Posts Tagged ‘mortgages’

Mortgage borrowers “helped” — at mortgage borrowers’ expense

Who could possibly have seen this coming? [Arnold Kling]:

Servicing [of mortgages] has been traditionally a very low-margin business, with the whole ballgame about keeping costs low.

Back in 2009, policy makers treated mortgage servicers like a piñata. They beat on servicers to provide foreclosure relief, loan modifications, and so forth. They told them to administer new programs that combined loan origination procedures with loan servicing procedures. They sought to punish servicers for noncompliance.

Well, guess what. Now servicers do not want anything to do with any loan that might become delinquent. The cost of dealing with such loans has skyrocketed, thanks to Washington’s piñata-bashing. So if you originate a loan to someone with a low credit score, the servicer charges a hefty premium. That in turn means that risky borrowers either have to pay that premium or get rationed out of the market altogether.

Not wholly unrelated: Sunday’s Washington Post laments that home values in suburban Prince George’s County, Maryland have not bounced back from the crash the way those in Reston, Va., have, and discerns a racial-injustice angle. Unfortunately, it misses a big legal angle that might explain some of the difference, about how the two states’ laws and lawmakers reacted to the foreclosure wave. And: more from Arnold Kling.

Judge rules against housing disparate impact theory

The Obama Administration has repeatedly dodged cases in fear of judicial review of its controversial application of the disparate impact theory to mortgage lending and other aspects of the housing market, but its position has now met with a stiff rebuke from district court judge Richard Leon [Insurance Journal]:

“This is yet another example of an administrative agency trying desperately to write into law that which Congress never intended to sanction,” Leon wrote.

He called the rule “nothing less than an artful misinterpretation of Congress’s intent that is, frankly, too clever by half.”

Banking and finance roundup

  • SEC regs suppress small business capital formation and that’s a shame [Commissioner Daniel Gallagher via Bainbridge]
  • Federally sponsored gripe site for financial institutions not likely to end well [Hester Peirce and Vera Soliman, Mercatus via Kevin Funnell]
  • Alleged terror payments “routed through” sued bank also went through major New York banks, which shouldn’t be surprising [Fisher]
  • Did mid-level managers in securitized mortgage finance know they were in a housing bubble but cynically go ahead? Evidence against [Cheng et al., American Economic Review via MR]
  • Shareholder litigation: “New ‘loser pays’ standard could curb abusive lawsuits” [Examiner editorial] Delaware take note: corporate by-law changes that cut off fee-seeking opportunism deserve acclaim [Keith Paul Bishop via Bainbridge]
  • NYT was hot on “Goldman Sachs manipulated aluminum market” allegations but judge wasn’t [Reuters, July 2013 NYT]
  • CFPB might shrug off discrimination and retaliation charges, but many of the firms it regulates could not afford to [Hans Bader]

Banking and finance roundup

Banking and finance roundup

Citigroup to pay $7 billion in mortgage settlement

WSJ editorial this morning: “We hold no brief for Citi, which has been rescued three times by the feds…. [But] good luck finding a justification for [the $7 billion figure] in the settlement agreement. The number seems to have been pulled out of thin air since it’s unrelated to Citi’s mortgage-securities market share or any other metric we can see beyond having media impact.

“This week’s settlement includes $4 billion for the Treasury, roughly $500 million for the states and FDIC, and $2.5 billion for mortgage borrowers. That last category has become a fixture of recent government mortgage settlements, even though the premise of this case involves harm done to bond investors, not mortgage borrowers.” More: Bloomberg. And the settlement directs Citigroup to hire former Eric Holder associate Thomas Perrilli, now at Jenner & Block, for a monitorship that is likely to prove an extremely lucrative plum [Reynolds Holding, Alison Frankel] Also: Ira Stoll.

