Bank Lawyer's Blog

The Underbelly Of The Mt. Holly Settlement

2015-05-28T22:04:00-05:00

The settlement of the Mt. Holly disparate impact case before it could be decided by the US Supreme Court were suspicious. At the time, it was thought by many that the US Justice Department had helped to engineer that settlement so that its (and HUD's and the CFPB's) use of that questionable doctrine in fair lending claims could continue for a while longer. The last thing the Feds wanted was for the SCOTUS to decide the matter, because they were worried (correctly) that it would strike down its use. At the same time, the banking industry wanted the SCOTUS to render a decision, because it thought that the court was more likely than not to strike down the doctrine's use in the fair lending context. The last thing that banks wanted was for the parties to the case to settle before the SCOTUS could render its decision (which is exactly what happened).

Recently, a rock has been overturned that has exposed a bunch of creepy-crawlers that work not for the federal government, but for the big banks that wanted the SCOTUS to rule in the Mt. Holly case. According to a former senior executive of Chase, that bank tried to get him to use his board position with a non-profit housing organization to "scuttle" the funding of the settlement. Moreover, the former executive, Wayne Trotman, at the time the mid-Atlantic market president of Chase, alleges that when he refused to breach his fiduciary duty as a member of the board of directors, the bank retaliated by firing him.

The fact that Mr. Trotman is an African-American adds not only to the radioactivity of the alleged wrongful conduct, but also substantial irony to those actions, if Mr. Trotman's allegations are true. While Chase counters that Trotman's claims are "baseless," Trotman's lawyers claim that they have "substantial evidence" to support them.

Obviously, the first thing that Trotman has to prove is that Chase pressured him to use his board position to scuttle the settlement. According to the linked article, which cites Trotman's Complaint, he claims that he was instructed to do so by Chase's Associate General Counsel, via email, even after he refused on the grounds that it would breach his fiduciary duty. The Complaint later states that another Chase attorney told him that he should not honor the request (which was also the position of his supervisor). Apparently, the ball started rolling in Jamie Dimon's office after he (and the heads of other large banks) received an email from Tim Pawlenty of the Financial Services Roundtable uirging the bankers to find ways to derail the settlement long enough for the SCOTUS to render a decision. There does not appear from the kinked article to be any order from Dimon that Trotman do anything, but, then, that's what subordinates are for: read the CEO's mind and "get 'er done" while retaining deniability for those residing at the top of Mt. Olympus.

The harder nut to crack for Mr. Trotman may likely be proving the causal connection between his decision to be an honorable man and not to breach his fiduciary duties, and his subsequent termination by Chase. It's impossible to determine that connection solely from the linked article, although I assume that the "substantial evidence" referenced by Trotman's lawyers indicates that they think that they can carry the water on that claim. The man worked for Chase for 19 years, received a "meets expectations" review shortly after the incident (although Chase substantially cut his bonus from the previous year, in which he received the same rating), then six months later received a mid-year performance rating of "poor" and was fired 14 days later without being provided an opportunity to improve. On its face, it looks like there might be fire with this smoke.

On the other hand, we haven't seen Chase's formal responsive pleading. In one press report, a Chase spokesperson told a reporter that Trotman 's position was eliminated in a "reorganization of markets." That spokesperson also claimed that Chase would "fight this in court." I guess that beats fighting it in the streets.

Obviously, it's too early to tell what the outcome of this lawsuit might be. The smart money in these situations is on a cash settlement with nondisparagement and confidentiality provisions in the settlement agreement, so that the "reputational risk" is mitigated and the whole sordid affair is swept under a rug.

Still. When it comes to picking a champion inducer of the gag reflex, it's often tough to choose between Big Banking and Big Government.

Julian Is Julienned

2015-02-16T22:03:00-06:00

Juilan Castro, the head of HUD, has taken his lumps lately over his amateur-hour performance on The Daily Show. Apparently, he just can't catch a break. Last week, he had the misfortune to appear before the House Financial Services Committee where he suffered the ultimate humiliation. No, not being grilled by Republican hit man Jeb (Clampett) Hensarling. That's a badge of honor with Castro's crowd. Rather, it was having to listen to Maxine Waters publicly praise him that had to cause him to spit up a little bit in his mouth. I know that she had that effect on me.

