CFPB Issues a Rule to Oversee Nonbank Student Loan Servicers

On December 3, the CFPB issued a rule that allows it to supervise certain nonbank student loan servicers.  The CFPB estimates that it will have authority to supervise the seven largest student loan servicers.  Press Release.   Rule

FHFA Announces Changes to Fannie Mae and Freddie Mac Mortgage Insurance Master Policy Requirements

On December 2, the FHFA announced that Fannie Mae and Freddie Mac have completed the first major overhaul of mortgage insurance master policy requirements.  Fannie Mae and Freddie Mac, with FHFA oversight, addressed gaps in the existing master policy framework, focusing on loss migration, establishing timeframes for claim processing, setting standards for determining when coverage must be maintained or could be revoked, and promoting information sharing.  Press Release

Fed Does Not Object to Goldman and JPMorgan Capital Plans

On December 2, the Fed announced that it has not objected to re-submitted capital plans from The Goldman Sachs Group, Inc. and JPMorgan Chase & Co. that were required pursuant to the Fed's 2013 Comprehensive Capital Analysis and Review.  Press Release

U.S. Signs Agreements with Cayman Islands and Costa Rica to Implement FATCA

On November 29, the United States signed intergovernmental agreements with the Cayman Islands and Costa Rica to implement the Foreign Account Tax Compliance Act (FATCA). The Cayman Islands will be required to report tax information about U.S. account holders directly to the Cayman Islands Tax Information Authority, which will in turn relay that information to the IRS.   Press ReleaseCosta Rica IGACayman Islands IGA

FHFA Announces Fannie Mae and Freddie Mac Conforming Loan Limits for 2014

On November 26, the FHFA announced that the 2014 maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac will remain at the existing levels in most areas.  Press Release

CFTC Issues Time-Limited No-Action Letter on Transaction-Level Requirements in Certain Cross-Border Situations

On November 26, the CFTC issued a time-limited no-action letter that provides relief to swap dealers registered with the CFTC that are established under the laws of jurisdictions other than the United States from certain transaction-level requirements under the Commodity Exchange Act.  Press Release.  No-Action Letter.  
Rating Agency Developments

On December 2, Moody's released its updated approach to rating Europe, Middle East and Africa CMBS.  Moody's Report.

On December 2, DBRS released its methodology for rating U.S. credit card ABSDBRS Report.

On November 28, DBRS released its operational risk assessment procedures for servicers of European Structured Finance (ESF) productsDBRS Report.

On December 5, Kroll released its request for comment on its proposed methodology for assessing non-Qualified Mortgage risk in U.S. RMBS.  Kroll Request.

Note: Free registration is required for rating agency releases and reports.

Distressed Debt and Restructuring Developments

Bankruptcy Court Rules Detroit Eligible for Chapter 9

At a hearing on December 3, Judge Stephen Rhodes ruled that the City of Detroit was eligible to file for protection under Chapter 9 of the Bankruptcy Code.  While the City filed for bankruptcy back in July and has been conducting a number of bankruptcy-related activities, this ruling officially launches the bankruptcy process.  Later in the week, Judge Rhodes issued a 143-page opinion detailing his analysis.  The analysis was largely based on the facts at hand and a simple application of those facts to the standards for a chapter 9 filing.  Among the Judge's most noteworthy rulings: because pension rights are contractual rights under the Michigan constitution, they are subject to impairment in a federal bankruptcy proceeding.  Opinion.

RMBS and Other Securities Litigation

New York State Court Dismisses Rescission Claim in RMBS Putback Case

On November 21, Justice Shirley Werner Kornreich of the Supreme Court of the State of New York granted in part defendant DB Structured Products, Inc.'s (DB) motion to dismiss the complaint of ACE Securities Trust 2007-HE1.  The court held that the trust could not obtain rescission of the entire transaction, or "complete refund" damages as to loans that did not breach the bank's representations and warranties.  The court denied the motion to dismiss, however, to the extent that DB sought an order precluding the trust from maintaining putback claims as to loans that were not identified in the trust's demand letters.  Decision.

Motion to Dismiss Granted in Part in J.P. Morgan and WMC RMBS Trust Suit

On November 22, Justice Shirley Werner Kornreich of the Supreme Court of the State of New York partially dismissed a putback action brought by the trustee for the J.P. Morgan Mortgage Acquisition Trust 2006-WMC4 against J.P. Morgan Chase & Co. and WMC Mortgage.  The court held that damages are available only as to loans that breached representations and warranties.  The court rejected, however, JPMorgan's argument that dismissal of certain breach claims was warranted by temporal limitations on the bank's "bringdown" representations and warranties.  The court also denied the motion to dismiss the plaintiff's indemnification claim at the pleading stage.  Decision.

