Tag Archives: RMBS

Chase almost done with RMBS settlement’s consumer relief requirement

The Monitor of the Chase RMBS Settlement Joseph Smith officially credited Chase with providing $3,887,777,119 of consumer relief to 165,191 borrowers.

Through the third quarter 2015, JPMorgan Chase provided $206,242,520 in consumer relief to 3,389 borrowers.

This brings the bank extremely close to its required $4 billion in credited consumer relief by Dec. 31, 2017.

This is the eighth progress report on Chase’s consumer relief under its settlement with the federal government and five states concerning claims that Chase, Bear Stearnsand Washington Mutual packaged and sold bad residential mortgage-backed securities to investors before the financial crisis.

Read on.

Judge approves Goldman Sachs $272 million toxic mortgage settlement

In August, Goldman Sachs agreed to pay $272 million to settle a lawsuit brought by an Illinois electrical workers’ pension fund over losses suffered due to alleged misrepresentations of the quality of mortgage loans that backed crisis-era mortgage-backed securities.

On Monday, a federal judge approved the proposed settlement between Goldman Sachs and NECA-IBEW Health & Welfare Fund, an electrical workers’ pension fund in Decatur, Illinois, finding it to be “fair, adequate and reasonable,” according to aBloomberg report.

The settlement stems from a lawsuit filed in 2008, when NECA-IBEW sued Goldman Sachs, arguing that Goldman made false statements or omitted key information regarding the nature of the mortgages it sold into 17 different trusts during 2007.

At the time, HousingWire’s Paul Jackson wrote of the lawsuit:

In the Goldman case, NECA-IBEW alleges that Goldman misled investors on the underwriting standards used by various originators, including — who else? — Countrywide Financial; other claims center on the use of inflated appraisals by originating entities for the trusts. Many of the loans in the trusts named in the lawsuit are of the reduced-doc, no-doc, stated-income variety, which NECA-IBEW says are rife with fraud.

Read on.

Foreclosures: What Role Should a Trustee Play?


It’s one of those questions that seems pulled from a final exam at the Harvard Business School but if you’re a homeowner caught in the foreclosure wringer it’s something worth thinking about. Now, if you’re seeking an answer about the trustee’s role from any of the parties suing to extricate you from home and hearth the response, no doubt, will be an unequivocal “no.”

When it comes to snatching houses current banking wisdom goes something like this: mortgages (most of them) are held in securitized trusts which in turn hire servicers to collect monthly payments and if something goes awry — say the homeowner defaults on monthly payments — the servicer can initiate a foreclosure action on behalf of the investors in the trust. The role of the trustee — whose name usually appears as “plaintiff” in a foreclosure lawsuit — is simply that of a passive custodian storing the original mortgage documents (“wet ink,” in the vernacular).

It’s almost an article of faith in the foreclosure industry that trustees stand idly by as the servicers do the dirty work. Ask a trustee to comment on their role in a particular foreclosure case they’ll invariably respond with:

Loan servicing companies, and not {fill in the blank} as trustee, are responsible for foreclosure activity, the resale of foreclosed properties, and other foreclosure-related tasks including decisions regarding loan modifications and evictions. The trustee and servicer are parties to the pooling and servicing agreement which governs the administration of the trust.

Fill in the blank with “Deutsche Bank” and this is precisely the boilerplate supplied by the PR folks when I’ve made inquiries regarding foreclosures brought by Deutsche as trustee. These cases include a 2007 foreclosure/eviction of a Maryville, Tennessee, couple, Bob and Stacy Schmidt; a 2010 foreclosure of a Los Angeles postal worker,Carlos Marroquin; a foreclosure initiated in 2011 against an Akron, Ohio, couple,Glenn and Ann Holden, and in 2014, a foreclosure targeting Houston, Texas, homeowner, Tommy Cooper.