U.S. Rep. Maxine Waters, D-Calif., Ranking Member of the Financial Services Committee, was one of the few to praise Castro.

"Secretary Castro, although today you will likely take a fair amount of criticism from my colleagues on the other side of the aisle for your decision, I’d like to take a moment to remind them that when the private sector virtually left our struggling housing market during the worst of the crisis, the FHA stepped up and provided the liquidity that kept it afloat. Despite the steps toward recovery the economy has taken since then, the housing sector continues to suffer from a tight lending environment – and a strong FHA is still very necessary," said Waters.

"I would also note that FHA is far from bankrupt, holding approximately $40 billion in reserves, continuing to generate revenue, and taking critical steps to recover its capital reserves, which are projected to show a positive balance in 2015," she added.

You heard that right: when the private sector collapsed, the FHA hung in there. Of course, the FHA had no choice. It couldn't file "bankruptcy" like a private entity, even though it was insolvent, because its insurance is backed by the full faith and credit of the United States, it is required to fulfill its statutory purpose of providing mortgage insurance to back mortgages to qualified borrowers (many of whom turned out to be unqualified, but that's another story), and it has been used by clowns like (the Bridge Over Troubled) Waters to apportion housing credit to a constituency that appreciates the fact that the FHA being the lender that loans where angels fear to tread and votes accordingly. I think that putting Freddie Mac and Fannie Mae into conservatorship and pumping government money into those giant slush funds for progressive housing policy ("A Chicken In Every Pot and An Illegal Honduran Gardner In Every Malibu McMansion") did more to prop up the housing market than FHA insurance. Then again, who am I to argue with a brainiac like Maxine.

Hensarling and his henchman on the Republican side of the far divide are a bit perturbed with recent actions by the Master of the Selfie Stick in the White House, who reduced the annual mortgage insurance premiums for FHA by 50 basis points, from 1.35% to 0.85%, at a time when the FHA has still not restored its capital reserve ratio to the legally mandated level of 2%. In fact, it's 0.41%. The $40 billion that Maxine crowed about is supposed to over $200 billion.

Castro's response was as dynamic and on point as were his masterful responses to John Stewart. [Editor's Note: The previous sentence was sarcastic, for those readers who seem to take everything I write here in dead earnest.] Castro said that everything's great, we've never been better, nothing to see here, let's all fly to Colorado and score some "Hashey Bars."

Hensarling was not amused.

"With all do respect (Castro), we have heard that before, and you are sincere. But this committee has been told that once, twice, three times, and it hasn’t proven true,” said Hensarling. “Once again, you are in violation of the law and that has got to stop."

Except, Jeb, it won't stop. You know it, and so does everyone else with an IQ above that of a chunk of week-old Limburger cheese. The Republican-controlled house could pass legislation to punish the FHA, perhaps even threatening its funding. Even if the majority in the House did pass such an unpopular measure, Democrats in the Senate would likely thwart its progress in that chamber with procedural maneuvers, and the Perpetual Campaigner would veto it even if both houses pass it. By the time that useless exercise has run its course, there will be a new occupant in the house-is-not-a-home at 1600 Pennsylvania Avenue and Castro will be back to doing what he does best: looking dynamite in Armani formal wear.

Yes, we know: this is all about press releases for 2016. Keep up the good work.

Prince Julián: The Unbreable Being of Lightness

2015-02-01T21:55:00-06:00

Housing Wire's Trey Garrison, not a man to mince words, outdoes himself in a recent snark attack on HUD Secretary Julián Castro’s recent appearance on The Daily Show with John Stewart. Like Trey, I also "find Stewart’s faux hipster 'smarter than thou' thing and his mugging for the camera to be a stale schtick." However, I also have to agree with Trey that compared to Castro, Stewart is an Einstein of housing policy. That would be fine, if Castro was the brother of Cuba's Raoul and Fidel. He's not. He's supposed to be our nation's fearless leader of "all things housing." As such, he ought to have a basic grasp of housing policy issues, both fundamental and complex.

Here's what he's got to offer.

The Daily Show
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According to Trey, instead of schooling Stewart, Castro "looked like an NFL mascot asked what defense to run in the final seconds."

