D.C. Circuit Holds Government False Claims Case Not Precluded By National Mortgage Settlement

On June 10, the U.S. Court of Appeals for the District of Columbia affirmed the district court’s decision not to enjoin the federal government from pursuing alleged False Claims Act violations against a bank that argued such claims were precluded by the terms of the National Mortgage Settlement. United States v. Bank of Am. Corp., No 13-5112, 2014 WL 2575426 (D.C. Cir., Jun. 10, 2014). The bank sought to halt a suit filed by the government in the Southern District of New York (SDNY), in which the government alleges that the bank’s certification of loans as eligible for FHA insurance under the FHA’s Direct Endorsement Lender Program violated the False Claims Act. The bank asserted that the National Mortgage Settlement contains a comprehensive release for certain liability with respect to its alleged FHA mortgage lending conduct. The appeals court held that the agreement releases only the narrower category of liability for loans based on allegations that the bank’s annual certification was false without regard to whether any such loans contain material violations of HUD-FHA requirements, , and held that distinct loan-level violations for such loans would provide an independent basis for liability. However, the appeals court agreed that the SDNY must construe the government’s complaint and “ensure that the claims are litigated in a manner that comports with the [National Mortgage Settlement] Release’s limitations.” The appeals court agreed with the bank that some of the government’s claims “tread on the verge of the released claims, referencing false annual certifications explicitly.” The appeals court noted that the government repeatedly conceded that, to comport the SDNY suit with the National Mortgage Settlement release terms, “material violations do need to be demonstrated with respect to individual loans,” and cautioned the government that, should prosecution of its claims depart from that concession, the bank may seek appropriate relief.

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Banks Complete National Mortgage Settlement Consumer Relief Obligations

On March 18, the National Mortgage Settlement (NMS) Monitor Joseph Smith Jr., announced that four banks subject to the NMS satisfied the consumer relief and refinancing obligations established by the agreement. The monitor filed reports in the U.S. District Court for the District of Columbia certifying the banks’ compliance. The monitor had previously certified satisfaction by a fifth bank. The monitor stated that in many cases the banks exceeded the agreement’s requirement that the majority of the relief be provided through first and second lien modifications—among the five banks, 37% of credited total relief was in the form of first lien principal forgiveness and 15% was in the form of second lien principal forgiveness. Refinancing assistance made up 17% of total credited relief, while the remaining 31% of relief included assistance for short sales and deeds in lieu of foreclosure.

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CFPB, State AGs Announce First Nonbank National Servicing Settlement

On December 19, the CFPB and attorneys general for 49 states and the District of Columbia, and a nonbank mortgage servicer, filed a proposed consent order in the U.S. District Court for the District of Columbia, pursuant to which the servicer will be required to provide $2 billion in principal reduction to certain borrowers and refund $125 million to nearly 185,000 borrowers who were foreclosed upon.

The agreement is modeled on the 2012 national mortgage servicing settlement between five banks and federal and state authorities, and it is the first such agreement with a nonbank mortgage servicer. The proposed order would resolve allegations that the servicer, and two other servicers it acquired in recent years, engaged in unfair and deceptive acts and practices in the servicing of residential mortgages and foreclosure processing in violation of state consumer protection laws and the Consumer Financial Protection Act. Those allegations are detailed in a complaint filed by the CFPB and states on the same day.

Along with the monetary settlement, the agreement requires the servicer to implement numerous servicing policy changes, which incorporate the standards established in the national servicing settlement and add requirements related to transferred loans. The servicing requirements included in the settlement are in addition to new servicing standards the CFPB finalized earlier this year, which take effect on January 10, 2014. Compliance with the agreement will be overseen by the monitor of the national settlement. The agreement does not include releases for any potential claims of criminal liability and does not prohibit private actions.

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National Mortgage Settlement Monitor Announces Interim Credit

On October 16, Joseph A. Smith, Jr., the National Mortgage Settlement Monitor, announced that his office filed with the U.S. District Court for the District of Columbia reports on credited consumer relief and refinancing provided through December 31, 2012 by four of the five servicers subject to the National Mortgage Servicing Settlement. A summary report and fact sheet released by the Monitor provide additional detail about the relief certification procedures and a breakdown of each servicer’s relief activities.

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Bank Holding Company Resolves Federal Mortgage Claims

On October 10, a bank holding company announced that it has agreed in principle, on behalf of itself and certain affiliates, to resolve mortgage-related allegations by the federal government. The company reached agreements in principle with HUD and the DOJ to settle (i) certain civil and administrative claims arising from FHA-insured mortgage loans originated over a six-and-a-half year period and (ii) certain alleged civil claims regarding the company’s mortgage servicing and origination practices as part of the National Mortgage Servicing Settlement. Pursuant to the agreements in principle, the company committed to $500 million of consumer relief, a $468 million cash payment, and the implementation of certain mortgage servicing standards. The company also reached an agreement in principle with the Federal Reserve Board to impose a $160 million civil monetary penalty, in conjunction with an April 2011 Consent Order.

