Throughout 2006 and the first half 2007,  Morgan continued to securitize New Century’s predatory subprime loans, and sold investments to two Massachusetts state entities—the Massachusetts Pension Reserves Investment Trust (PRIT) and the Massachusetts Municipal Depository Trust (MMDT).  According to the AG, this "led to state funds being used to fuel predatory subprime lending, and to significant losses for PRIT and the MMDT."

Under the terms of today’s settlement, Morgan will make the following payments and conduct reforms:

  • Pay $58 Million in principal reduction and related relief to over 1000 Massachusetts subprime borrowers
  • $19.5 Million payment to the Commonwealth
  • $23.4 Million to PRIT and the MMDT
  • $2 Million to non-profit groups throughout the Commonwealth to assist victims of subprime foreclosure
  • Not fund unfair subprime loans in Massachusetts
  • Make additional disclosures to Massachusetts investors regarding its future subprime securitizations
  • Provide documents and information to the Attorney General’s Office in its ongoing review of industry subprime securitization practices.
 
Let me know if you have any questions.  Thanks.
 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.

 

Our updates are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 

 


From: Ralph T. Wutscher [mailto:rwutscher@krw-llp.com]
Sent: Tuesday, May 12, 2009 11:28 AM
To: Ralph T. Wutscher
Subject: FYI: Goldman Settles "Subprime Securitizer" Dispute with MA AG for $50M

Attorney General Martha Coakley’s Office announced that it has reached a $50M settlement agreement with Goldman Sachs & Company, including substantial principal write-downs and refinancing options for loans owned by Goldman and/or serviced by Litton.  Copies of the settlement agreement, and a diagram explaining the write-down process on 1st and 2nd lien loans, are attached.
 
The Attorney General’s Office has been investigating the role of investment banks in the origination and securitization of subprime loans in Massachusetts.  In order to resolve any potential claims stemming from the Attorney General’s investigation, Goldman has agreed to provide loan restructuring valued at approximately $50 million to Massachusetts subprime borrowers.  The loan restructuring program is designed to enable borrowers to replace problem loans with new, more affordable loans that take into account the current value of their properties. Goldman has also agreed to make a $10 million payment to the Commonwealth, and will continue to cooperate with the Attorney General in her ongoing investigation of industry practices. 

Under the settlement, Goldman has agreed to significant principal write-downs to allow Massachusetts homeowners to refinance or sell their homes. For homeowners with loans held by Goldman entities, Goldman has agreed to reduce the principal of first mortgages by up to 25-35% and second mortgages by 50% or more.  Borrowers whose first mortgage is significantly delinquent will be required to make a reasonable monthly loan payment while seeking refinancing or until they sell their home. If after six months, a borrower is still unable to find financing or sell his or her home, Goldman will reduce the principal owed on the existing loan to assist the borrower. Additionally, for loans not currently held by Goldman, but which are serviced by Goldman’s affiliated servicing company, Litton Loan Servicing LP, Goldman has agreed to assist qualified borrowers with finding refinancing options and other alternatives to foreclosure.  

The Attorney General’s Office states that it began its investigation into the securitization of subprime loans in December 2007, and that it has focused on a variety of industry practices involved in the issuance and securitization of subprime loans to Massachusetts consumers.  The MA AG's Office also states that it is investigating whether securitizers may have:

  • facilitated the origination of "unfair" loans under Massachusetts law;
  • failed to ascertain whether loans purchased from originators complied with the originators' stated  underwriting guidelines;
  • failed to take sufficient steps to avoid placing problem loans in securitization pools;
  • been aware of allegedly unfair or problem loans;
  • failed to correct inaccurate information in securitization trustee reports concerning repurchases of loans; and
  • failed to make available to potential investors certain information concerning allegedly unfair or problem loans, including information obtained during loan diligence and the pre-securitization process, as well as information concerning their practices in making repurchase claims relating to loans both in and out of securitizations.

The Goldman settlement and the Attorney General’s investigation into securitizers reflect the latest aspect of the Office’s comprehensive enforcement approach to combating subprime lending and the foreclosure crisis.  This latest inquiry concerns the role of securitizers—those who bundled mortgage loans and sold them as mortgage-backed securities or other investment vehicles.   