Castro should have corrected Stewart that we are not talking about derivatives, but the secondary mortgage market. And that the mortgage market wouldn't work without a functioning secondary mortgage market.

[...]

[T]hese were basic questions and he got caught pushing empty spin."

While also taking potshots at Secretaries of State Clinton and Kerry, and the human pincushion, "Diamond Joe" Biden, Garrison saves his most damning epithet for direction at Castro: "politician."

Now he’s being touted as a possible VP candidate for whomever wins the Democrat 2016 nomination.

You don’t have to be the sharpest tool in the shed to be vice president, if history shows anything.

As an empty suit with a big smile, a blank slate, and demographic appeal, Castro may be the tool they’re looking for.

But for me and where I sit in the housing and mortgage finance space, I will continue to expect more from our leaders.

If Trey keeps this up, he's going to make me start to sound like Thomas Merton in comparison.

Expecting more from our leaders: a perpetual past time since 1776. As for the HUD Secretary, I don't expect any more from him than he displayed to Stewart. A guy who defends TARP by pointing to HAMP knows on which side is intellectually dishonest bread is buttered, and it's not on the side of "Truth, Justice, and the American Way." He's playing to his constituency, and that constituency isn't interested in anything more than bringing the bacon home to the special interests who love government largess with a populist flavor. As George Bernard Shaw famously quipped, "A government that robs Peter to pay Paul can always depend on the support of Paul."

Disparate Impact: Liz Goes Loony

2015-01-28T21:49:00-06:00

In full-spittle mode, Lizzie Warren let the hysterics and flop-sweat fly last week in an Op-Ed piece for the Wapo, in which she warned that if the SCOTUS strikes down "disparate impact" in the context of fair lending laws, the space-time continuum will be ripped to shreds.

The Supreme Court appears poised to continue its systematic assault on our core civil rights laws. After gutting the Voting Rights Act just two years ago, the court set its sights on our country’s fair housing laws when it heard oral arguments today in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project. As with the voting rights decision, a decision limiting the scope of the housing laws would ignore the will of Congress and undermine basic principles of racial equality. But there is even more at stake in the fair housing case, because the wrong decision would reduce economic opportunities for working families and raise the risk of another financial crisis.

After correctly pointing out the inconvenient truth that proving actual discrimination is a bitch, she uses that "high bar" as a reason to lower the bar.

Intentional discrimination cases are notoriously hard to prove because they require evidence of a person’s state of mind. As a result, most housing segregation cases are brought on the second basis: disparate impact. Those cases are no easy lift either. To find a disparate-impact violation, a court must conclude that a challenged practice has a disproportionately negative effect on otherwise similar racial groups and that there is no nondiscriminatory explanation for the practice. Despite that high bar, disparate-impact claims have been the main tool for attacking some of the most persistent practices contributing to housing segregation.

"No easy lift" my petite, firm tukus. If "disparate impact" is a "high bar," then her idea of a prototypical NBA center must be Verne Troyer. As Princess Fauxcohontas understands well, outfits like her evil spawn the CFPB, HUD and the DOJ have used regression analysis to find discrimination in places even the starship Enterprise has not yet gone. Because it's so expensive to wage battles on a field where figures don't lie, but liars figure, the accursed accused have generally permitted themselves to be bullied into settlements not because they think the claims against them are warranted, but on a pure cost-benefit basis. It's cheaper to settle than to wage war with the fiscally unaccountable.

She also touts the fact that 17 states have joined the Obama administration in supporting disparate impact. That leaves almost twice as many states with their middle fingers raised at Lizzie. If she's arguing that there's majority support for the doctrine as a matter of popular opinion (which, I suppose in her intellectually dishonest universe, trumps sound legal reasoning), then she screwed the pooch in that paragraph.

Undercutting our fair housing laws also would increase the risk of another financial crisis. In the wake of the 2008 economic collapse, the Justice Department found that several big banks and other mortgage lenders had violated the Fair Housing Act’s disparate-impact standard by steering borrowers of color into more expensive mortgages than white borrowers with similar financial profiles. While lenders profited in the short term, these families were unable to keep up with their payments when housing prices fell, contributing to the chain reaction throughout the financial system. As the crisis demonstrated, we need stronger fair housing laws, not weaker ones that allow lenders to return to the risky — but lucrative — practices that set the stage for the last crash.

