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U.S. District Judge Denise Cote said that the Federal Housing Finance Agency (FHFA) may pursue a fraud lawsuit against Ally Financial Inc even though Ally's Residential Capital LLC mortgage unit is in bankruptcy, Reuters reported yesterday. Judge Cote said that the lawsuit is unlikely to have an "immediate adverse economic consequence" for ResCap's estate, such that it would be subject to an automatic stay under the U.S. Bankruptcy Code. Ally is among 18 defendants that the FHFA sued in 2011 for allegedly making false or misleading statements in documents relating to residential mortgage-backed securities bought by Fannie Mae, Freddie Mac or both. FHFA, the conservator for both Fannie and Freddie, sued Ally to recoup losses on the sale of more than $6 billion of securities to Freddie Mac between September 2005 and May 2007. Fourteen of the 15 pending FHFA lawsuits are before Cote. Three others ended in settlements, including a $885 million accord last month with Swiss bank UBS AG.

The U.S. Department of Justice has stepped up a probe in recent weeks into Bear Stearns & Co's mortgage dealings in the run-up to the financial crisis, according to two sources familiar with the situation, raising the possibility that JPMorgan Chase & Co may face yet another case over mortgage bonds, Reuters reported on Friday. Justice Department lawyers have been interviewing people linked to Bear Stearns' mortgage securitization business, EMC Mortgage Corp, over sales of mortgage bonds going into the housing crisis, the sources said. JPMorgan bought Bear Stearns during the financial crisis in 2008. The probe has picked up steam in recent weeks and comes in addition to civil and criminal investigations of the bank by U.S. prosecutors in California over its offerings of mortgage bonds.

President Barack Obama’s administration significantly overstated statistics from a year-long mortgage-fraud initiative, including total number of victims, their losses suffered and number of individuals criminally charged, according to an FBI memo, Bloomberg News reported on Friday. The Federal Bureau of Investigation, in the document sent on Friday, asked the members of the administration’s Mortgage Fraud Working Group to correct and update any public materials related to the results released in October of a year-long law enforcement initiative targeting fraud schemes aimed at vulnerable homeowners. The FBI restated the number of people criminally charged to 107 from 530. Agencies were asked to correct victims’ total losses to $95 million from an estimated $1 billion, and the number of victims found to 17,185 from more than 73,000.

Mortgage lender Residential Capital LLC is facing a number of objections from the U.S. Trustee Program, its pension insurer and other creditors to the outline of its plan to exit bankruptcy protection, Dow Jones Newswires reported on Friday. U.S. Trustee Tracy Hope Davis took aim at "impermissible payments" earmarked for some bondholders' and investors' lawyers and financial advisers, in a court filing on Thursday. Davis is also concerned about the broad releases from civil lawsuits granted to Ally Financial Inc. and its managers as part of its bankruptcy deal with its mortgage subsidiary. Ally, which isn't under chapter 11 protection, has agreed to pay $2.1 billion to its mortgage subsidiary and its creditors in return for protection from litigation over ResCap's mortgage business. The broad scope of those releases has caught the attention of several U.S. government officials.

The criminal investigation of JPMorgan Chase & Co.’s mortgage-backed securities practice is evidence a U.S. Justice Department task force set up to investigate causes of the financial crisis is finally getting some traction against banks blamed for ruining the economy, Bloomberg News reported yesterday. The probe, disclosed this week in the bank’s quarterly filing, is the latest enforcement effort to emerge from the Residential Mortgage Backed Securities Working Group. It was set up last year on orders of President Barack Obama to coordinate prosecutions of fraudulent underwriting activity by banks that contributed to the financial crisis. In February, as the government’s financial fraud task force started what would become a series of financial crisis-related cases, the Justice Department filed a civil suit against Standard & Poor’s, a ratings company, alleging that the firm committed fraud by blessing a series of mortgage-backed securities with top-quality ratings in 2007. Federal and state investigators alleged S&P should have known that the securities were well below investment grade. The government has asked the firm to repay $5 billion in losses.

