Claims and Bad Faith Law Blog

BAD FAITH IN PENNSYLVANIA MORTGAGE INSURANCE: 5,246 TIMES.

Nationstar Mortgage LLC sued Radian Guaranty Inc. Nationstar alleged claims "for breach of contract, unjust enrichment, conversion and bad faith." The factual basis of these claims is succinctly stated at the beginning of the Court's opinion:

Nationstar contends that Radian denied, rescinded and curtailed mortgage insurance coverage and refused to reimburse Nationstar for premium overpayments on 5,246 residential home mortgage loans.

Nationstar Mort. LLC v. Radian Guar. Inc., No. 18-03798, 2019 WL 1318541, at *1 (E.D. Pa. March 22, 2019).

Radian challenged all of Nationstar's claims with a motion to dismiss. With respect to the alleged bad faith claim, the Pennsylvania federal court denied the motion to dismiss because the plaintiff alleged three groups of core facts to bring its claim within the Pennsylvania bad faith statute in this case:

    Nationstar contends that Radian acted in bad faith when it denied, rescinded, and curtailed coverage for valid claims and refused to reimburse Nationstar for premium overpayments.... Nationstar alleges that Radian knew and understood that if it wrongfully rescinded, denied and/or curtailed claims that third parties would seek to have Nationstar repurchase these loans..... Moreover, Nationstar’s Complaint is replete with allegations arguing that Radian lacked a reasonable basis for its coverage decisions.

Nationstar Mortgage LLC v. Radian Guaranty Inc., 2019 WL 1318541, at *6. To regroup the core facts alleged by Nationstar Mortgage against Radian Guaranty in this case, first, Radian allegedly "denied, rescinded and curtailed" insurance coverage; second, Radian allegedly "refused to reimburse Nationstar for premium overpayments[,]" and third, Radian allegedly "knew and understood" that its actions disclaiming and discouraging coverage claims would have the effect of discouraging "third parties [who otherwise] would seek to have Nationstar repurchase these loans." On the basis of these alleged facts the Pennsylvania federal court refused to dismiss Nationstar Mortgage's bad faith claim against Radian Guaranty.

Please Read The Disclaimer. ©2019 Dennis J. Wall. All Rights Reserved.

MORTGAGE FRAUD CONTINUES. OTHERWISE FEDERAL LAYOFFS CONTINUE TOO. SOMETIMES.

Photograph Courtesy of New York Public Library Collection.

The secretary of the treasury has forced a fraction of the Internal Revenue Service employees, who had been laid off, to return to work and process papers for the mortgage industry.

So as not to actually break the law in plain sight, the Federal Government is paying these people with so-called "user fees," i.e., donations paid by the mortgage industry to do the work.

This was arranged by the Mortgage Bankers Association.  The MBA worked with the treasury department by asking the current Federal Government to recall the Federal employees to process the papers which the MBA needed to process mortgage money, er, mortgage applications.

The head of the Mortgage Bankers Association and de facto treasury secretary honestly declared that "I'd like to take some credit.  Our direct request got rapid results."  Quoted in Lisa Rein and Jeff Stein, "Could You Make These Guys Essential?":  Mortgage Industry Gets Shutdown Relief After Appeal to Senior Treasury Officials, Washington Post Online, Friday, January 11, 2019.

This is no surprise.  The current occupier of the title of Secretary of the Treasury made much of his money from mortgages and foreclosures before entering the current Administration.

Reportedly, some observers of these arrangements question how it is legal to use Federal employees to benefit not the American public but one discrete group of private businesses.  Other observers despair that no-one who has standing to object, will object and therefore they see no remedy to the situation.

Well, let's take a look at that.

The situation as you might call it is bad faith.  A few people are forced to give up their labor, because through no fault of their own they are employed by the Federal Government during the current Administration, which calls them back to work in order to help a few businesses continue to make money (and prolong the shutdown because the shutdown will not feel so bad, obviously).   These IRS employees are being instructed to serve the interests of a few in the name of public service. 

This is happening while other people are told not to come back to work and in some cases they will not be paid.  Ever.

Is a mandatory injunction available?  Would their unions have standing to represent thousands of what we are told is the current laid off Federal workforce of 800,000 people?  (A figure that will soon grow even higher.)  The idea of a mandatory injunction might be that the rest of the hundreds of thousands of Federal workers who are not getting paid and who have also been told not to report for work, should also be brought back to work and paid.

If arrangements are made by the Federal Government that benefit some furloughed Federal workers but not others who are in the same boat, shouldn't the Federal Government lawfully be required to also arrange for these other people to be recalled back to work by the same Federal Government that told them not to come to work in the first place?  And arrange to pay them also?

That brings in another idea.  The Federal Government of all people is supposed to provide equal protection of the laws.  Equal protection clearly demands that people be treated equally.  Federal workers are people and as such, they too deserve to be treated equally.

Regardless of whether their work does or does not make money for private interests.

Please Read The Disclaimer.  ©2019 Dennis J. Wall.  All Rights Reserved.   

 

DECIDING NO "PLAUSIBILITY," JUDGE REPLACES JURY. TRIAL NO LONGER NECESSARY.

Here is yet another example of how deciding that claims are not "plausible" is actually a substitute for deciding the entire case at the pleading stage, when a lone judge replaces six to twelve jurors.

In this example, once again a judge was not convinced for whatever reason that there actually is a case.  The State of Illinois's complaint was dismissed against a supposed reinsurance company that, the complaint alleged, effectively paid kickbacks through a captive reinsurance agreement the defendant had with a primary or ceding insurance company that issued Private Mortgage Insurance ("PMI").

The fault, dear Illinois, was that a lone federal judge, acting with the authority of the federal government and the Roberts Court, dismissed the People of Illinois' claim because they had not alleged kickback damages to the satisfaction of the particular judge.

Here is how the complaint offended the judge's perception of "plausibility," right or wrong, in part, as in so many cases:

As Defendant points out, Plaintiff's only allegation relating to damages is that “[a]s a result of the breach of [the Reinsurance Agreement], Plaintiff has suffered, and will suffer damages of a pecuniary nature.” (Id. (quoting R. 37, First Am. Compl. ¶ 46).) Defendant argues that this allegation is inadequate because it is too conclusory, and that in any event it is not plausible that Triad was injured in any way by Defendant's alleged failure to disclose the reinsurance arrangement to borrowers.  (Id.) Plaintiff responds that her one-sentence allegation is sufficient and that “[w]hether [she] can prove the damages is not for the court [to] consider at this time.” (R. 50, Resp. at 6-7 (emphasis added).)

This was not enough for the judge in this case.  Not at all.  "The Court concludes that Plaintiff has not adequately alleged damages. To state a claim, Plaintiff must plausibly allege damages resulting from Defendant's alleged breach."  People of Illinois ex rel. Hammer, Acting Director of Insurance v. Twin Rivers Ins. Co., No. 16 C 7371, 2017 WL 2880899, at *5 (N.D. Ill. July 5, 2017).

We are now living out the jurisprudence of a movie called Cool Hand Luke.  What we have here is failure to communicate. 

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

FORECLOSURES INCREASE. TOP FIVE: MARYLAND, N.J., FLORIDA, NEVADA & ILLINOIS.

Image Copyright 2015 by Dennis J. Wall.

Foreclosure trends are headed back up.  So says RealtyTrac in its report released on November 12, 2015, "U.S. Foreclosure Starts Increase 12 Percent in October" (subscription may be required).  The top five foreclosure states reported by RealtyTrac are Maryland, New Jersey, Florida, Nevada, and Illinois, and RealtyTrac swiftly summarizes its written report in a YouTube video podcast, here.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements).  Mortgage Insurance is addressed in § 3:111.  All rights reserved.

