GOVERNMENT TRUMPETS $25 BILLION SETTLEMENT WITH MORTGAGE SERVICERS
U.S. Attorney General Eric Holder, Department of Housing and Urban Development Secretary Shaun Donovan, Iowa Attorney General Tom Miller and Colorado Attorney General John W. Suthers announced today that the federal government and 49 state attorneys general (Oklahoma did not sign on) reached a $25 billion agreement with the nation's five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses, according to a DOJ press release. The joint federal-state agreement requires servicers to implement comprehensive new mortgage loan servicing standards to resolve violations of state and federal law. These violations include servicers' use of "robo-signed" affidavits in foreclosure proceedings; deceptive practices in the offering of loan modifications; failures to offer non-foreclosure alternatives before foreclosing on borrowers with federally insured mortgages; and filing improper documentation in federal bankruptcy court. Under the terms of the agreement, the servicers are required to collectively dedicate $20 billion toward various forms of financial relief to borrowers that will include:
• At least $10 billion will go toward reducing the principal on loans for borrowers who, as of the date of the settlement, are either delinquent or at imminent risk of default and owe more on their mortgages than their homes are worth.
• At least $3 billion will go toward refinancing loans for borrowers who are current on their mortgages but who owe more on their mortgage than their homes are worth. Borrowers who meet basic criteria will be eligible for the refinancing, which will reduce interest rates for borrowers who are currently paying much higher rates or whose adjustable rate mortgages are due to soon rise to much higher rates.
• Up to $7 billion will go toward other forms of relief, including forbearance of principal for unemployed borrowers, anti-blight programs, short sales and transitional assistance, benefits for service members who are forced to sell their home at a loss as a result of a Permanent Change in Station order, and other programs.
• Those homeowners with mortgages held by Fannie Mae and Freddie Mac are not covered by the settlement.
Mortgage servicers are required to fulfill these obligations within three years. To encourage servicers to provide relief quickly, there are incentives for relief provided within the first 12 months. Servicers must reach 75 percent of their targets within the first two years. Servicers that miss settlement targets and deadlines will be required to pay substantial additional cash amounts.
In addition to the $20 billion in financial relief for borrowers, the agreement requires the servicers to pay $5 billion in cash to the federal and state governments. $1.5 billion of this payment will be used to establish a Borrower Payment Fund to provide cash payments of about $2,000 to some 750,000 borrowers whose homes were wrongfully sold or taken in foreclosure between Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria. This program is separate from the restitution program currently being administered by federal banking regulators to compensate those who suffered direct financial harm as a result of wrongful servicer conduct. Borrowers will not release any claims in exchange for a payment. The remaining $3.5 billion of the $5 billion payment will go to state and federal governments to be used to repay public funds lost as a result of servicer misconduct and to fund housing counselors, legal aid and other similar public programs determined by the state attorneys general. Click here to read the press release.
Click here to read U.S. Attorney General Eric Holder’s speech on the foreclosure settlement.
U.S. PLANS TO SUE BANKS OVER MORTGAGE BONDS
Federal securities regulators plan to warn several major banks that they intend to sue them over mortgage-related actions linked to the financial crisis, the Wall Street Journal reported today. The move would mark a stepped-up regulatory effort to hold Wall Street accountable for its sale of bonds linked to subprime mortgages in 2007 and 2008. At issue is whether the banks misrepresented the poor quality of loan pools they bundled and sold to investors. Banks whose activities are being examined in the civil investigation include Ally Financial Inc., Bank of America Corp., Citigroup Inc., Deutsche Bank AG and Goldman Sachs Group Inc. In a meeting with reporters last month, Robert Khuzami, the SEC's enforcement chief, said that the agency's mortgage-bond investigation was looking for evidence that firms "failed to disclose important information when selling these securities." Read more. (Subscription required.)
REPORT: FORECLOSURES DROP 24 PERCENT IN 2011
Foreclosure activity dipped nationwide in 2011 as completed foreclosures fell 24 percent to 830,000 from 1.1 million a year earlier, according to a report from CoreLogic, HousingWire.com reported today. December foreclosures also declined year-over-year to 55,000 from 67,000. The number of mortgages 90 days or more delinquent also fell to 7.3 percent from 7.8 percent a year earlier, but rose from 7.2 percent in November. Foreclosure inventory saw a similar decline by 8.4 percent from December 2010. Houses in the foreclosure process totaled 1.4 million in December 2011, making up 3.4 percent of all homes with outstanding loans. Read more.