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New York AG Announces Mortgage Servicing Enforcement Actions

On October 2, New York Attorney General Eric Schneiderman (NY AG) announced actions to address alleged failures by two servicers to comply with certain of the 304 servicing standards established by the National Mortgage Servicing Settlement. In May, the NY AG threatened to sue both servicers based on borrower complaints that the servicers were not fulfilling their settlement obligations. The NY AG now has initiated proceedings to enforce the terms of the settlement against one of the banks, alleging numerous servicing deficiencies. In exchange for the NY AG suspending planned legal action against the second servicer, that servicer entered an agreement pursuant to which it is required to, among other things, (i) designate staff with decision-making authority to every housing counseling and legal services agency within the NY AG’s Homeowner Protection Program, (ii) revise the letters it uses to request from borrowers missing documents or information needed to complete a loan modification, (iii) halt the sale of mortgage servicing rights to third parties on New York mortgages when borrowers are already in negotiations for a loan modification or are making trial payments on a loan modification, and (iv) allow borrowers’ attorneys permission to negotiate loan modifications directly with bank staff, as opposed to the bank’s outside foreclosure lawyers.

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National Mortgage Servicing Settlement Monitor Adds Enforcement Metrics

On October 2, Joseph A. Smith, Jr., the Monitor of the National Mortgage Servicing Settlement announced four new metrics his office will use to measure the settling servicers’ compliance with the agreement’s servicing standards. Two of the metrics take effect on January 1, 2014 and are intended to (i) ensure borrowers are provided contact information for new “single points of contact” and (ii) ensure that servicers’ monthly billing statements are accurate and detailed. Compliance testing on two additional metrics related to servicers’ communications to borrowers regarding the requirements for loan modification applications will begin on April 1, 2014. Those metrics are meant to (i) ensure that the servicers do not reject a borrower’s loan modification application or proceed with a foreclosure for at least 30 days while the borrower is responding to requests for additional documents and (ii) ensure the servicers communicate modification denials and make loss mitigation alternatives available.

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Senator Warren Presses DOJ on National Mortgage Servicing Settlement FHA-Related Releases

On August 21, Senator Elizabeth Warren (D-MA) sent a letter to Attorney General Eric Holder raising concerns about the provisions of the National Mortgage Settlement that relate to the government’s release of potential FHA-related False Claims Act-based claims against the settling servicers. Senator Warren’s letter questions the settlement amount that the government obtained for the release of such claims. The Senator calls for a “clearer and more public accounting of the [alleged] damages FHA incurred” as a result of the settling servicers’ conduct, and presses DOJ more broadly on its enforcement approach to large financial institutions. Senator Warren is seeking information and documents relating to the DOJ’s assessment of any potential FHA claims and the process by which it agreed to settle those claims.

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National Mortgage Settlement Monitor Identifies Few Servicing Violations

On June 19, the National Mortgage Settlement Monitor, Joseph A. Smith, Jr., released summaries of the mortgage servicing compliance reports he submitted to U.S. District Court Judge Rosemary Collyer — the judge presiding over the consent judgments that constitute the National Mortgage Settlement. The summaries indicate that the five servicers subject to the national agreement were largely compliant with the agreement’s mortgage servicing requirements and currently are taking actions to address certain potential violations. Still, the Monitor stated that consumer and state attorney general complaints indicated that some issues may remain with regard to the loan modification process, single points of contact, and billing and statement inaccuracies, and that he is negotiating more stringent testing with the banks to address these issues.

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Housing Advocacy Groups Press For National Mortgage Settlement Fair Servicing Data

On May 23, a group of 17 housing and advocacy organizations sent a letter to U.S. District Court Judge Rosemary Collyer – the judge presiding over the consent judgments that constitute the National Mortgage Settlement – questioning whether the homeowner relief activities of the mortgage servicers subject to that settlement are being conducted fairly with regard to borrowers in minority communities. The group urged Judge Collyer to require full public disclosure of the distribution of principal reduction and other loan modification benefits. In particular, the organizations are concerned that servicers may not be complying with state and federal fair housing laws in their distribution of loan modifications. The organizations ask that the servicers be required to report census tract and other data for each mortgage adjustment for which they seek credit under the settlement. In March, the group and other organizations sent a similar, more detailed request to National Mortgage Settlement Monitor Joseph Smith, pressing him to monitor and audit the fair lending compliance of the servicers involved in the settlement. To date, the Monitor has not publicly done so.