The Attorney General’s Office has sued Fremont Investment & Loan, as well as Option One and its parent H&R Block, alleging unfair, deceptive and predatory lending practices, and obtained preliminary injunctions against those companies.  (See our prior updates below.)  The Office also promulgated new consumer protection regulations, effective in January 2008, governing mortgage lenders and brokers. 

For a map of Massachusetts illustrating locations of loans covered by this agreement, please see:

http://www.mass.gov/Cago/docs/press/2009_05_11_goldman_map.pdf

Let me know if you have any questions.  Thanks.

 

Ralph T. Wutscher
Kahrl Wutscher LLP
105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kahrlwutscherllp.com

http://www.krw-llp.com

 

NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.

 

 


From: Ralph T. Wutscher [mailto:rwutscher@krw-llp.com]
Sent: Thursday, December 11, 2008 7:18 PM
To: Ralph T. Wutscher
Subject: FYI: MA Sup Ct Affirms Lower Court's Injunction in AG Litigation Against Fremont

The Supreme Judicial Court of Massachusetts affirmed the lower court's grant of a preliminary injunction against the company formerly known as Fremont Investment & Loan.  A copy of the opinion is attached.
 
As discussed in our prior updates below, Fremont appealed a preliminary injunction in favor of the Massachusetts Attorney General that restricts Fremont's ability to foreclose on residential mortgage loans with certain features the judge described a "presumptively unfair." 
 
The Massachusetts high court disagreed with Fremont's argument that:  (1) the lower court retroactively and in an ex post facto fashion applied new rules or standards for defining what is "unfair" under Massachusetts's UDAP statute;  (2) the lower court improperly expended the reach of the state's "predatory lending" statute to reach loans not covered by that statute;  (3) the lower court improperly ignored that the loans at issue were permissible, valid and legal when made; and  (4) the lower court improperly ignored the effects of its ruling on mortgage loan pricing and the availability of credit when considering public policy implications.
 

Let me know if you have any questions.  Thanks.

 

Ralph T. Wutscher
Kahrl Wutscher LLP
105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@krw-llp.com

http://www.krw-llp.com

 

NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.

 

 


From: Ralph T. Wutscher [mailto:rwutscher@krw-llp.com]
Sent: Tuesday, December 02, 2008 11:38 AM
To: Ralph T. Wutscher
Subject: FYI: Court Rules in MA AG Litigation Against Option One

The Massachusetts Attorney General brought an action against Option One Mortgage Corporation and its affiliates similar to that which she brought against Fremont (see our updates below).  The same court granted the Attorney General's motion for a preliminary injunction in the Option One litigation.  A copy of the opinion is attached.

 

Referencing its earlier Fremont decision, the court held as follows:

 

In this Court's Fremont Decision, the Court found that it is an unfair act in violation of G. L. c. 93 A, section 2 for lender to issue an adjustable rate home mortgage loan secured by the borrower's principal dwelling that the lender reasonably should expect the borrower would be unable to afford to pay or be able to refinance once the introductory period ends unless the fair market value of the home has increased at the close of the introductory period. In that decision, the Court characterized this as structural unfairness. In this decision, this Court characterizes it as reckless disregard of the risk of foreclosure.

 

However, in its Option One decision, the court changed the criteria for structural unfairness.  Here, the court lowered the introductory rate criterion from 3% to 2%, explaining the revision as follows:

 

In blunter terms, most mortgage loans that fell into delinquency were so carelessly underwritten that the borrower could not afford them even before the payment shock kicked in. Therefore, this Court will revise the second criterion by including all loans with an introductory or "teaser" rate for the initial period that is at least 2 percent lower than the fully indexed rate, and will eliminate this criterion entirely for all loans with a debt-to-income ratio of 55 percent or above.

 

The court also lowered the loan-to-value criterion from 100 percent to 97 percent, with the following explanation:

 

…for all practical purposes, a loan meeting the other three criteria with a loan-to-value ratio of 97 percent will only be able to be refinanced by a loan with a loan-to-value ratio equal to or greater than 100 percent, which will almost certainly not be available to a lender with a 50 percent debt-to-income ratio. Therefore, this Court provides the fourth criterion to require a loan-to-value ratio of 97 percent or a substantial prepayment penalty or a prepayment penalty that extends beyond the introductory period.