The share of homeowners behind on their mortgage payments or facing foreclosure fell to a five-year low during the second quarter, though they are still well north of historical levels, the Wall Street Journal reported today. The Mortgage Bankers Association said yesterday that 5.9 percent of mortgages on one-to-four-unit homes were 90 days or longer past due or in the foreclosure process at the end of the June, representing around 2.8 million households, down from a peak of 4.5 million. The second-quarter figure was down from 7.3 percent one year earlier and a high of 9.7 percent in late 2009. Delinquencies and foreclosures have returned closer to their pre-crisis levels in states such as California and Arizona that don’t require mortgage companies to take back homes by appearing before a judge. By contrast, in so-called “judicial” foreclosure states, such as Florida, New York, and New Jersey, foreclosures have declined much more slowly. Read more.

A U.S. appeals court ruled that Wells Fargo & Co. must face lawsuits by home loan borrowers over claims the bank refused to offer them permanent mortgage modifications for which they assert they qualified, Bloomberg News reported yesterday. The federal government’s 2009 Home Affordable Modification Program requires the bank to offer permanent adjustments to homeowners who met the terms of a trial-period modification, a three-judge panel of the U.S. Court of Appeals in San Francisco ruled. Reversing a lower-court dismissal of two separate lawsuits, the panel rejected the conclusion Wells Fargo was only bound if it had actually offered the borrowers a fully-executed copy of a modification agreement. The terms of the trial period plan “cannot convert a purported agreement setting forth clear obligations into a decision left to the unfettered discretion of the loan servicer,” the panel said.

Pacific Investment Management Co. and BlackRock Inc. are among bond investors seeking a court order blocking Richmond, Calif., and Mortgage Resolution Partners LLC from seizing mortgages through eminent domain, saying the initiative would hurt savers and retirees, Bloomberg News reported yesterday. The city’s plan is unconstitutional, according to a complaint filed yesterday by mortgage-bond trustees in federal court in San Francisco. The trustees, Wells Fargo & Co. and Deutsche Bank AG, were directed to take the action by investors in the debt that also include Jeffrey Gundlach’s DoubleLine Capital LP, said John Ertman, a partner at Ropes & Gray LLP. The plan advanced last month with Richmond backing offers to buy 624 loans, making it the first city to push the idea so far forward. Those offers would need to be refused before the city could follow through with its mayor’s vow to invoke its potential powers to force sales of the mostly non-delinquent loans, so that homeowners could get their debt balances cut to less than the current values of their properties. The program would harm owners of mortgage bonds by paying them too little for loans, as well as damage communities by drying up lending, at least 18 trade groups representing asset managers, bankers, real-estate firms and builders have said in past statements. Costs to investors could exceed $200 million just on loans in Richmond, according to the complaint.

Freddie Mac reported it earned its second-largest profit ever during the second quarter, $5 billion, and said yesterday that it will make another $4.4 billion dividend payment to the U.S. Treasury, the Washington Post reported today. The latest payment will bring to $41 billion the amount that the mortgage finance company has returned to taxpayers so far. Freddie Mac still owes about $30 billion. A stronger economy is also keeping more borrowers out of trouble: Only 2.79 percent of borrowers with loans backed by Freddie Mac were seriously delinquent during the second quarter, compared with 3.03 percent during the same period last year. Freddie Mac, which was seized by the government during the 2008 financial crisis, reported that if current positive housing trends continue, it could make an additional payment to the Treasury this year.

JPMorgan Chase & Co., the biggest U.S. bank, said it’s under federal criminal investigation for practices tied to sales of mortgage-backed bonds that the Justice Department has already concluded broke civil laws, Bloomberg News reported yesterday. The department’s civil division told the bank in May of its preliminary finding after examining securities tied to subprime and Alt-A loans, which were sold to investors from 2005 through 2007, JPMorgan said yesterday. The office of U.S. Attorney Benjamin Wagner has been conducting civil and criminal inquiries, the bank said. Investigators are seeking to wrap up years-long probes of abuses that fueled the housing collapse and led global credit markets to freeze in 2008. This week, the Justice Department and Securities and Exchange Commission sued Bank of America Corp., the nation’s second-biggest lender, accusing it of misleading investors in an $850 million mortgage-backed bond.