Pooling and Servicing Agreements (“PSA’s”), trustees claim, are the legal handcuffs limiting their role in foreclosures. PSA’s are complicated, tortuous, sleep-inducing documents written by legions of tax lawyers defining how investors in mortgage-backed securities can make their money while avoiding the taxman. Servicers contracted to the trust, via the PSA’s, are given virtual carte blanche to go after underwater homeowners and as a rule have been quick on the foreclosure draw given they make more dough via eviction than through negotiated loan modifications.

Enter Christopher Wyatt: a homeowner’s advocate and former Litton Loan Servicing executive with twenty years’ experience in the mortgage game and he’s never bought into the passive, standby status claimed by trustees. As head of a Litton team fielding homeowner complaints between 2001 and 2010 he received numerous phone calls from Deutsche Bank lawyers (Deutsche Bank being the trustee) asking him to look into situations where a foreclosure may, in fact, not be a good thing for the investment trusts they represent.

In late August, 2007, Wyatt received an interesting memo from Deutsche Bank referring to “one or more securitization trusts for which Deutsche Bank National Trust Company or Deutsche Bank Trust Company Americas act as trustee.” It was a warning of sorts, highlighting the “significant hardship being imposed on tenants, including low-income families, who may be dislocated in the mortgage foreclosure process and about the potential deterioration of neighborhoods surrounding vacant properties.”

In short, the memo seemed to fly in the face of common foreclosure wisdom that trustees keep their mouths shed, eyes closed and noses out of any on-going litigation. It called for servicers to follow “good housekeeping” principles and avoid foreclosures “if eviction will not enhance the marketability or resale of the value on Trust REO properties,” adding, that “maintaining occupancy may preserve affected neighborhoods…”

I ran the August 30, 2007 memo by Lynn Armentrout, currently the Deputy Director, Housing, Brooklyn Legal Services and someone with a fair bit of experience dealing with foreclosure issues (formerly she served as director of the Foreclosure Project at the NYC City Bar Justice Center)

Lynn found it fascinating:

In my experience, Deutsche Bank as trustee has been completely disengaged from the foreclosure crisis and unconcerned about the impact its foreclosures were having. The memo seems to be written by an entirely different entity, one that cares about communities.

UBS will pay $69.8 million to NCUA for credit union RMBS losses

The National Credit Union Administration announced this week that it reached a $69.8 million settlement with UBS, as the company becomes the latest to settle with the NCUA over losses related to several corporate credit unions’ purchases of faulty residential mortgage-backed securities in the run-up to the financial crisis.

According to the NCUA, it will receive $69.8 million from UBS in damages and interest for claims arising from losses to Members United Corporate Federal Credit Unionand Southwest Corporate Federal Credit Union.

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Goldman Sachs to Pay Billions in Fines Related to the Financial Crisis, but Nobody’s Going to Jail

Isn’t that the truth…And this another example of a financial firm that admits that they misled their own investors (just like Wells Fargo settlement last week that admitted that they misled their investors in mortgage sales) and yet no criminal charges in both cases.

Vice News:

In the complaints released Monday, the Department of Justice accused Goldman of misleading its own investors as to the strength of its mortgage-backed securities it was selling between 2005-2007. In 2006, for example, Goldman purchased a package of mortgages from a company called New Century Mortgage Corporation. Goldman’s own employees reviewed the loans and flagged them for “extremely aggressive underwriting” practices — meaning New Century’s employees were selling mortgages to buyers who couldn’t afford them, using shoddy documentations, and dubious financial models.
Internally, Goldman then took a close look at a third of those New Century Loans, to see if they were truly healthy investments. It decided to drop a full quarter of them, because they lacked key documents or listed incomes of borrowers that suggested the loans would go into default. The firm then stopped its internal review process, and sold the remaining 75 percent of the New Century loans to investors without saying anything about the problems it had encountered.

The DOJ identified this behavior as a violation of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) — a key financial regulation that sets out a 10 year statute of limitations for fraud. “One of our leading financial institutions that it did not live up to the representations it made to investors about the products it was selling,” said US Attorney Benjamin B. Wagner, explaining Mondays settlement.

