Daily Archives: October 2, 2012

In JPMorgan Case, the Martin Act Rides Again

The New York attorney general’s new lawsuit againstJPMorgan Chase over mortgage-backed securities showcases one of the legal weapons most feared on Wall Street: the Martin Act.

In using the law, the attorney general, Eric T. Schneiderman, is drawing upon the securities fraud statute behind many of the biggest actions against financial firms in recent years.

The Martin Act, which was enacted in 1921 as a deterrent against “blue-sky” fraud, allows New York’s attorney general to pursue criminal or civil charges against companies. But the law does not require the government to show proof that the defendant intended to defraud anyone, or that fraud actually took place. So the state has a lower bar to bring cases.

Read on.

Palm Beach County ruling: Foreclosure law firm wrong to charge for paperwork served to ‘unknowns’

A foreclosure law firm violated state law by charging homeowners for summonses served on “John and Jane Doe” and other unknown parties who may have claims on the property, a Palm Beach County judge has ruled.

It is common practice for law firms to serve foreclosure paperwork on homeowners, as well as separate summonses for “unknown tenant,” or “unknown spouse,” even if the borrower is single and is not renting out the property. The borrower is usually billed for the additional summonses at about $45 each.

Law firms have said the practice is necessary because they need to sue every person or entity who may have a claim on the home in order to ensure clear title at the end of the suit.

But Circuit Judge Lucy Chernow Brown said in a ruling last week there is no legal basis or justification for issuing a summons made out to an unknown party, and that attempts to collect payment on those summonses violates the Florida Consumer Collection Practices Act and the Florida Deceptive and Unfair Trade Practices Act.

Read on.

Exclusive: Banks Fire Warning Over Fines

The bosses of Britain’s biggest lenders have warned regulators that mounting fines linked to a string of industry scandals pose a wider risk to the stability of the banking system.

At a meeting with officials from the Financial Services Authority (FSA) last week, bank chief executives said that escalating redress and penalties for mis-selling and other malpractice could jeopardise both their lending capacity and their ability to rebuild capital in line with regulators’ demands.

The warning comes in the wake of a rising compensation bill triggered by the mis-selling of payment protection insurance (PPI) and interest rate swaps, which have so far cost the major banks more than £8bn.

A person familiar with the talks said the bankers highlighted the unpredictability of recent conduct-related fines both in the UK and US.

“This is not about special pleading. Banks which have mis-sold products to consumers should provide appropriate redress,” said one person close to the talks. “But there is a wider point about lending and the stability of the banks if so much capital is leaking out in the form of fines as well as compensation for which there is sometimes no justification.”

Read on.


Oct 1 (Reuters) – UBS AG on Monday lost a bid to suspend a federal regulator’s lawsuit accusing it of misleading Fannie Mae and Freddie Mac into buying billions of dollars of risky mortgage debt.

A U.S. appeals court, in a one-sentence ruling, denied the request by UBS to stay proceedings in federal court in Manhattan while it appealed a judge’s order that the Federal Housing Finance Agency may pursue claims against the Swiss bank.

On May 4, U.S. District Judge Denise Cote ruled that the FHFA could continue its case accusing UBS of breaking federal securities laws by misleading Fannie Mae and Freddie Mac into buying $6.4 billion of subprime and other residential mortgage-backed securities.

A spokeswoman for UBS had no immediate comment on the order by the 2nd U.S. Circuit Court of Appeals.

The case is one of 17 that the FHFA filed last year against banks over losses suffered by the housing finance giants on approximately $200 billion of mortgage debt. Losses on the securities were a major factor in the 2008 financial crises.

More here…

Mortgage settlement regulator: All big banks must now be compliant

Joseph Smith, the monitor of the National Mortgage Settlement, said the grace period for the nation’s largest lenders to become compliant with his office’s 304 mortgage servicing standards, is now ended.

Ally FinancialBank of America ($9.01 0.045%)Citigroup ($33.12 0.37%),JP Morgan Chase ($40.76 -0.21%) and Wells Fargo ($34.76 0.06%) all signed on to the new standards that guide interactions with mortgage holders.

“Today is the 180th day since the entry of the consent judgments comprising the National Mortgage Servicing Settlement. As of today, the five banks subject to the Settlement are required to operate in full compliance with its servicing standards. I will conduct careful and thorough reviews of the banks’ processes to assure and verify that they are compliant with the Settlement’s rules,” said Smith in a statement.

Read on.

AIG may become systemically significant bank

Insurance giant American International Group ($33.56 0.3%), which became a troubled institution in the wake of the subprime crisis, could be classified as a systemically important financial institution under new Dodd-Frank reform rules, the Los Angeles Times reported Tuesday.

Taxpayers still have a significant stake in the firm, which was bailed out by the Treasury back in 2008.

Firms classified as systemically significant face more Federal Reserve oversight, including requirements forcing them to boost capital reserves.

Click here to read more.


Affidavit (redacted) of Whistleblower from Clayton + Watterson Prime (Mortgage Due Diligence Firm) in Ambac vs. EMC mortgage

Exhibit 15 — Whistleblower Affidavit (Redacted):

Affidavit of Whistleblower from Clayton + Watterson Prime (Mortgage Due Diligence Firm) in Ambac vs. EMC:

…Many of my colleagues at Clayton also lacked underwriting experience and a number of them had held no previous positions in the mortgage industry. I noticed that many senior Clayton employees, such as Deb Medina, hired many of their family members to work as due diligence underwriters, even when they had no experience in the mortgage industry.

…Because of the time pressures, however, many due diligence underwriters at both Clayton and Watterson entered information directly from the loan application (also known as the “1003 form”) or underwriting worksheet (the “1008 form”) without verifying the information by examining supporting documentation. This was known as “1008 underwriting.” In addition to the time pressures, another reason that many Clayton and Watterson due diligence underwriters engaged in 1008 underwriting was because they lacked the experience to question the information on these forms.

In fact, Clayton leads instructed us not to question what was on the 1008 form: “The loan’s already closed. You can’t do anything about it at this point.” I received similar instructions from leads at Watterson, who often told us: “It’s closed. Just approve it and move on, They’re already in the house.” From these instructions, I understood that Clayton and Watterson supervisors wanted me to approve loans without questioning any inaccuracies or departures from the underwriting guidelines.

As a result, due diligence underwriters like me knew that we could avoid having supervisors examine our work so long as we graded the loans as 1s. If we graded loans as 2s or 3s, quality control personnel and leads scrutinized our work and, oftentimes, publicly berated us for assigning that grade. Deb Medina, a Clayton lead, frequently yelled at due diligence underwriters for grading loans as 3s in public. Watterson leads instructed us, “Pass the loan and keep it moving.” By this I understood that I was supposed to approve loans and could quickly move on to the next loan.

Clayton and Watterson leads instructed us to avoid grading loans as 3s. This was true for numerous clients, but especially true on Bear Stearns jobs… due diligence underwriters at both Clayton and Watterson often used the phrase “Bear don’t care.”

…I frequently reviewed loan files that contained documents that appeared to be fraudulent. For example, I reviewed many pay stubs that I believed were fraudulent because they were obviously altered. When I raised this issue to leads at Clayton, they instructed me: “This is not fraud review. Just take it from there.”