Banking and finance roundup

  • In banking and FCPA cases, targets of DOJ prosecution are disproportionately firms domiciled abroad, and other countries do notice that [Jesse Eisinger, NYT “DealBook”]
  • “Los Angeles’ Confused Suit against Mortgage Lenders” [Mark Calabria, Cato] Providence also using disparate impact suits in hopes of making banks pay for its housing failures [Funnell]
  • Podcast discussion on Operation Chokepoint with Charles J. Cooper, Iain Murray, and Todd J. Zywicki [Federalist Society, earlier]
  • New round of suits against banks based on ATMs’ imperfect wheelchair accessibility [ABA Journal, earlier here]
  • Walgreen’s could save billions in taxes if it moved to Switzerland from U.S. Whose fault if anyone’s is that? [Tax Foundation]
  • “Left unmentioned: how fed regulation and trial lawyers deter banks from protecting themselves with overdraft fees.” [@tedfrank on NYT report about banks’ use of databases to turn down business from persons with records of overdrawing accounts, a practice that now itself is being targeted for regulation]
  • Scheme to seize mortgages through eminent domain stalling as cities decline to come on board [Kevin Funnell]

Banking and finance roundup

  • Furor grows over Obama administration’s Operation Chokepoint program chilling bank access for legal but disfavored groups [Iain Murray, Elizabeth Nolan Brown, FDIC list (not just payday lenders but also lawful purveyors of pills, guns, ammunition, and much more), Hans Bader] Parallel, though not happening under same program: JP Morgan abruptly closes accounts of former Colombia finance minister who is a renowned international economist, apparently because he made it onto a list of diplomats and other “politically exposed persons” statistically associated with legal risks and high compliance costs [Business Insider] Update via Nolan followup: Dana Liebelson at Mother Jones quotes anonymous bank officials as claiming that some account closures are wrongly being attributed to the program, but even in defending it concedes that should banks opt for continuing to service clients in disfavored lines of business they will shoulder distinctive (maybe decisive) compliance costs from “manag[ing] these relationships and risks,” engaging in due diligence, etc. Also, lawmakers like Sens. Jeff Merkley (D-Ore.) and Elizabeth Warren (D-Mass.) and Rep. Elijah Cummings (D-Md.) back the program; besides, this isn’t “the first time that feds have asked banks to keep an eye on their customers” since the Know Your Customer program goes back some years. So that’s comforting!
  • “Court: Standard & Poor’s is entitled to discovery supporting its ‘selective prosecution’ claim” [Volokh, earlier here and here]
  • “Plaintiff? Is That Really Necessary In A Class Action?” [Daniel Fisher on ZymoGenetics case]
  • Backed by hedge fund, lawyers exploit anti-terror law to squeeze global banks [Norman Lamont, New York Post]
  • “CEO facial masculinity predicts firm’s likelihood of being subject to SEC enforcement action” [Jia, Van Lent, and Zeng, SSRN via @brucecarton]
  • “Reflections on High Frequency Trading” [Robert Levy, Cato]
  • Banks finally lay to rest long-running litigation under Missouri second-mortgage law (MSMLA), though only after one Kansas City law firm ran up more than $600 million in settlements [Litigation Daily]

The “sovereign citizen” cult

A big source of frivolous litigation these days, the “sovereign citizen” cult originated on the political right but has now spread more widely [Lorelei Laird, ABA Journal]:

When involved in any legal matter, from pet licensing to serious criminal charges, sovereigns are known for filing legal-sounding gibberish, usually pro se, learned from other sovereigns who sell lessons in “law” online. Frequently, they cite the Uniform Commercial Code, maritime law and the Bible.

They’re also known for the sheer volume of their filings, which can double the size of a normal docket. …

Some sovereigns hold trials in their own “common-law courts,” convicting public officials in absentia and sentencing them to death for “treason.” …Sovereigns sometimes say they are subject only to “God’s law” or to “common law,” meaning the U.S. legal system as they believe it existed before the conspiracy. They may declare themselves independent nations, join fictional American Indian tribes or attempt to create a replacement government within the sovereign community.

Don’t assume that public officials and public employees are the only ones swept in:

The Atta family locked up their Temecula, Calif., home and went on vacation in 2012. While they were gone, Victor Cheng moved in.

Cheng had owned the home before the Attas, but he lost it in foreclosure. Nonetheless, he filed a fraudulent deed with the county recorder’s office, transferred the utilities into his name and even tried to evict the Attas after their return. During his prosecution for burglary, trespassing and filing a false document, he insisted that he was not the person being prosecuted because the indictment spelled his name in all capital letters.

Full story here.