Moody's faces a Department of Justice probe into its ratings of securities during the financial crisis, the ratings agency disclosed on Friday, according to the Washington Examiner. In regulatory filings, Moody's told investors that it had received notice from the Justice Department in September that it was preparing a civil complaint against the company for violating federal laws with the ratings it gave mortgage-backed securities and other securities tied to the housing market prior to the 2008 financial crisis. The Justice Department told Moody's that its investigation was ongoing and may broaden in scope. Moody's also said that "a number" of state attorneys general warned them that they were preparing claims against the firm.
A new report from a government watchdog shows that mortgage servicers’ delays in foreclosing on properties and subsequent delays in the conveyance of those properties to the Federal Housing Administration may have cost the FHA as much as $2.23 billion in unnecessary payouts, HousingWire.com reported yesterday. The report, issued late last week by the Department of Housing and Urban Development Office of Inspector General, found that HUD paid claims for an estimated 239,000 properties that servicers did not foreclose upon or convey on time, and those delays cost the FHA an estimated $2.23 billion. According to the HUD-OIG report, the watchdog reviewed a “statistical sample” of 90 claims by HUD out of nearly 250,000 loans that had indicators that they may have missed their deadlines during the past five years. Of those 90 loans, 89 missed a foreclosure deadline, a conveyance deadline, or both, the report showed. According to the HUD-OIG report, HUD paid an estimated $141.9 million for servicers’ claims for “unreasonable and unnecessary debenture interest” that servicers incurred after missing a foreclosure or conveyance deadline.
Fannie Mae yesterday launched its first sale of “reperforming loans” — <em>i.e.</em>, those that were previously delinquent but now have current payments, MorningConsult.com reported. The move is part of its aim to shrink its retained mortgage portfolio, the mortgage company said in a statement. Selling delinquent and previously delinquent loans is part of Fannie’s effort to slim down its mortgage portfolio to meet targets set in a 2012 agreement between the Treasury Department and the Federal Housing Finance Agency. Fannie will sell a pool of about 3,600 loans worth $806 million in unpaid principal balance, with bids due Nov. 1, according to the statement.
Primary Residential Mortgage Inc. and SecurityNational Mortgage Company announced separate agreements with the U.S. Department of Justice on behalf of the Department of Housing and Urban Development to pay $5 million and $4.25 million, respectively, to resolve allegations that they violated the False Claims Act, HousingWire.com reported today. According to the DOJ, both lenders allegedly violated the False Claims Act by “knowingly originating and underwriting mortgage loans insured by HUD’s Federal Housing Administration that did not meet applicable requirements.” The two lenders quickly replaced BB&T as the latest in a long string of lenders targeted by the DOJ for False Claims Act violations. The False Claims Act is designed to prosecute vendors the government feels fraudulently represented themselves while doing business with the nation. The DOJ cited that since at least January 2006, SecurityNational and PRMI have participated as Direct Endorsement Lenders (DELs) in the FHA insurance program. As DELs, the DOJ said both lenders had the authority to originate, underwrite and endorse mortgages for FHA insurance. Also, the FHA does not review a loan before it is endorsed for FHA insurance for compliance with FHA’s credit and eligibility standards, relying, instead, on the efforts of the DEL to verify compliance.
The U.S. government improperly withheld documents from investors who were suing the government over its decision in 2012 to seize all of the profits of Fannie Mae and Freddie Mac, the mortgage finance giants, a federal judge has ruled, the New York Times reported today. The judge, Margaret M. Sweeney of the Court of Federal Claims in Washington, also ordered the release of the documents, some of which appear to reach the highest levels of the Obama administration. Investors have contended that the government’s surprise decision to begin extracting all profits from the mortgage finance giants was an illegal taking of private property. The government initially argued that it acted to protect taxpayers from future losses because the companies were in a death spiral, but the decision to funnel the profits into the Treasury’s general fund came just before Fannie and Freddie returned to profitability. In September 2008, the government took over Fannie and Freddie, victims of the mortgage crisis. They have since recovered, and as of September had returned $63.1 billion more to the Treasury than they drew down during the crisis.
Connecticut’s attorney general reached a record settlement $120 million settlement with RBS Securities Inc. over its underwriting of faulty residential mortgage-backed securities in the lead-up to the 2008 financial crisis, MorningConsult.com reported yesterday. “RBS was one of the key players in the RMBS business in the lead up to the financial crisis, underwriting $250 billion in securities that have to date suffered more than $40 billion in losses,” Attorney General George Jepsen said yesterday. The Department of Banking will receive $250,000 of those funds, and the remaining $119.75 million will be sent to Connecticut’s general funds.
Deutsche Bank AG’s talks with the U.S. Justice Department to settle a high-profile set of mortgage-securities cases are continuing, with no deal yet presented to senior decision makers for approval on either side, the Wall Street Journal reported today. The talks are moving forward, but they have not progressed to a degree that a proposed deal has reached senior-level review at the Justice Department or with Deutsche Bank’s supervisory board. Justice Department lawyers have floated the possibility of also reaching accords with other European banks who have yet to resolve similar investigations and announce them at once, but no such move is certain.
A federal judge has thrown out FDIC lawsuits against Citigroup Inc., Bank of New York Mellon Corp and U.S. Bancorp to recoup some of the more than $695 million that the regulator said it lost by selling soured mortgage debt once owned by a failed Texas bank, Reuters reported on Friday. U.S. District Judge Andrew Carter in Manhattan said on Friday that the FDIC, the receiver for Austin-based Guaranty Bank, lacked standing to sue after selling the debt in question through a March 2010 resecuritization transaction. "Any claims that plaintiff might have held, travelled with the bonds when they were transferred," Judge Carter wrote. The FDIC had accused the defendant banks of failing, in their roles as bond trustees, to ensure that mortgages backing $2.7 billion of securities bought by Guaranty were properly underwritten, or to require lenders to fix or buy back troubled loans. According to the lawsuits, the securities were issued from 2005 to 2007, and sponsored by the EMC unit of Bear Stearns Cos. or by a unit of Countrywide Financial Corp.