That's been her (and the CFPB's) consistent meme over the past seven years: the 2008 financial meltdown was caused by a catastrophic failure of consumer protection. Hubris, greed at all levels of society (including the vaunted consumer level), and federal government policies that encouraged putting gardeners from Guadalahara in California McMansions had absolutely nothing to do with it.

Rather than waste further time with that tiresome tool, read an interview with Ballard Spahr's Mike Skojec. Mike's insights are much less fevered and much more cogent. Then again, he's not making a run for higher office on a platform based upon the truth of the adage that you can fool most of the people some of the time and some of the people all of the time.

Disparate Impact's Bump In The Road

2014-11-05T22:00:00-06:00

In today's American Banker (paid subsciption required), Rachel Witkowski riases some good points about the potential impact of the recent decision of federal district court judge Richard Leon's recent decision that HUD's use of disparate impact violates the Fair Housing Act. For one thing, it throws a monkey wrench in HUD's use of the questionable theory, even though other ideologically-driven regulators like the CFPB and the US Justice Department may not be deterred from continuing to use it as cudgel with which to beat lenders senseless.

It is unlikely to stop other regulators, including the Consumer Financial Protection Bureau, from their own use of the theory in other circumstances, but sources said it will slow down what HUD can do under disparate impact until the Supreme Court issues a ruling on a similar case before it.

As another observer notes, it also boosts the morale of lenders, trade groups, and others that have been fighting the theory over the past few years. While HUD will likely appeal the decision, the fact that the same issue is before the SCOTUS and that arguments on that case are likely to be heard early next year means that HUD's pursuit of the appeal, and use of the theory in other instances, may be deterred.

Judge Leon's opinion was, to say the least, unvarnished.

As is typical for Leon — who often issues strongly worded opinions — the judge blasted the use of disparate impact, saying the Fair Housing Act "only" prohibits disparate "treatment," or intentional discrimination. Responding to an argument by the government that his court was precluded from weighing in on the use of disparate impact, Leon replied, "Please!"

"The expansion of FHA to include disparate-impact liability would not only have wide-ranging disruptive effect on the pricing and provision of homeowner's insurance, but would also require insurers to collect and analyze certain types of race-based data on their clients and prospective clients," Leon said in the final opinion.

He added that the case was "another example of an administrative agency trying desperately to write into law that which Congress never intended to sanction."

That has been the story of the life of the banking industry since January 2009.

Witkowski also points out that Judge Leon's decision, and the case pending before the Supreme Court, involve the Fair Housing Act. The CFPB has been using disparate impact to push claims under the Equal Credit Opportunity Act. Therefore, a decision against disparate impact under the Fair Housing Act doesn't necessarily apply to actions by the CFPB under ECOA. However, what such a ruling would likely do is encourage victims of CFPB's overreach to fight back, with the legitimate hope that they will ultimately prevail. Personally, I would love to see the CFPB continue to paint a bulls-eye on the forehead given the change in contol of Congress effected yesterday. The more examples of stained theories used to push ideological social engineering goals, the more reason for concerted action by Congress to put actual oversight on The Adjustment Bureau, and the more likelihood that wing-clipping will occur, even if it has to wait for a change in the White House in January 2017.

Culture wars aren't won overnight. Banks are in it for the long haul.

CFPB Delenda Est!

CFPB Cracks Down On "Marketing Services Agreements"

2014-10-05T21:48:00-05:00

One of the first posts I inflicted on an unspecting public, way back in 2004, when "W" was King and the bubble had not yet burst, was a rant about bogus referral arrangements that violated the anti-kickback provisions of Section 8 of RESPA. And although HUD itself once stubbed its toe over Section 8's threshold, both HUD and state regulators have been all over various schemes that attempt an end-run around RESPA's prohibition on referral fees.

With the late-night creation of Franken-Dodd, we now have the gentle ministrations of everyone's favorite benign Grandpa of a federal regulator, the CFPB, applied to Section 8, and as a recent MoFo alert advises, CFPB promises to be (in the lyrics of Jimmy Webb) a "harsh mistress."

The CFPB entered into a Consent Order with a title company (Lighthouse) on the basis that "marketing service agreements" for "advertising" with real estate companies were, in reality, disguised referral fee arrangements. Lenders who attempt similar arrangements with real estate-related businesses, in which compensation can be related to the volume of loan business referred to the lender should take a lesson.