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A COUPLE OF PARADIGM SHIFTS.

This week, Ms. Gretchen Morgenson comments in her "Fair Game" column in the New York Times that "bits of conventional wisdom  … are being questioned."  One of these bits is the notion that China's economy will always be strong.  Another is the valuation of stock at companies that report losses year after year:  Perhaps the stock of companies is overvalued when the companies report nothing but losses in every report.  Gretchen Morgenson, "Fair Game / Doubts Start to Chip Away at Mind-Set of Markets" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, August 16, 2015).  http://nyti.ms/1LcnVTX 

"Bits of conventional wisdom" are if anything overplayed by many investors.  The use of leverage to buy stocks is at a high, perhaps at a peak.  Money borrowed to buy stocks is "nervous money."  http://nyti.ms/1LcnVTX

Just two weeks ago, Ms. Morgenson commented on the Home Affordable Modification Program or "HAMP."  The Obama Administration's answer to the problem of underwater homeowners and their desperate need for loan modifications is in the title of her column:  "Slack Lifeline for Drowning Homeowners."  http://nyti.ms/1WwMkd7

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015).  All Rights Reserved.

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Only Homeowners Are Barred From Negotiating in Mortgages.

Only Homeowners Are Barred From Negotiating in Mortgages.

The ones who pay are the only ones who have no say.

Image Copyright 2015 by Dennis J. Wall.

    "No matter whom you deal with for the mechanics of your mortgage, in other words, the rate you pay is ultimately set by asset managers, hedge funds, pension funds, sovereign wealth funds and countless other players who are buying and selling securities in hopes of getting the best deal."  Neil Irwin, "Forget About Market Timing," p.11, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, July 19, 2015), published online under the title of "Thinking About Taking Out a Mortgage?  Don't Obsess Over the Fed," posted on July 16, 2015.

    When mortgages return from being viewed as securities to being treated by banks and insurance companies as collateralized loans that are paid back, mortgages will become easier to deal in, and to deal with.

See and hear our initial effort at bringing the sights and sounds of Lender Force-Placed Insurance Practices to life on this YouTube video.

Please Read The Disclaimer.  Copyright 2015 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015).  All Rights Reserved.

 

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THE BIG BAD FAITH NATIONAL MORTGAGE SETTLEMENT FOR MORTGAGE SERVICERS.

         You may be wondering at the increasing number of reports about specialty mortgage servicers.  The reports have it that this current brand of mortgage servicers, who bought their contract rights to service mortgages from the 5 largest mortgage servicers, are doing all the misdeeds that the "big 5" mortgage servicers agreed not to do in their big National Mortgage Settlement with the United States Attorney General and the Secretary of Housing and Urban Development, and with most of the States Attorneys General.  In that big settlement, the big 5 mortgage servicers agreed to stop doing such things as robosigning, lender force-placed insurance unfair practices, and the like.

         How can the specialty mortgage servicers now be doing all these things post-settlement, if the companies which sold them the mortgage servicing rights agreed in the National Mortgage Settlement not to do these things?

         It turns out that the specialty mortgage servicers argue that they are not bound by the settlement their principals made.

         The settlement documents must have been written by the mortgage servicers.  The "settling 5" agreed with the Department of Justice, HUD, and the majority of State Attorneys General:

References to Servicer shall mean [fill in the name of one of the five bank mortgage servicers] and shall include all Servicer's successors and assignees in the event of a sale of all the assets of Servicer or of Servicer's division(s) or major business unit(s) that are engaged as a primary business in customer-facing servicing of residential mortgages on owner-occupied properties.

         It does not take a transaction lawyer from a white-shoed Wall Street law firm to know that the 5 Servicer's "successors and assigns" have an argument that they are not included where the sale is NOT "of all or substantially all" of the Servicer's "assets".  In addition to the contract rights to service mortgages, the Gang of 5 for example could have sold furniture and fixings and other assets which they and their assigns valued much higher than the contract rights to service mortgages.  In that event alone, the assigns could and undoubtedly would argue that the sale of servicing rights was NOT "a sale of all or substantially all" of the 5 Servicer's assets.

         Cunning?  Perhaps.  Another one of those hard decisions they tell us they had to make?  Not hardly.  But whatever it is, you cannot call it a Good Faith Settlement, because it isn't.

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

LATEST U.S. ATTORNEY'S INVESTIGATIONS INTO MORTGAGE FRAUD CONSPIRACIES!

This follows the article published here on the same subject but featuring a different United States Attorney's Office in an entirely different State and District:  BANK EMPLOYEE INDICTED IN MORTGAGE FRAUD CONSPIRACY!  That article was published here on January 14, 2014.

           As is pointed out in this linked newspaper report, Bank of America's mortgage problems never seem to end.  "BofA also said it's cooperating with an investigation by the civil division of the U.S. attorney's office in Brooklyn, N.Y., into yet more mortgage issues."  E. Scott Reckard, "Latest Government Probes of BofA Target Foreign Exchange, FHA Issues" (Los Angeles Times Online at latimes.com, posted on Wednesday, February 26, 2014).

          In an investigation reminiscent of other indictments and investigations pursued by U.S. Attorney's Offices across the country against many investment banks and lenders and their agents, the issue reportedly under investigation by the United States Attorney's Office in Brooklyn is compliance with various mortgage lending requirements of the Federal Housing Administration or FHA.  In filings required by the SEC, BofA itself revealed that "the Brooklyn probe is part of an industrywide effort by regulators and government agencies" concerning the possible existence of claims resulting under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), and possibly under the False Claims Act.  See id.

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

 Mortgage Madness Breaks Out In March!  Next week, all the articles published on Insurance Claims and Issues Blog will focus on the issues and damages alleged in lender force-placed insurance cases.  Tune in and turn on to the issues and damages which may soon confront you and your clients and customers.  Trust but verify!

MORTGAGE RELIEF MEANS TAXES TO HOMEOWNERS, TAX REDUCTIONS TO 'BANKS'.

          Mortgage reductions will mean taxable income to homeowners because their debt has been reduced.  In turn, because 'banks' which reduce mortgage debt have forgiven debt, they will get a tax deduction or a tax exemption.  Congress would have to enact a law to change this tax situation.   See Shaila Dewan, "Welcome Relief, Then Tax Bill" p. B1, col. 2 (New York Times Nat'l ed., "Business Day" Section, Wednesday, February 5, 2014).  If you don't like the color blue, don't hold your breath waiting for the U.S. House of Representatives to do anything like enacting a law.

          This adds insult to obvious injury.  Mortgage reductions are generally given to those homeowners who are "under water" on their mortgages, meaning that their homes are worth less than the unpaid balance on their home mortgages.

          Taking the insult a step away from  the direction of bad faith, banks and underwater homeowners are not the only parties on the scene with incentives in the situation.  Mortgage insurance companies have an interest in not paying out on their policies.  In other words, mortgage insurance companies have an interest in homeowners paying their mortgages.  If homeowners stop paying on their mortgages, banks may claim that they are owed the full policy limit of the original mortgage policy which was issued for the full unpaid balance due of the mortgage involved.  It is in the interest of mortgage insurance companies to see that homeowners keep paying on their mortgages.

 

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

Please Read The Disclaimer.

FORECLOSE, BUY, RENT ... WHITHER HOMEOWNER'S INSURANCE?

Foreclosures result in judicial sales.