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National Mortgage Settlement Monitor Updates Consumer Relief Status

On May 21, the National Mortgage Settlement Monitor, Joseph Smith, released updated consumer relief activities data submitted by the mortgage servicers subject to the Settlement. The update reflects relief activities during the period March 1, 2012 through March 31, 2013, and includes a breakout of data for the first quarter of 2013. A fact sheet highlights numerous aspects of the data, including that 621,712 borrowers have benefited from some type of consumer relief totaling $50.63 billion, which, on average, represents about $81,437 per borrower. The Monitor did not issue a full report on the data because he is focused on testing the 2012 year-end consumer relief claims of four banks. The Monitor expects to release the results of the testing in the coming weeks. In June, he also plans to submit the first required report regarding the banks’ compliance with the Settlement’s servicing standards.

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New York AG Plans Suit Over Alleged Violations of National Servicer Settlement

On May 6, New York Attorney General Eric Schneiderman announced his intent to sue two of the five mortgage servicers that entered the National Mortgage Settlement with 49 state attorneys general, the U.S. Department of Justice, and certain federal agencies, alleging numerous violations of the servicing standards established by that agreement. Based on complaints received from borrowers, Mr. Schneiderman alleged that the two companies violated agreed-to loan modification timeline requirements established in the National Mortgage Settlement, including failure to provide acknowledgment of receipt of documentation from a borrower, failure to notify the borrower of missing documentation, and failure to provide a decision on the modification request within 30 days of receiving a complete application. Procedurally, under the National Mortgage Settlement, an individual party such as the New York Attorney General must provide notice of intent to bring an enforcement action for noncompliance to the Monitoring Committee, which has 21 days to determine whether to pursue action on behalf of all the parties to the National Mortgage Settlement. At the conclusion of the 21-day waiting period, if the Monitoring Committee decides not to move forward, the New York Attorney General, and other individual attorneys general, may separately pursue the action.

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DOJ Announces Payments Under 2011 SCRA Settlements

On April 4, the DOJ announced that two mortgage servicers will pay a combined $39 million to 316 servicemembers pursuant to SCRA settlements from 2011. Those settlement agreements resolved allegations that the mortgage servicers unlawfully foreclosed upon servicemembers between 2006 and 2010. One of the servicers also is subject to the national mortgage servicing settlement, which required an audit to identify violations of SCRA’s foreclosure provisions between January 1, 2006 and April 4, 2012 and its 6 percent interest rate cap provision between January 1, 2008 and April 4, 2012. DOJ stated that the payment is separate from the national servicing settlement review and represents only the non-judicial foreclosures conducted by the bank during the relevant time period. As the national settlement audits progress, the DOJ will require the servicer to make additional payments for alleged judicial foreclosure and interest rate violations uncovered in the audit.

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Housing Counselor Survey Alleges Banks Fail to Comply with National Mortgage Settlement.

On April 3, a California borrower advocacy organization published the results of its survey of housing counselors, which the organization claims reveals that problems persist with the implementation of the national servicing settlement’s servicing standards, including with regard to single points of contact, dual tracking, timelines, and documentation. The report also claims that borrowers of color and other groups face additional challenges to obtaining relief under the settlement. The report recommends that (i) the National Mortgage Settlement Monitor and state attorneys general collect, analyze and report the race, ethnicity, gender, and census tract of those who have received assistance and those who have not; (ii) the OCC and the Federal Reserve Board collect, analyze and make public the same data beyond the national settlement, and include all loss mitigation activity; (iii) the CFPB promptly issue a rule to establish new HMDA categories; (iv) the Monitor impose penalties on outliers; (v) the Monitor, the CFPB, and state AGs tighten rules around “complete loan mod app”, servicing transfers, and widows; (vi) regulators prioritize in the revamped Independent Foreclosure Review process principal reduction relief, keeping people in their homes, and restoring wrongful foreclosure victims to their homes by forcing servicers to go back through their files, rescind improper foreclosure sales, and fix mistakes; (vii) authorities provide more financial support for housing counseling and legal services; and (viii) regulators ensure that servicers have sufficient capacity and training to work with homeowners at risk of foreclosure.

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National Mortgage Settlement Monitor Issues Implementation Report

On February 21, Joseph Smith, Jr., the Monitor charged with overseeing the borrower relief and servicing standards aspects of the national mortgage servicing settlement, issued an implementation status report. The report states that the servicers subject to the agreement have provided nearly $46 billion of borrower relief to date and that one of the five servicers has been certified as having satisfied its borrower relief obligations under the settlement. The report notes that, effective January 1, 2013, each of the five servicers’ compliance with the servicing standards are being measured against a set of 29 metrics. The report does not provide any initial assessment of servicer compliance, but notes that the Monitor is currently reviewing each servicer’s compliance review report and, after completing a consultation process with each servicer and the Monitoring Committee, the Monitor will file a compliance report during the second quarter of 2013. The report also notes an increase in consumer complaints collected by the Monitor to date, but does not conclude whether the increase is due to greater awareness about the settlement or persistent servicing problems.

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