As evidence of the violations, the CFPB cited the following:

Lighthouse failed to determine, or document a method for a determination of, the fair market value of the services it received under the MSAs.

Lighthouse determined the fees it paid under the MSA, in part, based on the number and value of referrals received by the related counterparty.

Lighthouse did not monitor whether it was receiving the services for which it contracted.

The number of referrals provided to Lighthouse by counterparties was significantly greater if Lighthouse had entered into an MSA with the counterparty.

In sum, the CFPB asserted that Lighthouse was unable to provide a legitimate fair market basis for its pricing under the MSAs and believed that there was a strong correlation between the pricing for each counterparty and the number of referrals Lighthouse received per the subject MSA’s.

Lighthouse paid a $200,000 penalty and the CFPB imposed a $5.00 cap on the value of any consideration that the title company to "referral sources." A fiver isn't likely going to generate beaucoup business for Lighthouse, is my completely obvious conclusion.

MoFo's "takeaways" are insightful.

As expected, the CFPB will look beyond the face of an MSA and consider the facts behind implementation, performance, and payments as between the settlement service provider and the referring party.

The CFPB in the Consent Order created a broad definition of “marketing services agreement,” a term that is not defined in RESPA.

The CFPB emphasized that an objective determination of “fair market value” of marketing services to be rendered must be performed with written documentation of the determination that is retained and available for review.

In the fair market value analysis, the CFPB frowned on the settlement service provider’s consideration of what other title companies in the market were willing to pay to referral sources for marketing services.

The necessity of monitoring MSA performance to ensure that services contracted for are actually delivered.

MSAs that result in more business being referred to the settlement service provider than is referred by the same referral sources not pursuant to MSAs provides evidence of a violation of RESPA §8(a). How the CFPB determined these differences is not clear from the Consent Order.

Any real estate services businesses that are starting to realize that when the CFPB is on the case, there will likely be no way to ever run this dodge again get a gold star for "perception." The last takeaway asks how the CFPB could have determined how much business is referred by the same source with a "marketing services agreement" and without such an agreement. I assume the authors of the alert are displaying a dry sense of humor. As everyone knows, with the CFPB being such a self-professed "data-driven" regulator, they'll always be able to find pertinent data, even if the hiding place is an orifice on their own body.

I don't think this is the beginning of the end of these types of arrangements. I think this the end. Period.

The again, there are always those living in caves who always are the last to hear. Thus, there may be a few more Consent Orders before "marketing services agreement" as ingenuously disguised referral arrangements finally become extinct.

The Fair Lending Extortion Racket Runs On

2014-07-13T09:48:00-05:00

The law firm of King & Spalding recently highlighted a problem that we last discussed eighteen months ago, and, since then, has only gotten worse.

Cities and counties that have experienced increased foreclosure and vacancy rates in the aftermath of the housing market crash of 2007-2008, perhaps emboldened by recent court decisions, have recently filed several new “predatory lending” cases under the federal Fair Housing Act (“FHA”) against financial institutions. In the last six months, for example, Los Angeles, Miami, Providence, and Cook County, Illinois, have filed lawsuits under the FHA against a variety of mortgage lenders to attempt to recover lost property tax revenues and other damages.

The cases allege either traditional redlining (excluding minority areas from lending activity) or "reverse redlining" (targeting minority for subprime, Alt-A, and other high-cost loans). As is the rage these days, the plaintiffs use the doctrine of "disparate impact" to undergird their claims of violation of the Fair Housing Act. The authors allege that decisions of federal district courts that refuse to dismiss the lawsuits, as well as the settlement of the Mt. Holly case before the Supreme Court could hear oral arguments (much less decide it), have emboldened cities and counties to pursue these claims. Of specific import are recent decisions of a federal district court in lawsuits filed by the City Los Angeles against Wells Fargo and Citigroup, in which the judge held that the Sixth, Ninth, and Tenth Circuit Courts of Appeal have all determined that "disparate impact" under the FHA is a viable theory. As K&L Gates also discussed not long ago, the Fifth Circuit recently applied HUD's "disparate impact rule" in a fair lending case.

