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A growing number of homeowners trying to avert foreclosure are confronting problems on a new front as the mortgage industry undergoes a seismic shift, the New York Times reported today. Shoddy paperwork, erroneous fees and wrongful evictions — the same abuses that dogged the nation’s largest banks and led to a $26 billion settlement with federal authorities in 2012 — are now cropping up among the specialty firms that collect mortgage payments, according to dozens of foreclosure lawsuits and interviews with borrowers, federal and state regulators and housing lawyers. These companies are known as servicers, but they do far more than transfer payments from borrowers to lenders. They have great power in deciding whether homeowners can win a mortgage modification or must hand over their home in a foreclosure. And they have been buying up servicing rights at a voracious rate. As a result, some homeowners are mired in delays and confronting the same heartaches, like the peculiar frustration of being asked for the same documents over and over again as the rights to their mortgage changes hands. Servicing companies like Nationstar and Ocwen Financial now have 17 percent of the mortgage servicing market, up from 3 percent in 2010, according to Inside Mortgage Finance, an industry publication.

Lehman Brothers Holdings Inc. settled a $1.2 billion claim with Freddie Mac, freeing up millions of dollars which will be available for distribution to the bank's creditors, Reuters reported yesterday. Under the settlement, Lehman will make a one-time cash payment of $767 million to Freddie Mac, Lehman said in a court filing on Wednesday. The dispute stems from two loans extended to Lehman by Freddie Mac in the months before the bank filed for bankruptcy. Lehman was scheduled to repay the loan on Sept. 15, 2008, the day it filed for the biggest-ever bankruptcy. Lehman had set aside $1.2 billion to cover the claim as a general unsecured claim, but Freddie Mac argued that the claim should get priority status.

Puerto Rico stepped up preparations for a sale of as much as $3.5 billion in bonds, a test of the financially troubled island's ability to access credit markets, the Wall Street Journal reported yesterday. The U.S. commonwealth, which is not eligible to file for chapter 9 bankruptcy, has hired bankers to manage the bond offering. While the government of Puerto Rico is seeking approval to sell up to $3.5 billion, many investors expect a deal of $2 billion to $3 billion and bonds with final maturities of 20 years. Once a staple of municipal-bond portfolios, Puerto Rico's bonds in recent months have been reeling, pushing yields to record highs. Bond prices and yields move in opposite directions. The island's shrinking economy and persistent budget deficits have sparked worries among investors, who fear Puerto Rico's precarious finances could lead to a restructuring of the U.S. commonwealth's $70 billion of debt.

Fifth Third Bank has told potentially thousands of credit card customers that it inadvertently reported to the credit-reporting agencies that the customers had filed for bankruptcy, the Columbus (Ohio) Dispatch reported today. The Cincinnati-based bank said yesterday that it has sent letters to what it called a “limited number” of customers who the bank said were affected by the reports. The bank said that the error has been fixed and the affected customers shouldn’t notice any change in their credit scores. The bank also said it is working with customers individually to resolve any issues.

The Federal Reserve should revise enforcement policy to require board-member votes on penalties exceeding $1 million or force changes in banks’ management, two lawmakers wrote in a letter to Fed Chairman Janet Yellen, Bloomberg News reported today. Sen. Elizabeth Warren (D-Mass.) and Rep. Elijah Cummings (D-Md.) urged Yellen to make the change to bolster the Fed’s accountability and to protect taxpayers against the kind of financial-industry risk-taking that helped fuel the 2008 credit crisis. “We have learned the hard way that the task of monetary policy making is made significantly more difficult when prudential regulators fail to ensure the safety and soundness of all facets of the banking system,” Warren and Cummings wrote in the letter dated yesterday. “Increasing the Board’s direct role in overseeing enforcement and supervision would strengthen the Fed’s efforts to reduce systemic risk in our financial system.”