"[I]nvestors have snapped up foreclosed homes and bid up prices in the past year."  "Pending Home Sales Fall Again," p. B8, col. 6 (New York Times Nat'l ed., Tuesday, November 26, 2013; Associated Press Copyrighted News Report).

Pending home sales have fallen for the last five months in a row.  The number of pending sales -- where there is a signed contract but not a completed sale -- is at the lowest reading calculated by the National Association of Realtors since December, 2012.  "October Pending Home Sales Down Again, But Expected to Level Out" (National Association of Realtors Press Release, November 25, 2013); see "Pending Home Sales Fall Again," AP report published in the New York Times, supra.

I have  not seen any reports or studies on the purchase of property insurance by the investors that purchase these properties.

Moreover, since these investors do not carry mortgages, they do have no need to buy mortgage insurance.

Further, the number of homeowners is necessarily declining since fewer homes are being sold and purchased in 2013.  It seems that as a consequence the number of homeowner's insurance policies must also decline.  That will have clear results in falling homeowner's insurance sales and premiums.  What effects will it have on the handling of homeowner's insurance claims in a tightening market?

There is potentially good news on the other hand for sellers of tenants and renters insurance policies.  Investors are buying the foreclosed homes in order to rent them.

Simple math.  That is one reason, at the least, why home ownership is in decline.  There are fewer homeowners because there are fewer homes bought and sold; instead, homes in 2013 are increasingly bought and rented.

 

© 2013 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 

Please Read The Disclaimer.

FHA Needs Money, No Bonus Though, It's Not Wall Street.

          By law, the Federal Housing Administration reportedly must keep enough reserves to pay off all claims for the next 30 years.  The FHA has over $30,000,000,000.00 or $30 Billion in current reserves.  That is not enough to pay potential claims for the next 30 years, however.

          That is because of a change that took place between 2007 and 2009.  As you can see, that is when the Great Recession began.  FHA took over "new loans with mortgage insurance" as a market share that grew to 70.7% in 2009, rising from its 16.4% market share of new loans with mortgage insurance in 2005.

          The FHA stepped in because it had to.  Circa 2007, and for years ever since, there was no private funding available for mortgage loans for first-time buyers and low-income home purchasers.

          The FHA has existed for 79 years but never before has it had to fund future reserves until now.  The FHA is traditionally financed through premiums charged to homeowners-borrowers on their mortgage insurance.  That is not enough, now.

          Now, for the first time, the FHA needs to invoke its statutory authority to automatically draw upon the U.S. Treasury in the event that it cannot otherwise fund its reserves for the next 30 years worth of anticipated claims.  The amount which the FHA must draw for this purpose is $1.7 Billion or $1,700,000,000.00.

          To say again, the amount which the FHA must draw for this purpose is $1.7 Billion.  That does not tell us the cause of this draw, however.  To say again, the cause of the draw is that the FHA was the only available lender of mortgage money circa 2007 - 2009, during the Great Recession (which most people in America know is still here).  See Jim Puzzanghera, "FHA to Get $1.7 Billion in its First Taxpayer-Funded Bailout / The Federal Housing Administration Needs the Bailout Money to Stabilize its Long-Term Finances and Cover Potential Losses on Mortgages it Insured From 2007-09" (Los Angeles Times Online, Saturday, September 28, 2013).

          Why is the funding for the FHA coming from the U.S. Treasury?  One answer is that the funding is automatic.  It is built into the enabling statute and the present Congress does not need to take any action in order to enable the FHA draw.  (Fortunately for the FHA.)

          But that answer is not very satisfactory.  It seems that the right answer would be if the money was paid instead by the individuals and businesses who caused the mortgage money to dry up in 2007, which are the same people whose bad faith and unfair dealings caused the Great Recession (although you may not know it if you look at the money they made as a consequence).

That is a much better answer.  It speaks volumes about the current state of affairs that it does not appear possible that that is the likely answer.  Or that it will become likely any time soon.

Please Read The Disclaimer.

MISCONDUCT INDUCING FHA INSURED MORTGAGES: LITIGATION ALLOWED DESPITE SETTLEMENT AGREEMENT.

          The purpose of a Settlement Agreement almost always includes obtaining a Release of all claims based upon the same conduct, whether or not the claims were actually made.  Sometimes, even when the party receiving the Release pays lawyers handsomely to craft the Release, a Court comes along and ruins it with a holding that the previous Release does not bar the present lawsuit.

          Such is the holding in a case in which the United States, joined by State Attorneys General, sued over alleged misconduct which induced the Federal Housing Administration (FHA) to insure Mortgage loans arranged by Bank of America and Wells Fargo and other high-rent-district Defendants.

          The procedural basis for this ruling was Wells Fargo's Motion to Enforce a previous Consent Judgment (i.e., to enforce a settlement with a Release in it), which was drafted on behalf of some or all of the same Defendants.

          Wells Fargo argued that the Release barred all litigation based on the same "underlying conduct"; the Court was of the opinion, after reading the Release, that it released only the specific  "claims" which were chosen for identification in the Release.

          To quote the words written by the Court to announce its holding in this regard:

In Paragraph 3(b) [of the Release drafted on behalf of the Defendants], the United States releases Wells Fargo from claims based on the annual certification. See Release ¶ 3(b) at F–16–F–17 (“[T]he United States fully and finally releases [Wells Fargo] from any civil or administrative claims it has or may have .... under FIRREA [and] the False Claims Act where the sole basis for such claim or claims is that [Wells Fargo] submitted to HUD–FHA ... a false or fraudulent annual certification that the mortgagee had “conform[ed] to all HUD–FHA regulations necessary to maintain its HUD–FHA approval ...”). Paragraph 3(b) specifically states that claims based on fraudulent annual certifications are released; it does not state that claims based on “Covered Origination Conduct” or any other underlying conduct are released. Paragraph 3(b) does not mention the conduct underlying annual certifications. Presumably, a false annual certification could jeopardize each application for FHA insurance during that year and potentially expose Wells Fargo to hundreds, if not thousands of claims under the FCA and other statutes.

United States v. Bank of Am., 2013 WL 504156 *6 (D.D.C. February 12, 2013).  [Emphasis by the Court.] 

          To say again, the purpose of a Settlement Agreement almost always includes obtaining a Release of all claims which were made, or which could have been made, based upon the same conduct.  Sometimes, even when the party receiving the Release pays lawyers handsomely to craft the Release, a Court comes along and ruins it with a holding that the previous Release was not written in such a way as to bar the present lawsuit.  It appears that these troubles from time to time bedevil other parties besides Insurance Companies settling lawsuits for their Policyholders or for themselves.

Please Read The Disclaimer.

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Sandy and Bad Faith Claims: And So It Begins MORE.

This is an update added to the article posted here on Sunday, March 3, 2013.

  "A disaster just happened and they're making money off of us.  That's just not right." Nicholas Dorman, New York City Firefighter with large Damage Claims from Sandy and small payment since, quoted by Sophia Hollander, "Sandy Stirs Legal Mess" (Wall Street Journal Online accessible without subscription, posted Monday, March 4, 2013).

    Another catastrophe continues to be reported after Sandy.  Policyholders say their Sandy Claims are not being paid in nearly the amounts they thought their Coverage would bring.  Insurance Carriers say their Policyholders have often not read their Policies.  These are events which fall under the old saying, "Everything is changing, nothing is new."