DELAWARE-ONLY CORPORATE BYLAW RESTRICTING INVESTOR SUITS COMES UNDER SIEGE
The Delaware Chancery Court has become a top forum for litigating business disputes because more than 60 percent of Fortune 500 companies are incorporated in the state, Bloomberg News reported yesterday. Companies incorporate in Delaware to take advantage of laws that give their directors wide latitude and to gain access to the Chancery Court, which provides fast-track trials in which punitive damages are banned. Chancery cases can be heard quickly by judges experienced in corporate law. In 2010, the Chancery Court adopted a process that allows one of its five judges to preside over arbitrations, in which limits on the exchange of evidence between contending parties are more restrictive than in conventional lawsuits and proceedings can be kept confidential. The validity of the Delaware-only bylaws is uncertain, said Larry Hamermesh, a professor at Widener University’s law school in Wilmington who specializes in corporate law. “Bylaws like these can be adopted by the board without shareholder approval,” he said. “That casts some doubt on their legitimacy.” U.S. District Judge Richard Seeborg in San Francisco ruled in January 2011 that corporate directors cannot dictate venue for shareholder derivative cases by adopting a bylaw limiting the action to Delaware Chancery Court. The parties may contract for a venue, he said. Seeborg, a federal judge, did not decide whether such bylaws are valid under Delaware law. Read more.
COMMENTARY: TO ENVISION DODD-FRANK'S FUTURE, LOOK TO ITS PREDECESSOR
As fears mount that Dodd-Frank, the financial overhaul law, is about to be emasculated, it is worth reflecting on the 10-year anniversary of Sarbanes-Oxley, the law that cleaned up American corporate accounting, according to a commentary yesterday on the New York Times' DealBook blog. SOX, as it is known, was a response to an epidemic in corporate accounting fraud that swept American business in the late 1990s and early 2000s. When SOX was passed, it was attacked almost exactly the way Dodd-Frank is today, according to the commentary. While Sarbanes-Oxley is far from perfect, many of the main criticisms have not panned out. Corporate earnings have soared, and no company has ever missed a quarterly estimate because it was spending too much on its accounting and internal controls, according to the commentary. The Dodd-Frank Act is more sweeping, more pilloried and more complicated, and its concentration on one industry allows for a more unified opposition. However, for all of the criticisms of Dodd-Frank, there has been a societal change in our views as most agree that some kind of financial reform law was — and still is — needed. Read more.
ABI IN-DEPTH
APPLICATIONS BEING ACCEPTED FOR BANKRUPTCY JUDGE OPENING IN MISSISSIPPI
The U.S. Court of Appeals for the Fifth Circuit seeks applications from all highly qualified candidates for a 14-year appointment as a U.S. Bankruptcy Judge for the Northern District of Mississippi at Aberdeen. Bankruptcy Judge David Houston III will be retiring at the completion of his current 14-year term on December 27, 2012. Those interested in applying for the position should click on the link below or write to Gregory A. Nussel, Circuit Executive, U.S. Court of Appeals, Fifth Circuit, 600 Camp Street, Room 100, New Orleans, La. 70130. The deadline for submitting completed applications is Feb. 29, 2012. Click here for more information.
LATEST CASE SUMMARY ON VOLO: CLEMENTSON V. COUNTRYWIDE FINANCIAL CORP. (10TH CIR.)
Summarized by Omid Moezzi with the Office of Nancy Curry, Chapter 13 Trustee
The Tenth Circuit Court of Appeals ruled in favor of creditor Bank of America as successor in interest to Countrywide Financial, affirming the judgment of the district court. In July 2010, the debtor filed suit against Bank of America, which had acquired Countrywide, asserting seven causes of action including fraud, breach of contract, breach of implied covenant of good faith and fair dealing, and violation of various state consumer statutes. The magistrate judge recommended dismissal of all claims except the debtor's request for injunctive relief. The district adopted the recommendation, dismissed the injunctive-relief issue, and entered judgment in favor of Bank of America.
Nearly 400 appellate opinions are summarized on Volo. Click here regularly to view the latest case summaries on ABI’s Volo website.
NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: CONGRESSMEN RAISE NEW QUESTIONS ABOUT FHFA RESISTANCE TO PRINCIPAL REDUCTION
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog examines how congressional scrutiny is ramping up on Edward DeMarco, acting head of the Federal Housing Finance Agency and a holdover from the last administration. FHFA is conservator of FannieMae and Freddie Mac, and thus is in a position to direct the mortgage giants to take steps to provide relief to struggling underwater homeowners.
Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.
ABI Quick Poll Unemployment benefits should be excluded from the debtor’s “current monthly income” for means testing purposes because they qualify as “benefits received under the Social Security Act.”Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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