The Federal Deposit Insurance Corporation has reported that bank profits are down, in part, due to litigation costs. FDIC Chair Martin Gruenberg said that significant legal expenses are pushing down average industry profits. There are, of course, other variables causing the profit decrease. However, it is clear that litigation costs are having an impact.

Reuters had reported that the U.S. Justice Dept. will file several lawsuits alleging mortgage fraud against financial institutions in 2014. AG Eric Holder told Reuters that his agency would use the JPMorgan Chase case as its model for future lawsuits. These cases stem from a White House task force. One possible target is Bank of America which has stated that the U.S. Attorney’s office will recommend a civil suit against it.

The U.S. Department of Housing and Urban Development told Congress it could not  say if the Federal Housing Administration would insure new mortgages in communities including Richmond, California that propose to seize home loans through eminent domain. “Pending legal developments and possible further execution of the plans in question, HUD does not know whether any new mortgages which might be created would qualify for insurance by the Federal Housing Administration,” Acting Assistant Secretary Elliot Mincberg wrote in an Aug. 12 letter responding to questions from members of Congress.

“There is a rational basis to conclude that the use of eminent domain by localities to restructure loans for borrowers that are ‘underwater’ on their mortgages presents a clear threat to the safe and sound operations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks as provided in federal law,” Pollard wrote. Fannie Mae and Freddie Mac last week joined investors authorizing a lawsuit to stop Richmond from seizing loans.

U.S. Rep. John Campbell, R-Orange County, has reintroduced a bill that would limit the ability of municipalities to use eminent domain to seize underwater mortgages. The proposed Defending American Taxpayers from Abusive Government Takings Act would also prevent Fannie Mae and Freddie Mac from buying any home loans seized by eminent domain. The legislation is supported by the Mortgage Bankers Association and the Securities Industry and Financial Markets Association.

The city of North Las Vegas has entered into an advisory agreement with Mortgage Resolution Partners. This entity promotes the concept of local governments using the power of eminent domain to seize underwater mortgages from investors for the purpose of restructuring them.
In response the Securities Industry and Financial Markets Association, the Association of Mortgage Investors, the Greater Las Vegas Association of Realtors and the Nevada Bankers Association issued the following joint statement:

"We’re disappointed the City Council of North Las Vegas has entered into an advisory agreement with Mortgage Resolution Partners. While this agreement does not make it a certainty that the city will use eminent domain, today’s step brings the city closer to embracing an unconstitutional scheme to seize mortgages from people who are paying their monthly payments that will only hurt the broader community. In addition to adding unprecedented and unpredictable risk factors into the local housing market and likely cutting off needed credit to the community, the proposal will take money out of the pockets of everyday investors and pension holders and put it in the hands of a small group of private investors backing MRP’s scheme.”

North Las Vegas is the latest in a series of local governments considering this extreme move. On July 1, a new North Las Vegas city council will take over and the securitization groups are planning to meet up with new members to reconsider the agreement and exercise its right not to proceed.

 

According to the firm RealtyTrac, national foreclosure filings fell to a six-year low in January. The report states that foreclosures dropped 7 percent in January from December 2012, with foreclosure activity down 28 percent from January 2012. It further found that U.S. bank repossessions dropped 5 percent from the previous month and were down 24 percent from January 2012 to the lowest level since February 2008.

One possible reason for the declines, according to RealtyTrac, was a steep drop in California notices of default issued in January, which fell 62 percent from December and were down 75 percent from January 2012 to the lowest level since October 2005.

Of course, areas of the country are still feeling the effects of the recession. RealtyTrac reported that 1 in 300 Florida housing units had a foreclosure filing in January — more than twice the national average and the highest in the U.S. for the fifth consecutive month. Nevada posted the nation’s second highest foreclosure rate for the fourth consecutive month, with 1 in every 344 housing units filing a foreclosure in January. Other states topping the list for highest foreclosure rates in January include Arizona (1 in 501 housing units filing a foreclosure), Georgia (1 in 513 housing units) Ohio (1 in 612 housing units) and Washington (1 in 674 housing units).
 

Loans involving properties in the path of Hurricane Sandy will certainly be delayed according to National Mortgage News. In addition to the obvious business interruption, many properties will need to be reappraised to determine if the Hurricane caused a decrease in property value. Given the volume of reappraisals, the loan process will be severely impacted. David Stevens, president of the Mortgage Bankers Association, told National Mortgage News that he expected mortgage profits and origination volumes to dip for a short period because of days lost to the storm.

The New Jersey Department of Banking and Insurance performed 173 examinations of mortgage licensees in 2011. According to National Mortgage News, these examinations concluded that 90 percent of the mortgage firms had some type of violation. The examinations showed a total 4,347 violations, or 25 per examination. The most common violations were deficiencies in loan documentation (accounting for 55 percent of violations) while charging impermissible fees was the second most common violation (accounting for 11 percent of violations). Apparently, this pattern is not unique to NJ. For example, according to National Mortgage News, representatives of the Maryland Department of Labor, Licensing and Regulation and the Pennsylvania Department of Banking and Securities also have stated that there are substantial problems in their states.

The New Jersey Department of Banking and Insurance performed 173 examinations of mortgage licensees in 2011. According to National Mortgage News, these examinations concluded that 90 percent of the mortgage firms had some type of violation. The examinations showed a total 4,347 violations, or 25 per examination. The most common violations were deficiencies in loan documentation (accounting for 55 percent of violations) while charging impermissible fees was the second most common violation (accounting for 11 percent of violations). Apparently, this pattern is not unique to NJ. For example, according to National Mortgage News, representatives of the Maryland Department of Labor, Licensing and Regulation and the Pennsylvania Department of Banking and Securities also have stated that there are substantial problems in their states.