 

As with Fremont, the court did not find any evidence of pervasive deception or other wrongdoing on the part of the defendants in the Option One litigation.  Nevertheless, it again found that the Attorney General was likely to prevail at trial on the issue of structural unfairness, and consequently, granted the Attorney General's motion for a preliminary injunction.  Likewise, the Court's preliminary injunction imposed the same review procedure as in the Fremont decision. 

 

Apparently, the court revised the criteria set forth in the Fremont decision upon being informed that only a very small fraction of loans in dispute would have met all four of the criteria imposed against Fremont.  The court felt compelled to change the criteria in order to enjoin the foreclosure of a greater population of loans.

 

Let me know if you have any questions.  Thanks.

 

Ralph T. Wutscher
Kahrl Wutscher LLP
105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@krw-llp.com

http://www.krw-llp.com

 

NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.

 


 


From: Ralph T. Wutscher [mailto:rwutscher@rw-llp.com]
Sent: Monday, August 04, 2008 7:12 PM
To: Ralph T. Wutscher
Subject: FYI: MA Sup Ct Requests Amicus Briefs in AG vs. Fremont Litigation

The Supreme Court of Massachusetts announced that it is soliciting amicus briefs in Fremont's appeal of the appellate court's and trial court's decisions.  (See our updates below).
 
Amicus submissions are due on or before September 22, 2008.
 
Let me know if you have any questions.  Thanks.
 
 
Ralph T. Wutscher
Roberts Wutscher, LLP
105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 
Fax:  (866) 581-9302
Mobile:  (312) 493-0874
RWutscher@rw-llp.com
http://www.rw-llp.com
 
NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.
 


From: Ralph T. Wutscher [mailto:rwutscher@rw-llp.com]
Sent: Thursday, May 08, 2008 6:05 PM
To: Ralph T. Wutscher (rwutscher@rw-llp.com)
Subject: FYI: MA App Ct Upholds Prelimin Injunction on Foreclosures of Certain "Presumptively Unfair" Loans

A Massachusetts appellate court judge upheld the preliminary injunction entered against Fremont Investment and Loan, preventing Fremont from initiating or advancing foreclosures on loans that are deemed "presumptively unfair" without prior approval from the court.  A copy of the appellate opinion is attached.
 
The appellate court noted that "[i]t has long been understood that a factor to be considered in determining whether a practice should be deemed unfair is whether it is 'within at least the penumbra of some common-law, statutory, or other established concept of unfairness." 
 
Moreover, the court also noted that "[t]he fact that particular conduct is permitted by statute or by common law principles should be considered, but it is not dispositive on the question of unfairness."  According to the appellate court, because the loan terms at issue (see our update below) were not explicitly authorized under state or federal law, Fremont could not qualify for the exemption under the Massachusetts UDAP statute for conduct permitted under state or federal law.
 
The appellate decision here was rendered by a single appellate court justice, under an "abuse of discretion" standard of review.  Fremont was granted leave to move for full panel review by May 15, 2008.
 
Let me know if you have any questions.  Thanks.
 
Ralph T. Wutscher
Roberts Wutscher, LLP
10 S. LaSalle Street, Suite 3500
Chicago, Illinois  60603
(312) 551-9320  Direct Dial
(866) 581-9302  Facsimile
(312) 493-0874  Mobile
RWutscher@rw-llp.com
http://www.rw-llp.com
 
NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.


From: Ralph T. Wutscher [mailto:rwutscher@rw-llp.com]
Sent: Wednesday, February 27, 2008 5:11 PM
To: Ralph T. Wutscher
Subject: FYI: MA Judge Preliminarily Enjoins Foreclosures on Certain "Presumptively Unfair" Loans

The Massachusetts Attorney General obtained a preliminary injunction in a case against Fremont General and Fremont Investment and Loan, preliminarily enjoining Fremont from initiating or advancing foreclosures on loans that are “presumptively unfair.”  A copy of the order is attached.
 