    What seems new about Sandy Claims is that somehow banks are reported to be holding up Insurance money until they are convinced by Property Owners that the money will be put to the banks' idea of good use.  It would be worthwhile knowing exactly what these payments involve.  Presumably they involve "Flood and other Hazard Insurance" paid for by Mortgagors-Homeowners to protect the banks' security interest in the mortgaged property.  In any case it would be good to know how unnamed, unidentified banks got such power.

    Another new Sandy Claims development surrounds how the Federal Taxpayer money is spent that was intended to help victims of the damage caused by Sandy.   Reportedly, fewer Sandy victims are receiving allocated FEMA payments for Flood Damage than received the same type of payments for Hurricane Katrina damage, for example.

    Finally, and as one person quoted in the following article observed, it seems "ironic" but Sandy left a need for even more lawyers.  See Sophia Hollander, "Sandy Stirs Legal Mess" (Wall Street Journal Online accessible without subscription, posted Monday, March 4, 2013).

    A catastrophe which leaves people at the mercy of banks and in need of lawyers to receive full compensation for their Damage Claims, is a catastrophe twice over, the first due to the weather, and again a second time after the storm passes by.

Please Read The Disclaimer.

SECRET SETTLEMENTS: THE BAD FAITH ISSUES.

          Apparently the New York Fed is making secret settlements again.  AIG found out about one of them recently after it filed a lawsuit against Bank of America.  AIG sought to recover on some of its losses on Residential Backed Mortgage Securities allegedly caused by BofA.  It learned that the New York Fed previously "released" BofA from liability for those losses, or tried to.  See Gretchen Morgenson, "Fair Game / Don't Blink, or You'll Miss Another Bailout" p.1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, February 17, 2013).  This certainly brings back memories of secret settlements that the Treasury Department and the New York Fed made with investment banks allegedly responsible for causing the Great Recession. See, for example, "Residential Mortgage-Backed Securities Group:  The Final Installment" article posted here on February 2, 2012.

        There may be an issue under Florida law, whether a settlement of Bad Faith Claims can be made confidential by the parties in their settlement agreement, even with a Court's approval. A Florida Statute provides: 

 

Any portion of an agreement or contract which has the purpose or effect of concealing a public hazard, any information concerning a public hazard, or any information which may be useful to members of the public in protecting themselves from injury which may result from the public hazard, is void, contrary to public policy, and may not be enforced.

Fla. Stat. § 69.081(4).  The statutory definition of a “public hazard” includes any “person” or “procedure” “that has caused and is likely to cause injury.”  Fla. Stat. § 69.081(2).  That is a pretty broad definition, which can apply to a wide array of conduct.  It was probably meant to.

        No Court shall enter an order or judgment in a case subject to this Florida Statute, “[e]xcept pursuant to this section,” which has, among other things, “the purpose or effect of concealing a public hazard” or “of concealing any information which may be useful to members of the public in protecting themselves from injury which may result from the public hazard.” Fla. Stat. § 69.081(3).

        Similarly there may be issues of Bad Faith in secret settlements under the laws of other jurisdictions besides Florida..  Cf. Kreuger Int'l, Inc. v. Federal Ins. Co., 2008 WL 5264021 (E.D. Wis. Dec. 16, 2008).

        As many attorneys do in many kinds of cases, the attorneys for the parties in a recent Federal Declaratory Relief action stipulated that certain Insurance Coverage information would be produced under seal.  In fact, the attorneys apparently stipulated to a Protective Order saying so.  Thereafter, they filed some of those materials in the Federal Court File.

        The Federal Judge said that although the secrecy stipulation arguably facilitated discovery, the parties could not stipulate that everything they filed in the Court records was confidential and so they could not keep those materials by that expedient forever from the public eye. 

To be continued .....

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FEDERAL JUDGE REJECTS SETTLEMENT BECAUSE S.E.C. DOES NOT REQUIRE ADMISSIONS.

          A Federal Judge is required as a matter of law to label certain settlements as being "fair, reasonable, adequate and in the public interest."  One such settlement was reached recently by the Securities and Exchange Commission with Citigroup over charges filed by the S.E.C. in which, among other things the S.E.C. did not require, there was no requirement placed upon Citigroup to admit any liability.  The Federal Judge refused to find that the settlement in that case meets legal standards of being fair, or reasonable, or adequate, and especially that the parties -- neither Citigroup nor the S.E.C. -- were able to show that their settlement is in the public interest.

          That decision is now on appeal to the Second Circuit Court of Appeals.  The Second Circuit will decide whether Federal Trial Judges have any power in applying the legal standards which govern such settlements, or whether instead Federal Trial Judges are merely rubber stamps by another name in such settlements.

          There can be no doubt that this is a well-known feature constantly on display in the contemporary  settlement conduct of commissions, departments, and agencies of the Federal Government.  "Other government bodies [besides the S.E.C.] like the Federal Trade Commission and the Justice Department's antitrust division also routinely use the 'neither admit nor deny wrongdoing' language in settling enforcement cases with corporate defendants."  Peter Lattman, "Judge's Rejection of Citigroup Deal Is Heard on Appeal" p.B2, col. 1 (New York Times Nat'l ed., "Business" Section, Saturday, February 9, 2013).

          There can also be no doubt that even if this settlement behavior is approved in a particular case, taken as a rule it is behavior in Bad Faith.  And with bad results ultimately visited upon Mortgage Insurance Carriers and Title Insurance Carriers -- and upon all the rest of us as well.  See "Institutional Bad Faith Will Show Up If It Is There," posted here on Sunday, February 10, 2013.

 

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INSTITUTIONAL BAD FAITH WILL SHOW UP IF IT IS THERE.

          Newspaper outlets report on the press releases issued by the Department of Justice's civil lawsuit against Standard & Poor's (S&P).  There is speculation that this may only be the first lawsuit in a series of potential lawsuits arising out of the causes of the Great Recession insofar as they involved the conduct of the credit rating agencies.  See Andrew Ross Sorkin and Mary Williams Walsh, "U.S. Accuses S&P of Fraud in Suit on Loan Bundles" (New York Times Online "Dealbook" Blog posted on Monday, February 4, 2013).  It is interesting that part of the Department of Justice's Claim against S&P is that S&P used incorrect computer models to gauge risk.  See Peter Eavis, "U.S. Contends S&P Purposely Used Faulty Models" (New York Times Online "Dealbook" Blog posted on Tuesday, February 5, 2013).

          As securitizations and related deals became more and more complex, investors and dealmakers relied more and more on credit rating agencies to spend the time required to evaluate the credit-worthiness of these complex deals.  Reliance on the credit ratings agencies became -- and still is -- so pervasive that Federal Statutes identified the agencies by name or by listing characteristics that only they could meet, whenever credit-worthiness was at issue.

          The many demonstrated failures of the credit rating agencies include the AAA ratings they incorrectly gave to Residential Mortgage Backed Securities or RMBS.  See Jessica Silver-Greenberg, "E-Mails Imply JPMorgan Knew Some Mortgage Deals Were Bad" (New York Times Online "Dealbook" post on February 6, 2013).  Parenthetically, every time I read that headline, I want to say, "Do ya think?"  It should be noted here that most newspapers, including the New York Times, do not allow reporters to write their own headlines; editors are employed to do that. 

          This has led to huge Claims on Mortgage Insurance Policies and on Title Insurance Policies.  See "Mortgage Insurance" and "Title Insurance" Categories on this Blog, and also on Insurance Claims and Issues Blog.