Bank of America Settles RMBS Claims with Freddie Mac

On December 2, Bank of America announced that it settled claims brought by Freddie Mac for $404 million.  The settlement resolves all remaining representations and warranties claims against Bank of America brought by Freddie Mac related to residential mortgage loans sold to the government-controlled company between 2000 and 2009.  The settlement does not cover loan servicing obligations, loans in private label securitizations, or securities and disclosure claims.  Press Release.

Freddie Mac and Fifth Third Bancorp Reach Settlement Agreement

On November 25, Fifth Third Bancorp announced a $25 million settlement agreement with Freddie Mac related to mortgages sold by the bank prior to January 1, 2009.  Per the agreement, Fifth Third Bancorp agreed to repurchase all nonconforming loans it sold to Freddie Mac, including those not identified in repurchase demands.  Press Release.

Second Circuit Affirms Dismissal of Untimely CDO Claims against Merrill Lynch

On November 21, the Court of Appeals for the Second Circuit affirmed the dismissal of a suit brought by South Korea's Woori Bank against Merrill Lynch & Co., Inc. and Bank of America Corp. on statute of limitations grounds.  The bank brought claims for fraud, rescission, negligent misrepresentation and unjust enrichment on May 18, 2012 stemming from its $143 million investment in several collateralized debt obligations.  The Second Circuit agreed with the lower court that publicity about Merrill Lynch's CDOs, related lawsuits and government investigations sufficiently alerted Woori to any claims prior to May 2009.  The bank's claims were therefore time-barred under South Korea's applicable three year statute of limitations.  Decision.

European Financial Industry Developments

European Commission Imposes EUR 1.71 Billion Fine for Participating in Illegal Cartels

On December 4, the European Commission announced that it had fined eight international banks a total of more than 1.7 billion for their participation in illegal cartels in markets for financial derivatives covering the European Economic Area.

Using the cartel settlement procedure, the Commission reached two separate decisions; one decision involved seven separate bilateral infringements relating to interest rate derivatives denominated in Japanese yen.  The companies involved were UBS, RBS, Deutsche Bank, JPMorgan, Citigroup and RP Martin.

The other decision was made in relation to a collusion by four banks in relation to interest rate derivatives denominated in euro.  The banks were Barclays, Deutsche Bank, RBS and Société Générale.  Utilizing the Commission's 2006 Leniency Notice, Barclays and UBS received complete immunity from fines.  Announcement. 

FCA Publishes Speech on Future of Retail Banking

On November 26, the FCA published a speech made by the FCA Director of Supervision on the future of retail banking and the issues identified by the FCA.

In particular, the speech notes that banks must focus on rebuilding consumer trust, dealing with new and potentially threatening technologies, addressing changes in consumer behavior in light of technological developments and addressing issues such as misselling and building a stronger business model.

The speech also notes that the FCA intends to encourage a competitive market and urges banks to focus on evolving in a consumer friendly way.  Speech. 

Council of EU Publishes UK Issues Paper on MLD4

On November 24, the Council of the European Union published a note (dated November 8, 2013) from the Council Presidency to Council Delegations which includes a UK issues paper on the fourth Money Laundering Directive (MLD4).  The issues paper states that the UK welcomes MLD4, but notes certain points for discussion.  In particular, the UK highlights the issue of beneficial ownerships of companies and misuse of trusts.

The UK suggests that central registries of company beneficial ownership would help to break through corporate secrecy and reveal who truly owns companies.  To further this aim, the UK has pledged to make the UK's central registry of company beneficial ownership publically accessible.  The UK is also taking part in an automatic information exchange pilot with France, Italy, Spain and Germany in order to tackle tax evasion and the use of trusts for illegal purposes.

According to an EU press release, these issues were discussed at the November 2013 ECOFIN conference.  NotePress Release.

 

Topics:  Bank of America, Cartels, CFPB, CFTC, Chapter 9, Cross-Border Transactions, Detroit, EU, Fannie Mae, FATCA, FHFA, Financial Conduct Authority, Freddie Mac, Goldman Sachs, JPMorgan Chase, Mortgages, Municipal Bankruptcy, Nonbank Firms, Rating Agencies, RMBS, Student Loans, UK

Published In: Bankruptcy Updates, Consumer Protection Updates, Finance & Banking Updates, International Trade Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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