Action Plans for Residential Mortgage Servicing and Foreclosure Deficiencies
On February 27, the Fed released action plans from Bank of America, Citigroup, EverBank, JPMorgan Chase, MetLife, PNC, SunTrust, US Bancorp, and Wells Fargo to correct deficiencies in residential mortgage loan servicing and foreclosure processing. The action plans are required by prior Fed enforcement actions that direct regulated mortgage loan servicers to submit acceptable plans that, among other things: (i) describe how communications with borrowers will be strengthened; (ii) establish limits on foreclosures where loan modifications have been approved; (iii) establish third-party vendor controls; and (iv) strengthen compliance programs. The enforcement actions also require the parent holding companies of servicers to submit plans to describe how the companies will improve servicing and foreclosure oversight. The Fed also released engagement letters between supervised financial institutions and independent consultants retained to review foreclosures in 2009 and 2010. Fed Release. Action Plans and Engagement Letters.
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FHFA Pilot REO Sale Program
On February 27, the FHFA announced the first pilot program transaction under the Real Estate-Owned (REO) Initiative, targeted to hardest-hit metropolitan areas (Atlanta, Chicago, Las Vegas, Los Angeles, Phoenix, and parts of Florida). Prequalified investors will be able to submit applications to demonstrate their financial capacity, experience, and specific plans for purchasing pools of Fannie Mae foreclosed properties with the requirement to rent the properties for a specified number of years. FHFA Release.
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GSE Credit Risk Sharing Roundtable Discussion
On February 7, Andrew Davidson & Co., Inc. hosted a roundtable discussion in Washington, D.C. on the topic of credit risk sharing by the GSEs. Participants representing a broad cross-section of the mortgage market discussed, among other things, the ways in which private capital can be invested in mortgage credit risk to provide protection to the taxpayer while the GSEs continue to provide liquidity for conforming MBS. Summary of the round-table discussion.
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Fed Guidance on Supervisory Ratings
On March 2, the Fed issued guidance on the factors that will be used to evaluate whether to upgrade an institution's supervisory ratings. These standards will be applied in the evaluation of banking organizations with $10 billion or less in assets. Fed Release.
Fed Guidance.
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New York Fed Reverse Repo Transactions
On February 28, the New York Fed announced that it intends to conduct a series of small-scale reverse repurchase transactions using all eligible collateral types. The first operations will be conducting with the newest expanded reverse repo counterparties (8 banks announced on December 1, 2011) and subsequent operations will be open to all eligible reverse repo counterparties. NY Fed Release.
List of Expanded Reverse Repo Counterparties.
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Fed Approves Capital One Acquisition of ING
On February 14, pursuant to Section 4(j) of the Bank Holding Company Act (BHCA), the Fed issued an order approving the acquisition by Capital One Financial Corporation of ING Bank, fsb. Of particular significance is the manner in which the Fed implemented the new requirement added to Section 4(j) of the BHCA by Section 604(d) of the Dodd-Frank Act. It requires the Fed to consider "risk to the stability of the United States banking or financial system" to the list of possible adverse effects that the Fed must weigh against any expected public benefits in considering proposals under Section 4(j). The February 14 order provides guidance as to certain types of transactions that would not likely present financial stability concerns because they likely would have only a de minimis impact on an institution's "systemic footprint." The order provides three examples of such transactions: (i) an acquisition of less than $2 billion in total assets; (ii) a transaction resulting in a firm with less than $25 billion in total assets; and (iii) a corporate reorganization, absent evidence that the transaction would result in a significant increase in interconnectedness, complexity, cross-border activities, or other risk. Fed Order.
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MSRB Proposed Rules on Subscription Services
On February 27, the MSRB filed with the SEC two proposed rule changes that would establish subscription access to historical information and documents submitted to: (i) the MSRB Short-Term Obligation Rate Transparency (SHORT) system (which provides information and documents for municipal auction rate securities and variable rate demand obligations) and (ii) the MSRB Electronic Municipal Market Access (EMMA) system (which provides access to primary market disclosure documents and information for the municipal securities market). The proposed rule changes will be effective upon approval by the SEC. MSRB Release (SHORT).
MSRB Release (EMMA).
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Comment Period Extension for Enhanced Prudential Standards Proposal
On March 2, the Fed extended the comment period until April 30 on a proposed rule to implement the enhanced prudential standards and early remediation requirements of Section 165 of the Dodd-Frank Act. Fed Release. Extension.
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On March 1, S&P requested comments by March 30 on rating methodology and assumptions for derivative product companies.
S&P Request for Comment.
On February 28, Fitch updated its U.S. municipal structured finance criteria. Fitch Report.
On February 27, S&P released FAQs on its revised principal stability fund / money market fund criteria. S&P FAQs.
On February 27, Fitch published criteria on U.S. mortgage REITs and similar finance companies. Fitch Report.
On February 27, Fitch published criteria on U.S. equity REITs and REOCs (real estate operating companies). Fitch Report.
Note: Free registration is required for Fitch and S&P releases and reports.
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Second Circuit Orders Bank of America Settlement Remanded to New York Supreme Court
On February 27, 2012, the United States Court of Appeals for the Second Circuit reversed the decision of the United States District Court for the Southern District of New York and ordered the district court to remand to New York State Supreme Court the proceeding seeking court approval of the $8.5 billion Bank of America settlement of claims based on alleged breaches of representations and warranties in connection with RMBS securitizations. The district court had determined that it had subject matter jurisdiction pursuant to the Class Action Fairness Act, reasoning that the settlement approval proceeding constituted a "mass action." In reversing, the Second Circuit concluded that the "securities exception" to the Act applied, and that the federal court therefore lacked jurisdiction. Decision.
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Wall Street Firms Disclose Government Investigations Of RMBS Activities
Bank of America, Citigroup, Wells Fargo, JP Morgan, and Goldman Sachs announced in their respective 2011 Forms 10-K filed with the SEC that they have received requests and subpoenas seeking documents, testimony and other information from government regulators including the SEC, DOJ Civil Division, state attorneys general, and bank regulators. These requests and subpoenas appear to be focused on issues relating to the sale and offering of mortgage-backed securities. Goldman Sachs, JP Morgan, and Wells Fargo also acknowledged that they have received Wells notices advising them of possible SEC civil or administrative action.
Bank of America. Citigroup. Wells Fargo. JP Morgan. Goldman Sachs.
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New York Court Dismisses Insurer Claims In $1.8 Billion RMBS Suit
On February 28, 2012, New York State Supreme Court Judge Bernard J. Fried rejected an attempt by Syncora and CIFG Assurance to plead new claims against Greenpoint Mortgage Funding after their initial claims were dismissed in March of 2010. The court held that the new claims, which were based on evidence, documents and knowledge that the insurers had during the initial suit, were barred by the doctrine of res judicata, which precludes relitigation of issues already decided. The initial suit was filed by the insurers and U.S. Bank as trustee for over $1.8 billion. Decision.
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