The Department of Justice, however declined to name a single individual at Goldman Sachs responsible for the misconduct. That’s despite a new policy directive issued in September, 2015 that declared the DOJ would make “individual accountability” a centerpiece of its financial crime investigations. That policy, enshrined in a memo written by Deputy Attorney General Sally Yates, seemed to direct the DOJ against large financial settlements, and towards individual prosecutions. “In the short term certain cases against individuals will not provide as robust of a monetary return,” Yates wrote, while advising DOJ staffers that “pursuing individual action will result in significant long term deterrence.”

The DOJ still reserves the option to pursue individual action against Goldman executives, but no such case has yet been made public.

So far, other major financial financial institutions have paid out big fines, but financial executives have managed to evade punishment. While JPMorgan Chase paid $13.3 billion in 2013, Bank of America paid $16.6 billion in 2014, and Citi paid a $7 billion settlement in 2014 — no major executives of any of these financial institutions have faced a criminal investigation.

Bartlett Naylor, a former chief of investigations for the US Senate Banking Committee, says that today’s Goldman Settlement seems to suggest the Yates memo hasn’t shifted the DOJ’s strategy. “It’s disappointing that no individuals seem to be identified in this investigation,” Naylor, who now works for as the Financial Policy Advocate for Public Citizen, said. “We were led to believe from the Yates memo, that we would not see settlements without names identified.”

California AG Files Suit Against Morgan Stanley Over False Claims and Securities Violations

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PDF icon People of the State of CA v. Morgan Stanley.pdf 33.23 MB

SAN FRANCISCO – Attorney General Kamala D. Harris today filed a lawsuit against investment bank Morgan Stanley for misrepresentations about complex investments such as residential mortgage-backed securities, in which large pools of home loans were packaged together and sold to investors.  These misrepresentations contributed to the global financial crisis and to major losses by investors including California’s public pension funds, which are responsible for the retirement security of California peace officers, firefighters, teachers, and other public employees.

The complaint, filed in San Francisco Superior Court, alleges that Morgan Stanley violated the False Claims Act, the California Securities Law and other state laws by concealing or understating the risks of intricate investments involving large numbers of underlying loans or other assets. In addition to residential mortgage-backed securities, the complaint also focuses on “structured investment vehicle” investments, which involved not just packages of residential mortgage loans but also other types of debt of individuals and corporations.

“Morgan Stanley’s conduct in this case evidenced a culture of greed and deception that helped create a devastating economic crisis and crippled California’s budget,” said Attorney General Harris. “This lawsuit is necessary in order to hold Morgan Stanley accountable for the destruction it caused to California, our people, and our pension funds.”

Read on.

Funds Blame Wells Fargo for Bad-Loan Losses

SAN FRANCISCO (CN) – Wells Fargo has blown billions of investor dollars by ignoring problems with bad loans that went into mortgage-backed securities, BlackRock and other huge financial services firms claim in state court.
PIMCO, Prudential Insurance, TIAA-CREF, Group Alliance, Kore Advisors, Sealink Funding and DZ Bank joined BlackRock in class action filed Monday against Wells Fargo in San Francisco Superior Court.
Wells Fargo was supposed to look out for the interests of the investors in more than 250 residential mortgage-backed securities trusts for which it acted as trustee, but the mutual fund groups say the bank failed to react to “overwhelming evidence of defective loans.”
“This class action seeks to recover billions of dollars in damages caused by Wells Fargo’s abdication of responsibility causing the beneficiaries of the trusts to lose billions of dollars,” the companies say in the complaint.
Between 2004 and 2008, the mutual funds claim they invested $241.6 billion in 267 mortgage-backed securities trusts overseen by Wells Fargo.
While Wells Fargo has played a role in all parts of the mortgage-backed securities market, the lawsuit focuses on its role as a trustee.
To create mortgage-backed securities, banks originate loans or purchase them from other originators. They then pool them together and package those pools into securities. Investors in the securities receive some of the principal and interest payments made by mortgage borrowers.

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