The settlement of the Mt. Holly case is cited by both firms as a setback for lenders and an encouragement for municipalities that want to blame mortgage lenders for their broken neighborhoods. That's not because the theory of "disparate impact" in fair lending cases is likely to be upheld, ultimately, when the US Supreme Court finally gets a chance to decide the issue (and there are powerful arguments against the application Of the theory to the FHA), but because of the obvious problem we've repeatedly noted: these cases, being based on sophisticated statistical analyses that require high-priced consultants and attorneys, are expensive for the defendants. We'd love to see them slug it out to the bitter end and to never settle, because, as King & Spalding concludes, settling questionable claims only encouirages more questionable claims. However, the best business decision for a specific insitution may very well be to pay off the plaintiffs and put the matter behind them. At least, until the next busted pesthole of a city decides to blame decades of mismangement, high taxes, and anti-business laws and regulations manned by sometimes-corrupt bureaucrats, entirely on lenders who are not themselves pristine.

On a positive note, the more the City of Los Angeles sues businesses, the more California-based businesses become Texas-based businesses.

Disparate Impact Ate My City

2014-06-01T21:44:00-05:00

Another broken city, buried under a mountain of economic malaise caused by its own mismanagement, is attempting to blame its woes on a big bank, and, in the process, squeeze some money out of it.

The city of Providence, R.I., is suing Santander Bank in federal court claiming the bank has refused to make prime home loans in minority neighborhoods.

[...]

The city is claiming that Santander, a Spanish banking giant with U.S. headquarters in Boston, deliberately cut back on lending to qualified homebuyers in minority neighborhoods in recent years while increasing mortgage lending in predominantly white areas.

[...]

Providence alleges that Santander has followed a pattern of discrimination across its New England footprint. The lending declines, the city says, are not the result of economic conditions. While Santander mortgage originations in minority neighborhoods fell, other banks, including Citizens Bank, made home loans in much greater numbers in the same areas.

Such practices, dubbed 'redlining' over allegations that some lenders used red highlighters on maps to outline off-limits neighborhoods, violates the federal Fair Housing Act as well as the Equal Credit Opportunity Act. Providence is demanding a jury trial and is seeking an injunction against Santander as well as unspecified compensatory and punitive damages.

“We categorically reject this accusation and will vigorously defend ourselves against the legal action," Santander said in a statement. "However, we are willing to work with the City of Providence to allay its concerns."

In other words, "we we'll pay blackmail, as long as it's not exorbitant."

This suit is based on the same "disparate impact" theory that the Department of Justice, HUD, and various municipal nirvanas like Cleveland and Baltimore have been using to offer misdirection to the fact that, as I once put it so amiably, "[c]rime, poverty, high taxes, a business-unfriendly environment, a lack of cohesive vision for the future and the will to implement that vision even if it existed, all might have had something to do with" each city's current woes. The fact that the municipalities are being kicked out of court on the issue of causation doesn't deter them. After all, it's the taxpayer picking up the tab.

In a recent article in the American Banker (paid subscription required), lawyers Valerie Hletko and Ann Wiles discuss the potential impact on disparate impact lawsuits filed by municipalities, of the US Supreme Court's decision Lexmark International v. Static Control Components, which doesn't address disparate impact but, nevertheless, throws a giant monkey wrench into the gears of this litigation juggernaut. According to Hletko and Wiles, "the court held that, in order to have standing to sue under a federal statute, a plaintiff must fall within the statute's 'zone of interest' and also show 'proximate cause.' In other words, a plaintiff's injury must flow directly from a violation of the statute, and the plaintiff must be the party Congress wanted to protect in enacting the statute."

The Supreme Court said in Lexmark that the Lanham Act's stated purpose of preventing injury to a commercial interest in reputation or sales requires "no guesswork." Nor does the FHA's. The FHA's statement of purpose is "to provide, within constitutional limitations, for fair housing throughout the United States." It protects integrated housing patterns and persons discriminated against in housing transactions on the basis of race, color, national origin, religion, sex, familial status and disability. It does not protect the tax receipts of municipalities.

