Financial Industry Week in Review - February 6, 2012

by Orrick, Herrington & Sutcliffe LLP

Financial Industry Developments


Obama Administration Housing Plan

On February 1, President Obama released a fact sheet outlining his plan to assist the recovery of the housing market.  The key aspects of the President's plan include: (i) broad based refinancing; (ii) a new homeowner bill of rights; (iii) a pilot sale by the FHFA to transition foreclosed property into rental housing; (iv) providing a full year of forbearance to unemployed borrowers; (v) a joint investigation into mortgage origination and servicing abuses; and (vi) expanding HAMP eligibility and increasing modification incentives. 
White House Fact Sheet.

FHFA REO Initiative

On February 1, the FHFA announced the first step of its REO Initiative targeted to hardest-hit metropolitan areas which will allow qualified investors to purchase pools of foreclosed properties with the requirement to provide a specific rental period.  Interested investors will have the ability to pre-qualify to bid on transactions in the initial pilot phase and in subsequent phases.  FHFA Release. 
REO Asset Disposition Page.  Investor Pre-Qualification Process.

DOJ Investigation of RMBS Market

On January 27, Attorney General Holder, HUD, the SEC and NY Attorney General Schneiderman announced the formation of the Residential Mortgage-Backed Securities Working Group which will investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of RMBS.  DOJ Release.  Memo to Financial Fraud Enforcement Task Force.

SEC No-Action Letter on Rule 15Ga-1 and Ginnie Mae

On February 1, the SEC issued a no-action letter to PNC Bank relating to Rule 15Ga-1 which, pursuant to Section 943 of the Dodd-Frank Act, requires ABS securitizers to disclose repurchase requests.  The SEC indicated that it will not recommend enforcement action against a securitizer that does not file repurchase request disclosures with respect to Ginnie Mae MBS under certain circumstances. 
SEC No-Action Letter.  Incoming PNC Request.

FDIC Proposed Stress Tests

On February 3, the FDIC requested comment on a notice of proposed rulemaking to implement Section 165(i)(2) of the Dodd-Frank Act which requires FDIC-insured state nonmember banks and FDIC-insured state-chartered savings associations with total consolidated assets of more than $10 billion to conduct annual stress tests.  Comments must be submitted by March 23.  This notice of proposed rulemaking is substantively similar to regulations proposed by the Fed and the OCC.  FDIC Release.  Notice of Proposed Rulemaking.

Joint Guidance on Junior Lien Loan Loss Allowances

On January 31, the FDIC, Fed, NCUA, and OCC issued supervisory guidance on the allowance for loan and lease losses estimation practices for loans and lines of credit secured by junior liens on 1-4 family residential properties.  The agencies reiterated key GAAP concepts and existing guidance relating to such loss estimation practices.  FDIC Release.  Interagency Guidance.

HAMP Program Expansion

On January 27, Treasury and the Obama Administration announced updates to the HAMP program which will aim to extend the reach of HAMP to a broader pool of homeowners.  The updates to the program include: (i) extending the program through December 31, 2013 (which conforms to the extended deadline for the HARP program); (ii) providing for more flexible eligibility criteria, including the DTI and occupancy standards; (iii) increasing incentives for principal reduction from between 6 and 21 cents on the dollar to between 18 and 63 cents on the dollar; and (iv) offering principal reduction incentives for loans owned or guaranteed by Fannie Mae or Freddie Mac.
Treasury Release.

CFTC and SEC Report on International Swap Regulation

On January 31, pursuant to section 719(c) of the Dodd-Frank Act, the CFTC and the SEC delivered a report to Congress on international swap regulation.  The report: (i) describes the regulatory framework for OTC derivatives in the Americas, EU and Asia; (ii) analyzes the similarities and differences across jurisdictions; (iii) discusses potential areas for harmonization; and (iv) makes recommendations for next steps.  Joint Report.

Rating Agency Developments

On February 3, Fitch updated its global criteria report for non-performing loan transactions.  Fitch Report.

On February 2, DBRS released its methodology for North American CRE non-performing loan liquidating trusts.  DBRS Report.

