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The Consumer Financial Protection Bureau said yesterday that Michigan-based Flagstar Bank will be required to pay $37.5 million in restitution and fines over regulatory allegations it blocked struggling homeowners from receiving foreclosure relief, CollectionsCreditRisk.com reported yesterday. In a consent order issued by the agency, the CFPB said that the $9.9 billion-asset Troy, Mich.-based bank violated mortgage servicing rules that took effect in January. Flagstar was cited for, among other things, taking too long to process applications for foreclosure relief and finalizing permanent loan modifications; failing to inform borrowers when their application was incomplete; and denying loan modifications to qualified borrowers. Flagstar has agreed to pay $27.5 million to about 6,500 consumers affected by these practices and another $10 million penalty to the CFPB.
http://www.collectionscreditrisk.com/news/ccr_regulation/cfpb-hits-flag…

The Somerset Inn in Troy, Mich., will be the site of ABI’s 10th Annual Consumer Bankruptcy Conference on Nov. 11 Featured programming will include a session on court-facilitated loan modifications. For more information and to register, please click here:
http://www.abiworld.org/DETROIT14/

Virginia Attorney General Mark R. Herring (D) on Monday dropped JPMorgan Chase from a mortgage securities lawsuit against the country’s biggest banks, after learning that his predecessor Ken Cuccinelli (R) had already struck a confidential settlement with the bank, the Washington Post reported yesterday. The decision comes a week after Herring announced a $1.15 billion lawsuit against 13 of the country’s biggest banks for misleading a state retirement fund about the quality of bonds made up of residential mortgages. JPMorgan and its Washington Mutual subsidiary were named in the suit, along with Citigroup and Bank of America, for packaging faulty home loans into securities sold to the Virginia Retirement System (VRS). According to Herring’s office, the pension fund failed to inform the attorney general that the previous administration had reached a $3 million settlement with JPMorgan in 2013. Kelly said the case against the remaining 11 banks will go forward.

Home loans to lower-income Americans are dwindling as federal regulators and major banks continue to haggle over who pays when riskier mortgages go bad, Bloomberg News reported today. Federal Housing Administration loans, given to borrowers with weaker credit scores and requiring small down payments, plummeted 19 percent in the nine months ending June 30 compared with a year earlier. A meeting on Wednesday at the White House between government officials and banking executives ended without an announcement of any breakthroughs on the dispute. The largest U.S. home lenders are curtailing FHA mortgages because of concerns that they will be penalized for what they consider immaterial underwriting errors when loans default. JPMorgan Chase & Co., Bank of America Corp. and other lenders have paid more than $3 billion in fines for originating faulty FHA loans during the housing bubble following lawsuits brought by the Department of Justice and state attorneys general. Julian Castro, secretary of the Department of Housing and Urban Development that oversees FHA, said that the agency wants to ease credit by rewriting its handbook to clearly spell out when lenders can be forced to bear the cost of soured loans.

The nation's largest mortgage servicers are desperate to put the robo-signing scandal behind them, American Banker reported today. At least two of the servicers say that they are close to being released from consent orders dating back to 2011, when the Office of the Comptroller of the Currency ordered 14 bank servicers to clean up their servicing practices. The consent orders were issued after bank employees were found to have improperly signed and processed foreclosure documents following the housing bust. Two of the banks have fulfilled the OCC’s requirements and expect to be released from the consent order as early as next month, their lawyers said this week. Several of the banks were given a Sept. 30 deadline to comply with the terms of the enforcement order.

Virginia Attorney General Mark R. Herring on Tuesday announced a $1.15 billion lawsuit against 13 of the nation’s biggest banks, accusing them of misleading a state retirement fund about the quality of bonds made up of residential mortgages, the Washington Post reported yesterday. The lawsuit, unsealed in Richmond Circuit Court, is the largest financial fraud action ever brought by the state of Virginia. It mirrors legal actions being taken across the country by attorneys general seeking redress for state pension funds that were ravaged by the financial crisis. Herring said that the banks — including JPMorgan Chase, Citigroup and Credit Suisse — knowingly packaged faulty home loans into securities they sold to the Virginia Retirement System (VRS). The pension fund, which counts 600,000 members on its rolls, purchased 220 residential-mortgage-backed securities starting in 2004. When the financial markets tanked and the value of those bonds took a nose dive, the fund was forced to sell the vast majority of the securities and lost $383 million.