          There is a question whether the credit rating agencies were ever fully accepted as a part of the financial framework governing the United States at this time.  If they are, then I predict that the lawsuit filed by the Department of Justice against S&P over S&P's alleged misconduct and mis-rating of the credit-worthiness of certain securities, will resemble the settlements reached by such other Federal agencies  and commissions as the Securities and Exchange Commission and the Office of the Comptroller of the Currency with investment banks over those banks' alleged misconduct which caused or contributed to the causes of the Great Recession.  I predict that in that event, the reported Department of Justice civil lawsuit against S&P will be settled, and that the settlement will include a fine which will probably be less, perhaps much less, than 50% of the money S&P made from the alleged mis-rating, and that S&P will settle without admitting liability.

          If on the other hand S&P and the other credit rating agencies are not accepted as a part of the governing financial framework at this time, then I predict that in that event the lawsuit will still be settled but S&P will only be able to reach a settlement by admitting liability, to something.

          Finally, in any case I predict that based on past experience of lawsuits filed by Federal agencies, commissions, and departments, that the reported civil lawsuit filed by the Department of Justice against S&P will never go to Trial.  There are many reasons that all of the past-filed lawsuits all apparently have been settled, not the least of which are definitely fear of losing and perhaps a lack of capacity to try cases.

In any case, Mortgage Insurance Carriers and Title Insurance Companies can expect more of the same old, same old, unfortunately for them -- and for us.

 

Please Read The Disclaimer.

 

Related articles

S&P as Sole U.S. Target has Wall Street Asking About Moody's

4 Reasons Why the S&P Fraud Lawsuit May Be a Game-Changer

"Say it Ain't a Scam, Pam!"*

*A small child confronted one of the ballplayers who threw the World Series.  The player had pretended to do his best.  That is what he told people before he was brought up on charges of throwing the World Series.  The little kid said, "Say it Ain't So, Joe!"  The young child's comment has inspired the title of this post article.  Thank you.

                 This is really a follow up on the Mortgage Fraud Settlement in which four large Mortgage Servicers settled national claims against them for fraud.  The claims were apparently  never written in a Complaint filed in any Federal Court, nor filed in any State Court, nor filed with any Agency, State or Federal.  However, the national settlement was produced in writing after several weeks following the announcement of the settlement in which its provisions were not known to the public.

                Florida Attorney General Pamela Bondi firmly announced that she alone negotiated $300 Million on behalf of Florida residents who were defrauded by the Mortgage Servicers.  See "Mortgage Servicers, Mortgage Settlement:  Dealing Fairly in Financial Good Faith," published here on October 25, 2012.  The monies were to include mortgage loan reductions, financial counseling, and many other good things, Ms. Bondi's office announced to us.

                It is now reported that Ms. Bondi has negotiated another deal for the $300 Million and Ms. Bondi's office again tells us that this is a good thing for us.   With her agreement, the Florida Legislature has taken a cut of about 25% of that $300 Million which Ms. Bondi, alone, previously negotiated.  See Toluse Olorunnipa, "Pam Bondi Reaches Deal on Florida's $300 Million Foreclosure Settlement" (Tampa Bay Times Online, Friday, November 2, 2012).  She negotiated this deal also.  25% to the Florida Legislature.

                And counting.

                Say it ain't so, Pam.

Please Read The Disclaimer.

MORTGAGE AND TITLE INSURANCE OVERBURDENED BY MORTGAGE SERVICER FRAUD.

TELLING  THE TRUTH, DROPPED LIKE A HOT POTATO.

             These are the opening words they don't want you to read:  "Investment banks caused the Great Recession."  And this is the article they don't want you to read:  "Regulators, Like People, Matter.  Banks Choose Anyone Except Insurance Regulators," posted on Insurance Claims and Bad Faith Law Blog on Tuesday, October 23, 2012.

            On its own website, Executive Counsel Magazine describes its readers as "decision-makers who embrace the challenges of succeeding in an increasingly complicated regulatory environment."  The magazine provides Executive Counsel Daily Digest, an EMail aggregation of blog entries related to their readers.  For many months, my Insurance Claims and Bad Faith Law Blog and my Insurance Claims and Issues Weblog were aggregated.

            Both of my blogs were dropped from the Executive Counsel Daily Digest aggregator the day after the article was published, "Regulators, Like People, Matter.  Banks Choose Anyone Except Insurance Regulators," and these words in it:  "Investment banks caused the Great Recession."

            Not depositary bankers, where individuals and small businesses, like me and mine, make deposits.  And not people from Main Street or small businesses.

            You would have thought this was a radical new thought.  It wasn't and isn't.  It is simply, plainly the known truth.  I am proud to be one of many people to tell you about it.

Please Read The Disclaimer.

Mortgage Servicers, Mortgage Settlement: Dealing Fairly in Financial Good Faith.

     It appears that Mortgage Servicers may have had the tools all along to modify Mortgages including to forgive principal.  See Statement of Hon. Sheila C. Bair, Chair of the Federal Deposit Insurance Corporation, reported by Martin Crustinger in an Associated Press copyrighted story, "Fed Urges Loan Companies to Help Prevent Mortgage Defaults," p. A5, col. 3 (Times-News, Twin Falls, Idaho, Wed., September 5, 2007) available on page 5 of this pdf posted online through twinfallspubliclibrary.org). 

    If that is so, then there was never any need for the Mortgage Servicing Fraud Settlement earlier this year -- except that the investment banks who were also the Mortgage Servicers, or who acquired the Mortgage Servicers, wanted immunity.

UPDATE ON JULY 27, 2012 ARTICLE HERE, "SHAME ON YOU, SHAUN. THAT'LL BE TEN HAIL MARYS, ... One Our Father, and One Glory Be.  Now say a Good Act of Contrition."

    In the article, I wrote:

One further note of, frankly, what is either fantasy or more stuff for Mr. Donovan to confess the next time he unburdens himself in the Confessional.  He says that the settlement agreement "also provides an additional $334 million in state aid" that Pamela Bondi, Florida Attorney General, will use "to help homeowners through proven tools like housing counseling."...  And if you believe that, Mr. Donovan and Ms. Bondi have some swamp land to sell you in South Florida as they say.

It is only now being widely reported that the Florida Legislature has other plans for that money, regardless of what Ms. Bondi says.

 Please Read The Disclaimer.

REGULATORS, LIKE PEOPLE, MATTER.

Banks Choose Anyone Except Insurance Regulators.

 "Financial institutions cannot be relied upon to do the right thing, when doing the wrong thing will line their pockets.  Regulators, not banks, need to set the rules and they must be clear, straightforward, and readily enforceable....  It's time to stop timidly working around the edges and get the job done."

   Sheila C. Bair, former Chair of the Federal Deposit Insurance Commission and current Chair of  the Systemic Risk Council, in an op-ed column entitled, "Two Years After Dodd-Frank, Why Isn't Anything Fixed?"  published online by Yahoo! Finance, The Exchange, Friday, July 20, 2012.

 

            Investment banks caused the Great Recession.  That is a fact.

            It is also unquestionable that for four years, since October, 2008, investment banks and their regulators have tried to divert everyone's attention away from investment banks and their regulators.  "[T]axpayers and the many smaller banks that pay into the F.D.I.C. fund that insures bank deposits were those most likely to be assigned responsibility for the bailout costs, Ms. Bair writes.  Needless to say, these people had no seats at the rescue tables."  Gretchen Morgenson, "Fair Game / Big Questions From a Bailout Eyewitness" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, October 14, 2012), citing Sheila Bair's recently published Book, "Bull By The Horns:  Fighting to Save Main Street From Wall Street and Wall Street From Itself".

