%1

Goldman Sachs shareholders cannot go forward with a class action alleging the bank misled investors about its business practices ahead of the subprime mortgage crisis, a U.S. appeals court ruled yesterday, Reuters reported. The U.S. Court of Appeals for the Second Circuit ruled in three pension funds' long-running case accusing the bank of unlawfully hiding conflicts of interest when creating risky subprime securities, costing investors more than $13 billion. The court said that the bank's statements about its ability to prevent conflicts of interest were not closely linked to Goldman being fined by U.S. authorities in 2010 over marketing materials for a subprime investment product, and therefore did not affect the stock price. The Arkansas Teacher Retirement System and others that purchased Goldman shares between February 2007 and June 2010 accused the company and three former executives of securities fraud. The investors said that the bank's fraudulent statements kept its stock price artificially high. The plaintiffs said that when they bought Goldman shares they relied upon the bank's statements about its ethical principles and internal controls against conflicts of interest, and its pledge that its "clients' interests always come first." Goldman argued that these "aspirational" statements were too vague and general to have had any impact on the stock price.

The U.S. Treasury Department will soon propose a rule that would effectively end anonymous luxury-home purchases, closing a loophole that the agency says allows corrupt oligarchs, terrorists and other criminals to hide ill-gotten gains, Reuters reported. The long-awaited rule is expected to require that real estate professionals such as title insurers report the identities of the beneficial owners of companies buying real estate in cash to the Treasury's Financial Crimes Enforcement Network (FinCEN). FinCEN is slated to propose the rule sometime this month, according to its regulatory agenda, though the timeline could slip, said two people briefed on the developments. Anti-corruption advocates and lawmakers have been pushing for the rule, which will replace the current patchwork reporting system. Criminals have for decades anonymously hidden ill-gotten gains in real estate, Treasury Secretary Janet Yellen said in March, adding that as much as $2.3 billion was laundered through U.S. real estate between 2015 and 2020.

Some of the biggest names in commercial real-estate lending have all but turned off the spigot, the Wall Street Journal reported. Blackstone Mortgage Trust and KKR Real Estate Finance Trust, two of the biggest mortgage real-estate investment trusts, have halted loans to any new borrowers. While these firms continued to provide financing related to existing loans, they didn’t originate any new loans during the first half of this year, according to the companies. Starwood Property Trust, another lender in the sector, has greatly decreased its appetite for new lending in recent quarters, securities filings show. Mortgage REITs, which lend to property owners instead of buying and developing real estate like equity-oriented REITs, typically originate an average of about $10 billion in loans a quarter, according to Jade Rahmani, an analyst at Keefe, Bruyette & Woods. But lately “hardly anyone has made new loans,” he said. Mortgage REITs are pulling back to protect their balance sheets during one of the most troubled commercial real-estate markets in decades. Default rates are rising for all lenders because higher interest rates are making it tougher for many borrowers to refinance and many properties, especially office buildings, are suffering higher vacancy rates. Their shutdown is a clear sign of how much lenders are tightening credit. Total commercial and multifamily mortgage lending is expected to fall to $504 billion this year, a 38% decline from 2022, according to the Mortgage Bankers Association.

American banks are losing interest, consumer advocates say, in writing mortgages for inexpensive homes, The Hill reported. Their exodus from the small-mortgage market leaves a patchwork of risky, poorly regulated home-loan alternatives that can propel the most vulnerable buyers into debt or homelessness. Twenty years ago, the median home cost less than $200,000, and banks routinely approved mortgages for half that amount. Today, the median home costs $437,000, and buyers struggle to find banks that will write mortgages for less than $150,000. Instead, many buyers turn to alternative financing, a universe of personal property loans, lease-purchase agreements, land contracts and seller-financed mortgages. Typically, those transactions are both riskier and costlier than a mortgage, and they fall outside the regulatory cocoon that protects homebuyers from fraud and trickery. In the worst cases, borrowers can lose their home and their solvency. “People think that they are on the path to owning their own home, when in fact they are on a path to financial disaster, forfeiting all of the money that they have paid in, as well as the place that they thought was their home,” Sen. Tina Smith (D-Minn.) said. “Too often, these contracts are designed to fail.” Smith spoke on Tuesday at a Senate hearing with the dramatic title, "Exploiting the American Dream: How Abusive Land Contracts Prey on Vulnerable Homebuyers." Buyers stray outside the protective red tape of the mortgage industry for many reasons. They may have low credit scores, or lack the funds for a down payment, or wish to avoid the deep document dive that attends a mortgage application. The purchaser may lack financial literacy. The lender may be a family friend. “My clients tend to have trusted the seller, the people who approached them with a situation that maybe sounded too good to be true,” Elizabeth Goodell, supervising attorney at Mid-Minnesota Legal Aid, said at the Senate hearing.