On February 1, DBRS released its methodology for Canadian HELOCsDBRS Report.

On January 31, Fitch updated its private student loan ABS criteria.  Fitch Report.

On January 31, Fitch answered frequently asked questions about UK RMBS master trusts.  Fitch Report.

On January 30, Fitch updated its criteria on legal uncertainty in emerging market securitizationsFitch Report.

On January 30, Moody's released its methodology for municipal bonds and commercial paper supported by a borrower's self-liquidity. 
Moody's Report.

On January 30, Moody's released its pre-2005 RMBS surveillance methodology.  Moody's Report.

On January 30, DBRS released its methodologies for Canadian auto lease and auto loan securitizationsDBRS Auto Lease Report.
DBRS Auto Loan Report.

On January 26, S&P gave advance notice of proposed changes to its U.S. local government general obligation bond criteria.  S&P Report.

Note: Free registration is required for Fitch, Moody's and S&P releases and reports.

RMBS Litigation


DZ Bank AG Sues HSBC Over $122 Million In RMBS

On January 31, 2012, German bank DZ Bank AG filed a complaint in New York state court against HSBC North America Holdings, Inc. and others relating to the purchase of $122 million in RMBS certificates.  DZ Bank alleges that HSBC misrepresented and omitted critical information in its offering documents regarding underwriting standards, the characteristics of the loans underlying the securities, and the securities' credit ratings.  The complaint brings claims for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, breach of contract, and rescission.  Complaint.

Asset Management Fund Sues Banks For $500 Million

On February 1, 2012, Asset Management Fund filed a summons with notice against JPMorgan Chase, EMC Mortgage, Bear Stearns, Washington Mutual, Credit Suisse, Bank of America Securities, and related entities, in New York state court seeking $515.5 million in damages.  AMF alleges that the RMBS offering materials issued by the banks contained material misrepresentations and omissions regarding the underwriting standards used to issue the loans and key statistical characteristics of the mortgage loans underlying the securities.  The notice includes claims for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, breach of contract, rescission, and restitution.  Summons.

Assured Guaranty Files Suit Against UBS AG for RMBS Insurance Losses

On February 2, 2012, Assured Guaranty Municipal Corp. filed a complaint in New York state court against UBS AG related to RMBS issued in 2006 and 2007.  Assured claims that it would not have insured 2,400 allegedly defective loans had their quality been adequately described.  The complaint alleges breach of contract claims for which Assured seeks an unspecified amount of damages.  Complaint.

Class of Goldman Sachs RMBS Purchasers Certified

On February 3, 2012, Judge Baer of the Southern District of New York certified a class of over 150 RMBS investors in a lawsuit against Goldman Sachs, and designated the Public Employees' Retirement System of Mississippi class representative.  The class action complaint alleges material misstatements and omissions in the offering documents for a single March 2006 offering of $698 million of RMBS certificates.  In opposing class certification, Goldman Sachs argued that the claims were too individualized to be susceptible to class treatment – the securities at issue were sold through individually negotiated deals and the plaintiffs had differing information about the underlying loans.  Judge Baer rejected this argument, holding that common issues predominated for reasons including that the common claims depend on the same allegedly misleading offering documents, and that all other requirements for class certification were also met.  Complaint.

NYAG Files Suit Against Banks and MERS

On February 3, 2012, New York Attorney General Eric Schneiderman filed suit against JPMorgan Chase, Bank of America, Wells Fargo, the Mortgage Electronic Recording Systems, Inc. (MERS), and others, alleging that the use of MERS has facilitated fraudulent and deceptive foreclosures in New York.  The NYAG alleges that MERS has effectively eliminated the public's ability to monitor property transfers through public records, and that employees at the named banks, acting as MERS "certifying officers," initiated faulty and deceptive foreclosures in MERS's name.  The suit seeks a declaration that the alleged practices violate the law, injunctive relief, damages for harmed homeowners, and civil penalties, as well as a court order requiring the defendants to cure any title defects and clear any improper liens that resulted from these practices.  Complaint.


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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