            Ms. Bair's observations about Citigroup's former CEO, Vikram Pandit, provide a past example -- and a present insight.  She writes that Mr. Pandit and Citigroup's regulator in October, 2008, Mr. Timothy Geithner of the New York Federal Reserve Bank, held her responsible for Wells Fargo rather than Citigroup acquiring Wachovia and its subprime mortgage loan department.

            Her description of Mr. Pandit is insightful, as she explained why she thought that Mr. Pandit was a poor choice to become the CEO at Citi:

He was a hedge fund manager by occupation and one with a mixed record at that.  He had no experience as a commercial banker, yet now he was heading one of the biggest banks in the country.

Sheila C. Bair, "Bull by the Horns:  Fighting to Save Main Street From Wall Street and Wall Street From Itself" (Free Press , a division of Simon & Schuster, Inc., 2012),  excerpted online in CNN Money (September 20, 2012) and Fortune Magazine (October 8, 2012).

            Those who have ears to hear, let them hear.  

            The price of the Great Recession Bailouts includes enormous unaccounted costs for "the subsidies banks received in cheap capital, low-interest-rate loans and debt guarantees."  ."  Interview with Sheila C. Bair reported by Gretchen Morgenson in "Fair Game / Big Questions From a Bailout Eyewitness" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, October 14, 2012).  The costs of the Great Recession also include those falling upon Mortgage Insurance Companies and Title Insurance Companies for the Mortgage defaults engineered by the investment banks.  See the Categories on this Blog, "Mortgage Insurance" and "Title Insurance," and the corresponding Categories on Insurance Claims and Issues Web Log.

Please Read The Disclaimer.

"Lies, Lies, And Da*n Lies": RMBS Born From "Systemic Fraud".

    A new complaint was filed on Monday, October 1, 2012 arising out of residential mortgage-backed securities ("RMBS"), an investment vehicle at the bottom (with other vehicles) of the current Great Recession.  The complaint is by the State of New York against JPMorgan Securities, JPMorgan Chase, and EMC Mortgage.

      Basically the complaint is based on two sets of alleged manifestations of fraud, deception, and misrepresentation:  First, in promoting and selling RMBS, and second, "systemic fraud" in failing and refusing to correct "defects" after due diligence and quality control procedures revealed that RMBS presented serious problems to the finances of investors and Homeowners.  Here is a copy of the complaint:  Download Complaint.New York v. JP Morgan Securities LLC etc. et al (Filed in N.Y. Supreme Court on Monday, Octo ber 1, 2012). 

    This is reportedly the first time that the claim of systemic fraud has been collectively alleged against the promoters and servicers of residential mortgage-backed securities as a class, as it were.  Gretchen Morgenson, "JPMorgan Unit is Sued Over Mortgage Securities Pools" (New York Times Online, posted October 1, 2012).  The reason is a New York law, General Business Law  352, et seq., known as the Martin Act, which allows for broad claims of fraud against groups of financial actors allegedly committing fraud.  See Michael J. de la Merced, "In JPMorgan Case, the Martin Act Rides Again" (Dealbook Blog on New York Times Online, posted October 2, 2012).  More about New York's Martin Act later.

    Another commentator who reads the complaint like it is a newspaper, finds that the complaint does not contain any news and is not newsworthy.  Peter J. Henning, "In JPMorgan Suit, a Lack of New News" (Dealblook Blog on New York Times Online, posted October 2, 2012).

    Perhaps the new complaint presents issues of Good Faith and Fair Dealing that are worth a little more attention.  Those issues will be explored here.

    More to come.

    Please Read The Disclaimer. 

SHAME ON YOU, SHAUN. THAT'LL BE TEN HAIL MARYS, ...

... One Our Father, and One Glory Be.  Now say a Good Act of Contrition.

      Opposing the facts in yesterday's post, here, with false opinions, SHAUN DONOVAN, the Secretary of HUD, has had an opinion piece published under his name at Shaun Donovan, "Mortgage Pact Helps Floridians See Light at End of the Tunnel" p. A19, col. 1 (Orlando Sentinel, Friday, July 27, 2012).

     In his piece, Mr. Donovan points out that the entire settlement agreement between the Banks and the State and D.C. Attorneys General is said to total "$25 Billion," and that "$8 Billion" will in some unexplained way "forc[e] lenders to reduce the size of unaffordable loans and to refinance loans for underwater homeowners."  Id.  If that were happening, it might be a good deal.  But that is not what is happening.  See again yesterday's post and the authorities discussed in it.

One further note of, frankly, what is either fantasy or more stuff for Mr. Donovan to confess the next time he unburdens himself in the Confessional.  He says that the settlement agreement "also provides an additional $334 million in state aid" that Pamela Bondi, Florida Attorney General, will use "to help homeowners through proven tools like housing counseling."  Id.  And if you believe that, Mr. Donovan and Ms. Bondi have some swamp land to sell you in South Florida as they say.

Please Read The Disclaimer.

BAD FAITH SETTLEMENT AGREEMENT: MORTGAGE SERVICERS, ATTORNEYS GENERAL, AND OBAMA ADMINISTRATION.

     Newspaper columnists are pointing out the failures of the Obama Administration since 2007-2008 to provide relief to Homeowners in Foreclosure.  Rightfully so.  E.g., Beth Kassab, "Like Many Homeowners, Hope Adrift" p. A3, col. 1 (Orlando Sentinel Tuesday, July 24, 2012); Gretchen Morgenson, "Fair Game / Into the Bailout Buzz Saw" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, July 22, 2012).

     However, it is easy to point a finger at Government miscues and inaction.  Perhaps too easy.  Let's take a look at a contract, a settlement agreement, made by the Banks in exchange for immunity from Government criminal and civil prosecution over their Mortgage lending practices.

The Banks made a deal to pay $2.5 Billion to the States which would include loan modifications.  (Their deal included other money and other provisions as well.  They announced the deal weeks before they posted their agreement online.  See the posts here and links in them on January 31, 2012 and on February 2, 2012.)  The deal was supposed to include debt forgiveness to be included in that amount.  There is no deal, it appears, and there is no $2.5 Billion for loan modifications.

     By way of background, in January of 2012 a global settlement agreement was announced.  The agreement involved 5 major Mortgage Servicers but, since all 5 happened to also be Banks which lent money to Homeowners, the deal was expanded to include their practices as Banks and not just as Mortgage Servicers.  Of course, once the deal was expanded to address the questionable practices of Banks lending Mortgage money to Homeowners, the Bank practices were arguably expanded to the Mortgage practices of all Banks.

     On the other side of the deal were the State and District of Columbia Attorneys General.  They were reportedly holding out for far more money and concessions if they were going to expand their deal to confer immunity on Banks for anything more than the so-called "robo-signing" practices which triggered their joint investigation in the first place.  Under pressure from the Obama Administration through Sean Donovan, Secretary of Housing and Urban Development, they caved and took a deal that included the fictional 'loan modifications' and '$2.5 Billion' in question.  Furthermore, they gave credit to the Banks for all the money spent by the Banks toward that $2.5 Billion figure that not even the Banks' lawyers probably thought they would get in 2.5 billion years.  Pretty soon, there was little or nothing left of the $2.5 Billion and the loan modifications that were supposedly part of the deal.

     If there ever were any enforceable provisions with respect to loan modifications included in that deal -- and that is a big "if" -- then they were not only negotiated in Bad Faith but they are seemingly being performed in Bad Faith.  It does not help that many observers have been aware since the deal was announced in January, 2012 that this was coming.  Homeowners asking for loan modifications under the deal are finding that out now, in July, 2012.