A federal judge yesterday allowed a lawsuit to move forward that seeks to hold former MF Global Holdings Ltd. Chief Executive Officer Jon Corzine and other executives responsible for the brokerage's collapse, Reuters reported yesterday. U.S. District Judge Victor Marrero said that it was reasonable to infer someone "did something wrong to set in motion such an extraordinary chain of events causing such extensive harm to so many people and interests." But the judge also called the litigation "wasteful and rancorous" and chastised the parties for failing to come together to resolve the matter "in a just and efficient way." Judge Marrero also chided lawyers for the customers for filing claims that "fly in the face of clear precedent." He dismissed parts of the lawsuit, including claims pending against accounting firm PricewaterhouseCoopers.

Legal wrangling over who should keep the hundreds of billions of dollars in profits generated by Fannie Mae and Freddie Mac is heating up, and investors increasingly are betting the government will end up the loser, the Wall Street Journal reported today. Since last summer, the Treasury Department has faced a host of shareholder lawsuits over changes it made in 2012 to the terms of the bailout agreements with the mortgage-finance giants in 2008, when the government seized the firms as they neared collapse. The plaintiffs say that the Treasury wasn't authorized to make the changes — which required Fannie and Freddie to send all of their profits to the Treasury — and that the move amounted to unlawful seizure of private property. The Treasury "has effectively nationalized the companies and ensured that they will never return to private ownership" using steps that are "plainly unlawful," said Theodore Olson of Gibson, Dunn & Crutcher LLP, at a conference last week. Mr. Olson, who served as solicitor general through 2004, is representing Perry Capital LLC, a hedge-fund firm that filed suit last July. The government has argued that the plaintiffs don't have standing to challenge its decisions because the rescue legislation barred shareholder claims and that the cases don't have merit.

U.S. prosecutors said that former Bank of America Corp. executive Phillip D. Murphy pleaded guilty to conspiring to defraud bond investors and the U.S. government through a bid-rigging scheme, Bloomberg News reported yesterday. Murphy, former head of the bank’s municipal derivatives desk, admitted in federal court in Charlotte, N.C., to manipulating the bidding process for investment agreements covering municipal-bond proceeds, Steven Tugander, a U.S. Justice Department lawyer, said yesterday. Murphy’s guilty plea resulted from the government’s multiyear probe of bid-rigging of investment contracts involving monies generated by municipal bonds. Bank of America, JPMorgan Chase & Co., UBS AG, Wells Fargo & Co. and General Electric Co. have acknowledged that former employees engaged in illegal activity in connection with the scheme, and the companies paid a total of $743 million in restitution and penalties.

The Commodity Futures Trading Commission is preparing to ease restrictions on swaps trading overseas, according to people familiar with the matter, a move that could shift some trading abroad as banks and other firms look for ways to circumvent tough U.S. rules, the Wall Street Journal reported today. CFTC officials are expected to reach an agreement with counterparts in the European Union as early as this week to allow U.S. firms to trade swaps on European platforms as long as those systems are governed by swaps rules that are comparable to those ushered in as part of the 2010 Dodd-Frank law. Critics say that the agreement will encourage banks to move more swaps trading overseas to escape strict U.S. regulations intended to bring more transparency to the opaque financial products.

JPMorgan Chase & Co.’s $13 billion fraud settlement with the U.S. government should be blocked until a court is able to review it, a Wall Street watchdog group founded by an Atlanta hedge fund manager said, Bloomberg News reported yesterday. Better Markets Inc. is seeking judicial scrutiny of the accord because it’s the largest settlement “with a single entity in the 237-year history of the U.S.,” according to a complaint filed yesterday in Washington, D.C., federal court. “No one has any ability to determine if the $13 billion agreement is fair” or “if it is a sweetheart deal,” the group said in the filing. The accord, announced in November, settled allegations that the biggest U.S. lender by assets misled investors and the public when it sold bonds backed by faulty residential mortgages. U.S. and state officials blamed JPMorgan’s actions for helping to cause the credit crisis, and said the agreement didn’t shield JPMorgan or its employees from possible charges.