The court held that a loan is “presumptively unfair” if it possesses the following characteristics:
  • The loan is an adjustable rate mortgages with an introductory period of three years or less:
  • The loan has an introductory or “teaser” interest rate that is at least three percent lower than the fully-indexed rate;
  • The borrower has a debt-to-income ratio that would have exceeded 50% (not based on stated-income application representations, but upon other evidence of income)calculated using the fully-indexed rate; and
  • Fremont extended 100% financing or the loan has a substantial prepayment penalty or penalty that lasts beyond the introductory period.

Under the terms of the injunction, Fremont must provide the Attorney General’s Office with at least a 30-day notice of all foreclosures it intends to initiate for the approximately 2,200 loans that Fremont still owns and services, and allow the Attorney General an opportunity to object to the foreclosure going forward.  If Fremont has issued a loan that is considered “presumptively unfair,” and the borrower occupies the property as his or her principal dwelling, the Attorney General has 45-days to object to the foreclosure. 

 After the notice and objection process, Fremont may only proceed with a foreclosure to which the Attorney General objects if Fremont files a request with the Court, and the Court reviews the matter and agrees that a foreclose is appropriate.  In considering whether to allow the foreclosure, the court will consider, among other factors, whether the loan is unfair and whether Fremont has taken reasonable steps to work out the loan and avoid foreclosure.  The preliminary injunction does not release borrowers from their monthly mortgage obligations. 

Importantly, the court stated that the evidence showed that Fremont was the victim of misrepresentations on stated-income loan applications, and did not encourage or tolerate such misrepresentations.  Specifically, there was no evidence that:  (1) Fremont knew of any of the alleged misrepresentations of income on the 50 or 60 stated-income loans at issue; or   (2) Fremont recklessly supervised its brokers by continuing to do business with them after Fremont learned that the brokers had a pattern or practice of inflating the borrower's income on loan applications.  Likewise, the court also found no evidence that Fremont had ever misrepresented the terms of the loan to any borrower.

However, even though there was no indication that any of the loans were "high cost mortgage loans" under Massachusetts law, the court found that the Attorney General's theory of "unfairness" fell under the "penumbra" of the interests sought to be protected under the Massachusetts high-cost mortgage loan statute.
 
Also, the court emphasized that "borrowers who have received presumptively unfair loans from Fremont should not interpret this preliminary injunction to mean that they have been released from their obligation to repay these loans.  Borrowers share with Fremont the responsibility for having entered into a mortgage loan they cannot repay.  The spirit of this decision is simply that Fremont, having [allegedly] helped borrowers get into this mess, now must take reasonable steps to help them get out of it."
 
Let me know if you have any questions, or would like to discuss.  Thanks.
 
Ralph T. Wutscher
Roberts Wutscher, LLP
10 S. LaSalle Street, Suite 3500
Chicago, Illinois  60603
(312) 551-9320  Direct Dial
(866) 581-9302  Facsimile
(312) 493-0874  Mobile
RWutscher@rw-llp.com
http://www.rw-llp.com
 
NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.

Sunday, July 25, 2010

FYI: Illinois Enacts Elder Exploitation Monitoring Law

Illinois Governor Pat Quinn recently signed into law a bill intended to protect Illinois’ seniors from financial exploitation, through monitoring by regulated financial institutions.  Senate Bill 3267 (attached) requires the Illinois Department on Aging (IDoA) and Illinois Department of Financial and Professional Regulation (IDFPR) to develop training standards to be used by employees of financial institutions who have direct contact with customers. The employees will be trained to identify the indicators of financial exploitation, as well as how to report exploitation.  A copy of the bill showing the new statutory language is attached.

Compliance with the training standards will become part of IDFPR’s examination checklist. The agency will submit a compliance report to IDoA twice a year.

According to the press release (also attached), warning signs that a senior may be a victim of financial exploitation include: sudden changes in bank accounts or banking practices; the inclusion of additional names on a senior’s bank signature card; the unauthorized withdrawal of the victim’s funds using the victim’s ATM or credit card; and abrupt changes in a will or other financial documents.

The new law became effective upon enactment, on July 17, 2010.
 
Let me know if you have any questions.  Thanks.
 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.

 

Our updates are available on the internet, in searchable format, at: http://updates.kw-llp.com