Please Read The Disclaimer. 

 

Force Placed Insurance and the Duty of Good Faith.

    It has just been held under Florida law, that allegations of Breach of the Implied Covenant of Good Faith and Fair Dealing, which is implied in all contracts, state a claim or cause of action against Mortgage Servicers, Lenders, and Insurance Companies in a lawsuit involving force-placed (or forced-placed) Insurance.  Kunzelman v. Wells Fargo Bank, N.A., 2012 WL 2003337 *5 (S.D. Fla. June 4, 2012), Download Kunzelmann v. Wells Fargo Bank (S.D. Fla. No. 9.11.cv.81373, Order Entered 06.01.12, Filed 06.04.12) PUBLIC RECORD.   In particular, the Court pointed out these allegations as the bases for its ruling:

In his Complaint, Plaintiff alleges that Defendants breach their implied duty of good faith and fair dealing by, among other things, choosing an insurance policy in bad faith and in contravention of the parties' reasonable expectations, failing to seek competitive bids for the insurance policies, and selecting insurance companies that would pay unearned kickbacks to Defendants. (DE 37 at ¶ 78). Accordingly, I find that Plaintiff has sufficiently pleaded his claim for breach of the covenant of good faith and fair dealing and therefore dismissal is not appropriate.

Please Read The Disclaimer. 

FORCED-PLACED INSURANCE UNDER INVESTIGATION.

 

    Until we have decided cases to report on, we will clearly be able to make do with governmental investigations of the practices involved in forced-placed insurance.  That is the insurance "which mortgage lenders take out when borrowers stop making payments on their homeowner's insurance."  Mary Williams Walsh, "New York Investigates Bank Payments to Insurers" p. B1, col. 2 (New York Times Nat'l ed., "Business Day" Section, Tuesday, May 22, 2012).

     Two forced-place insurance companies, Assurant and QBE Insurance, reportedly control "about 90 percent of the market" (in New York State).  Id.

     "The [New York] state Department of Financial Services is looking into whether the insurance firms effectively bought their dominant positions by paying kickbacks to banks disguised as commissions or other business, according to the department's superintendent, Benjamin M. Lawsky."  Id.

     The New York department is also "considering whether to require rebates for homeowners who were overcharged for the coverage."  Id.

 

Please Read The Disclaimer.

FANNIE MAE AND FREDDIE MAC REFUSE TO WRITE DOWN PRINCIPAL ...

... AND WHY THEIR REFUSAL MAY BE IN GOOD FAITH.

 

Sometimes it takes a little learning.

          The Federal Housing Finance Agency is the current, and hand-picked, regulator for both Fannie Mae and Freddie Mac.  The acting director of FHFA says that he takes his duties seriously.  His duties are above all to safeguard the risks imposed on the Taxpayer and the money the Taxpayer will have to pay.

 

          Fannie Mae and Freddie Mac were both put into conservatorship as a result of the Mortgage Fiasco, of course.   Neither had the money to pay the bills, i.e., the Mortgages they assumed, once the bills came due.

 

          There have been calls for Fannie and Freddie to write down the principal amount of the first Mortgages which they assumed.  The publicly stated theory behind such calls is that Homeowners-Mortgagors will find it easier to pay reduced first Mortgages.

 

          This ignores a fact that the FHFA acting director cannot ignore, however.  Writing down the principal on first Mortgages held by Fannie and Freddie without a corresponding write-down of the principal on second Mortgages would increase the likelihood that the second Mortgages would remain completely in effect and would be paid, or the Homeowners would suffer the consequences of Foreclosure once the first Mortgages, now held by Fannie and Freddie, no longer exist once a reduced write-down amount is paid.

 

          There is a victim, if you will, if Fannie or Freddie write down the principal amount due on first Mortgages even as the Homeowners would be given apparent relief on the face of it:  Federal Taxpayers are the people due the principal amount which is being written down.  If the principal is in fact written down, the Taxpayers recover less whenever any Mortgage now held by Fannie or Freddie is reduced.

 

          Further, the second Mortgagors are investment Banks.  They already got their bailout, as we all know.

 

          Reducing the amount owed on first Mortgages held by Fannie Mae and Freddie Mac, without a corresponding write-down of the principal on second Mortgages held by the Banks, would mean nothing less than a second bailout of the Banks.

 

          Much of this is laid out in an easy-to-understand article by Gretchen Morgenson, "Fair Game / A Bailout by Another Name" p.1 col. 6 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, March 25, 2012).  As Ms. Morgenson wrote at the conclusion of her article:

 

So the next time you hear someone advocating vast principal reductions on Fannie and Freddie loans, remind them that it would be another stealth bank bailout, courtesy of taxpayers.  Banks' unwillingness to share the pain has been a central feature of this crisis.  It's time to put an end to this dysfunctional dynamic.

 

Please Read The Disclaimer. 

Is There a Mortgage Foreclosure Fraud Settlement?

And if there Is a Mortgage Foreclosure Fraud Settlement Agreement, why can't we see it?  If it displays Good Faith, Would It not be displayed?  You would think.

   There is no Settlement Agreement on the website set up for the Foreclosure Fraud Settlement.

    The reports of an Agreement may be premature.

    There is an Executive Summary, and something called a fact sheet.  There are no dates in them. 

    The Mortgage Foreclosure Fraud Settlement was announced 3 weeks ago, as this post is written.

    I am interested in how the reported 'settlement' affects Banks' and Mortgage Servicers' liability for past practices that allegedly committed fraud upon the Courts.  Things like submitting Affidavits as proof without personal knowledge despite the signers' oath that they had personal knowledge of what was in the Affidavits they executed.  Things like at least some Foreclosure Plaintiffs' allegations that Notes and Mortgages were lost and could not be found, although allegedly the Notes and Mortgages are in the files of the Foreclosure Plaintiffs who made such allegations.  I have been looking for any information and in researching the entire Internet on this subject, I have found one source of information.

    We owe it to one source among the many weighing in on this reported 'settlement,' who describes what if any provisions are made in it concerning the liability of Banks and Mortgage Servicers for past practices which allegedly perpetrated fraud upon the Courts.  An Assistant Attorney General in Wisconsin writes on the website of the Wisconsin Bar that in the settlement, the participating Banks/Servicers are completely released from all such claims which might be pursued by the Federal Government and the participating State Attorneys General, based on alleged fraud upon the Courts of the States and of the United States.  See Holly Pomraning, Esquire, Assistant Attorney General, Wisconsin Department of Justice, "Wisconsin Joins $25 Billion Mortgage Settlement" posted on February 13, 2012 on State Bar of Wisconsin website.

    If Attorneys General will not ensure that fraud is not committed upon the Courts, who will?

   We would likely be better off if the reported settlement was never born, as they say.  See "Mortgage Foreclosure Fraud Settlement:  This Settlement is a Fraud," posted on February 16, 2012 on Insurance Claims and Bad Faith Law Blog.

Please Read The Disclaimer.   

MISSOURI INDICTS FLORIDA FORECLOSURE FACILITATORS FOR FORGERY.

   "Robosigning" is the act of signing someone else's name, or yours, to papers that will be used to evict people from their homes whether they deserve it or not. 

   Forgery is a felony in most jurisdictions.  It is certainly a crime in Missouri, where a Grand Jury handed up indictments of "DocX" and its founding former president on "136 counts of forgery in the preparation of documents used to evict financially strained borrowers from their homes."  Gretchen Morgenson, "Company Faces Forgery Charges in Foreclosures in Missouri" p. B1, col. 2 (New York Times Nat'l ed., "Business Day" Section, Tuesday, February 7, 2012).