Alan David Tikal of Brentwood, Calif., was convicted yesterday on 11 counts of mail fraud and one count of money laundering in a mortgage fraud scheme through which he stole $5.8 million in fees and monthly payments from struggling homeowners, HousingWire.com reported today. According to evidence presented at a one-day bench trial, Tikal operated a business known as KATN and falsely claimed to be a registered private banker between January 2010 and August 2013. Tikal and his associates targeted struggling homeowners, most of whom did not speak English, and promised to reduce their outstanding mortgage debt by 75 percent in return for various fees and payments. The homeowners were told they would then owe new loans to Tikal that would only be 25 percent of the original loan. More than 1,000 homeowners in California and other states were convinced by Tikal and his associates to participate in the program. As a result of relying on the program, many of these homeowners stopped payments on their existing mortgages and lost their homes to foreclosure. There was not a single instance in which a homeowner’s debt was paid, forgiven or otherwise extinguished as a result of the mortgage relief program, according to the office of Special Inspector General for the Troubled Asset Relief Program.

An unorthodox campaign by a handful of cities hardest hit by the housing crash to use the power of eminent domain to write down large mortgage debts has stirred a backlash in Washington, D.C., the Wall Street Journal reported today. Republicans passed in June a budget bill that included language to bar federal agencies from refinancing loans that been seized by cities via eminent domain. The provision would be a poison pill for plans such as one floated last year in Richmond, Calif., to forcibly write down mortgage debt. In New Jersey, two cities, Newark and Irvington, have voted to consider the eminent-domain gambit, and the plan attracted support this summer from council members in New York City. Mortgage bond investors have long opposed the plan, which first surfaced two years ago. Under the plan, the city would purchase the mortgage at whatever a court determines is fair value, and then the city would write down the loan and refinance it through the Federal Housing Administration, which has a program that allows such refinances for borrowers with very little equity. Bond investors say that the plan only works if the city, working with a private firm, can purchase the loan at enough of a discount to refinance into the government-backed loan.

Standard & Poor’s chances of settling the government’s lawsuit over mortgage-bond ratings for less than $1 billion may have slipped away after Bank of America Corp.’s Countrywide unit was socked with a $1.3 billion fine, Bloomberg News reported today. The Countrywide ruling was the first to lay out what penalties financial institutions could face under a 1989 bank-fraud law the Obama administration is using against alleged culprits of the subprime mortgage crisis. The U.S. sued S&P and Countrywide under the Financial Institutions Reform, Recovery and Enforcement Act, a law passed by Congress in the wake of the savings and loan crisis of the 1980s. The administration, which seeks as much as $5 billion from S&P, is using the law to punish alleged misconduct in the creation and sale of residential mortgage-backed securities blamed for the financial crisis two decades later.

New rules proposed by a federal agency yesterday hit shares of some mortgage real-estate investment trusts, which could lose access to a low-cost source of funding if the plan moves forward, the Wall Street Journal reported today. The new rules, proposed by the Federal Housing Finance Agency, would close a window that has allowed mortgage REITs to use captive insurance companies to gain access to funding from the 12 government-sponsored federal home-loan banks. The home-loan banks, overseen by the FHFA, are cooperatively owned by more than 7,500 commercial banks, credit unions and other financial institutions, and make loans to members with mortgages as collateral. Investors believe the federal government would backstop the home-loan banks. So the banks are able to give their members access to cheap funding through the bond market. Captive insurance companies — which typically are set up by corporations to handle only their own insurance needs — currently can be members. That has allowed mortgage REITs, such as Two Harbors Investment Corp. and Redwood Trust Inc., over recent years to gain access to home-loan banks' funding through captive insurers.

A four-year program by a federal housing agency to sell its most delinquent mortgages to private investors is producing modest returns when it comes to keeping those struggling borrowers in their homes, the New York TimesDealBook blog reported yesterday. To date, 2,049 mortgage sold to investors under the program have been reworked to allow the borrowers — many of whom had not made a mortgage payment in three years — to remain in their homes and start making payments again, according to a report released on Friday by the Department of Housing and Urban Development. But the overwhelming majority of the 73,000 troubled mortgages sold to investment firms, private equity shops and hedge funds have been either foreclosed on or the borrower was permitted to walk away from a home in exchange of forfeiting any rights to the property. Roughly half of the loans sold to investors remain delinquent and have yet to be reworked, sold or foreclosed.