Justice Antonin Scalia's 9-0 opinion acknowledged that the Supreme Court's earlier standing discussions now look "misleading" in light of Lexmark. While Lexmark has yet to be applied to the FHA, this higher standard is likely to eviscerate standing for a range of theories of liability. While banks will have to wait for another disparate impact case to make it to the Supreme Court for a ruling on whether disparate impact claims are viable under the FHA at all, they may now avoid FHA disparate impact claims brought by plaintiffs alleging daisy-chain standing well outside the statute's zone of interest.

I don't know whether Santander is going to roll over and play dead or come out swinging. If it takes off the gloves, one of the first punches thrown has got to be based on the Lexmark decision.

HUD Defends The Middle Ground

2014-02-20T22:01:00-06:00

HUD, which took a proactive stance on the controversial doctrine of "disparate impact," issuing regulations that codified the criticized doctrine in order to attempt to require the federal courts that construe it to give HUD's interpretation judicial deference, has decided that when it comes to the equally controversial scheme of a number of municipalities to "condemn" underwater residential mortgage loans, HUD must remain "neutral."

Housing and Urban Development Secretary Shaun Donovan kept his carefully neutral stance this week on the potential use of eminent domain to restructure underwater mortgages.

Mortgage and housing industry groups have asked HUD to rule that Federal Housing Administration-insured loans will not be used to refinance mortgages on properties that are condemned and seized by local government under eminent domain.

But Donovan said that the use of eminent domain to force the sale of private-label mortgages out of securitized trusts must be decided by the courts.

There are very specific rules about the use of eminent domain, Donovan said at a Politico event Wednesday, and “it needs to be decided by the courts.”

The application of the doctrine of disparate impact to fair lending laws must also be decided by the courts. That fact hasn't stopped HUD from issuing regulations on the subject. The least the agency could do is to take a stand on the potentially detrimental impact on the residential mortgage lending business, including FHA mortgages, caused by the use of eminent domain to sieze mortgage loans from lenders. The FHFA has weighed in to protect its interests, which happen to be aligned with the lenders from who FNMA and FHLMC buy loans. Why can't HUD?

Perhaps the fact that the expansion of the conflating the disparate impact doctrine into the fair lending arena and a creating a crackpot scheme like condemning mortgage loans are both anti-lender, pro-populist theories dreamed up by Leftist activists might have something to do with it. In HUD's case, as in the FHFA's, hurting lenders harms the agency, so the laws of self-interest would seem to dictate that HUD oppose both of them. Ultimately, however, the losses of HUD are back-stopped by the US taxpayer, and as we all know, neither side of the political spectrum has been overly concerned with taxpayers when it comes to serving a "higher cause."

Go Together Like A Fish And A Bicycle

2014-01-26T22:00:00-06:00

I have received unconfirmed reports this weekend that HUD has requested certain large mortgage loan servicers to send marketing materials to HUD borrowers reminding them to sign up for health insurance under the Affordable Care Act, aka "ObamaCare." As one unidentified commenter put it, considering the Claymation Death Match struggles between those large servicers and the federal government on a number of fronts, asking them to carry the Feds water on such a cluster-FUBAR is either a "ballsy move" or a demonstration of fatal hubris. I vote for the latter.

If this report is correct, it's the kind of strong-arm tactic typical of a crowd suckled on the mother's milk of South Side Chicago bare-knuckled local politics. After all, the large servicers have what the federal government can only dream about: an efficient information distribution system.They're also susceptible to arm-twisting, as evidenced by the billions recently coughed up for robo-signing, enforcing their investors' legal rights under loan documents by foreclosing when borrowers failed to make payments, and otherwise performing the job they are contractually obligated to do. You can understand why the ACA Gang That Couldn't Shoot Straight, led by Queen Kathleen and the Web Masters of Oz, would want to enlist the services of for-profit entities who, when their customers visit their web sites, are presented with a message other than The Blue Screen of Death.

The fact that mortgage loan servicers soliciting their borrowers to sign up for health insurance in order to save the ACA's (and the Democrats') bacon inspires "WTF!!??" reactions on so many levels should not impede the continued pursuit of this scheme, if it in fact exists. After all, the "Perpetual Speechifier" is a lame duck, so his attitude, and those of the minions at his beck and call, has to be "What are you gonna do about it, huh? Not vote for me the next time I don't run?"

I wonder if and when the main stream media will pick up on this thread to see if there is any meat on the bones?