   DocX reportedly employed people for the purpose of signing other people's names and notarizing the signatures on "millions of mortgage documents for big banks and loan servicers".  Id.  Doc X was a part of Lender Processing Services located in Jacksonville, Florida, until DocX was "closed" a year-and-a-half ago.

   You and your clients might be wondering if forgery is a crime in other States besides Missouri?  Of course it is.

   You might also be wondering in what other States has forgery been prosecuted as a crime?  One.  Nevada, where some individuals have been charged with "notary fraud".  Id.

   You might wonder why not?  Why have there not been criminal prosecutions for forgery and Fraud?

   Except in Missouri and Nevada?

   Mortgage Insurance Companies and Title Insurance Companies faced with more and higher payouts on their Policies would like to know the answer to that question, too.

   So would the rest of us.

Please Read The Disclaimer.

ARE COUNTRYWIDE'S ALLEGED SINS VISITED UPON NEW PARENT, BANK OF AMERICA?

... One Federal Court Answers "no," Not in That Case.  Court Dismisses Amended Complaint at Issue, With Prejudice.

    In Allstate Insurance Co. v. Countrywide Financial Corp., 2012 WL 335730 (C.D. Cal. February 2, 2012), Download Allstate Insurance Co. v. Countrywide Fin. Corp. (C.D. Cal. Case No. 2.11CV05236, Order Filed February 2, 2012) PUBLIC ACCESS, a Federal Judge dismissed Fraud claims against Bank of America ("BOA") with prejudice.  The Fraud claims were based on BOA's Merger and Acquisition activity and alleged vicarious liability for the Residential Mortgage-Backed Securities sales of Countrywide Financial Corporation.

   Allstate filed this "securities action [over] residential mortgage-backed securities ('RMBS')" it purchased "in multiple offerings structured and sold by several of the defendants."  The Defendants in that case included Bank of America, and they include Officers and Directors of Countrywide.  More specifically, Allstate alleged misrepresentations by or on behalf of the Defendants "regarding the quality of Countrywide-issued [RMBS] that Allstate purchased between 2005 and 2007."  Id. at *1.

   Allstate alleged that when Bank of America bought Countrywide, BOA also bought liability in the event that Allstate recovers Damages in this lawsuit.  Allstate alleged Causes of Action Nine, Ten and Eleven against BOA for "Successor and Vicarious Liability," "Intentional Fraudulent Conveyance," and "Constructive Fraudulent Conveyance," respectively.  Id.

   For reasons primarily related to Illinois law, the Federal Judge dismissed with prejudice Allstate's alleged claims of Fraudulent Transfer, whether "constructive fraudulent transfer" (id. at *5 - *7) or "actual fraudulent transfer" (id. at *8 - *10).

   Next, citing a Third Circuit Court of Appeals decision, the Federal Judge in California dismissed with prejudice Allstate's alleged claim of "assumption of liabilities" by BOA of Countrywide's liabilities.  Id. at *11.

   The Federal Court then dismissed with prejudice any alleged claim by Allstate against BOA for "successor liability" as to Countrywide's alleged fraudulent activities.  In reaching this decision, the Federal Court relied on Federal decisions from Illinois, California, and Delaware, and on Delaware State Court decisions, all applying Delaware law in this regard.  Id. at *11 - * 13.  Although the California Federal Court observed in this case that "Delaware law is clear that directors owe a fiduciary duty only to the corporation and its shareholders," and not to "a creditor such as Allstate at all,"  id. at *12 n.11,  "[t]he Court need not address this issue" in this case, the Court ruled.  Id.

   Parties allegedly defrauded during the Great Financial Fiasco, including parties who allege that they were defrauded during the sale and origination of Residential Mortgage-Backed Securities, and their legal counsel, are provided by this opinion with a roadmap for alleging sustainable Fraud claims.  Specifically, the Court's opinion in this case provides such a roadmap for parties and their counsel alleging claims against successor entities which may be held vicariously liable for those allegedly fraudulent RMBS activities, dependent upon the facts of each case.

 

Please Read The Disclaimer.

Residential Mortgage-Backed Securities Group: The Final Installment.

Unidentified "people close to the talks" say that State Attorneys General have until tomorrow to decide whether to settle with Mortgage Servicers which are also Banks, on undisclosed terms which may involve a Release of "civil state and federal lawsuits about servicing misconduct and faulty foreclosures, and state lawsuits about how they made some of the loans."  Aruna Viswanatha and Rick Rothacker, in a copyrighted Reuters news story as it appears on OrlandoSentinel.com on Thursday, Feb. 2, 2012, entitled "States to Decide This Week on Mortgage Deal".

This ends a series begun on Monday, Jan. 30,2012 on Insurance Claims and Issues Weblog.  Part 2 was posted on Tuesday, Jan. 31, 2012 on Insurance Claims and Bad Faith Law Blog, and Part 3 was posted yesterday on Insurance Claims and Issues Weblog.  

   When we ended Part 3 of this series, we made note of the fact that none of the websites of any of the three State Attorneys General who have expressed reservations about, or withdrawn from, the Mortgage Servicers-Banks Mortgage Fraud settlement talks, even posted a press release or any other news about the Federal Residential Mortgage-Backed Securities Working Group.

   The three State Attorneys General in question have each already launched their own prosecutions, civil or criminal, and the Obama Administration seems to be applying all the pressure that it can bring to bear on them to settle.  The three State Attorneys General involved, are the Attorneys General of:

1. California;
2. Massachusetts; and
3. Nevada.

   By way of further information identifying the lawsuits and reservations of these Attorneys General about the 'talks,' the California Attorney General withdrew from the talks and is pursuing California's own prosecution of Mortgage Fraud.  October 4 and October 27, 2011 posts on Insurance Claims and Bad Faith Law Blog; see November 1, 2011 post on Insurance Claims and Bad Faith Law Blog.

   As if there was not already enough pressure being applied to the California Attorney General to agree to return to the 'talks' and agree to sign the Release demanded by the Banks of all their potential liabilities in the Mortgage Fraud Fiasco, known and unknown, there is this news:  Reportedly if those 'talks' result in a settlement, the Banks will pay more money if California signs on to the Release.  Aruna Viswantatha and Rick Rothacker, Reuters news report, supra.

   The Attorney General of Massachusetts has also filed suit on behalf of her State over Mortgage Fraud.  December 4 and December 6, 2011 posts on Insurance Claims and Bad Faith Law Blog.

   The Nevada Attorney General has similarly filed suit on behalf of Nevada citizens who have allegedly been damaged by Bank misconduct during the Mortgage Fraud Fiasco.  See January 9, 2012 post on Insurance Claims and Issues Weblog, and the links to other reports in it.

   No suit appears to be pending against the Banks over their alleged involvement in the Mortgage Fraud Fiasco, which was filed by the Federal Government.

   There is however tremendous pressure, as we have seen, which is being applied to State Attorneys General to settle, sight unseen, with the Banks over the Banks' involvement if any in the Mortgage Fraud.  We have seen in particular that extreme pressure is being applied by the Administration to three strong women Attorneys General who have rejected the idea of settling, sight unseen.

   Given the activities of recent days which result in as much pressure as can be brought to bear by the current Federal Government, it will not be at all surprising if the positions of one or more of the State Attorneys General  change.

   Time will tell.  In the meantime, Mortgage Insurance Companies and Title Insurance Companies will continue to bear the cost of the Mortgage Fraud Fiasco, more or less alone.

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