On January 22, Judge Denise Cote of the U.S. District Court for the Southern District of New York trimmed claims from a lawsuit brought by the National Credit Union Administration Board, as liquidating agent for various federal credit unions, alleging that two Morgan Stanley entities made material misrepresentations in the offering documents for $400 million in RMBS. Partially granting Morgan Stanley’s motion to dismiss, the court held that NCUA’s federal securities claims were time-barred under the three-year statute of repose imposed by the Securities Act of 1933. In reaching this conclusion, the court found that NCUA did not become conservator for the credit unions until after the statute of repose had run, and therefore could not avail itself of a provision of the Federal Credit Union Act that extends the limitations period for actions brought by the NCUA. Despite its dismissal of NCUA’s federal securities claims, the court ruled that securities claims against Morgan Stanley brought under Illinois and Texas blue sky laws both were timely and adequately pled. Decision.
NCUA
Supervisory Approach for Qualified and non-Qualified Mortgage Loans
On December 13, Fed, FDIC, NCUA and OCC issued a statement to clarify safety-and-soundness expectations in order to guide institutions engaged in residential mortgage lending as they assess the implementation of the CFPB’s Ability-to-Repay and Qualified Mortgage Standards Rule, which is effective January 10, 2014. Joint Release. Joint Statement.
Final Rules on Appraisal Exemptions for Higher-Priced Mortgages
On December 12, the Fed, FDIC, CFPB, FHFA, NCUA and OCC issued a final rule that creates exemptions from certain appraisal requirements for certain higher-priced mortgage loans. The final rule provides that loans of $25,000 or less and certain “streamlined” refinancings are exempt from the Dodd-Frank Act appraisal requirements, which go into effect on January 18, 2014. Joint Release. Joint Final Rule.
Joint Release on QM Fair Lending Risks
On October 22, the Fed, CFPB, FDIC, NCUA and OCC issued a joint statement to address industry questions on fair lending risks associated with offering only qualified mortgages. Joint Release. Joint Statement.
Joint Release on Borrowers Affected by Government Shutdown
On October 9, the Fed, CFPB, FDIC, NCUA and OCC issued a release encouraging financial institutions to work with borrowers affected by the government shutdown to provide workout arrangements. Joint Release.
Joint Rule on Appraisals for Higher-Priced Mortgage Loans
On January 18, the Fed, CFPB, FDIC, FHFA, NCUA and OCC issued a joint final rule, effective January 18, 2014, which establishes new appraisal requirements for “higher-priced mortgage loans”. For these loans, the rule requires creditors to: (i) use a licensed or certified appraiser who prepares a written appraisal report based on a physical visit of the interior of the property and (ii) disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report. Joint Release. Final Rule.
National Credit Union Administration Sues Bear Stearns for $3.6 Billion in RMBS
On December 17, 2012, the National Credit Union Administration Board, acting in its capacity as liquidating agent for four failed credit unions, sued several Bear Stearns affiliates in federal court in Kansas in connection with $3.6 billion in RMBS allegedly purchased by the failed credit unions. The NCUA alleges that the originators of the mortgage loans underlying the RMBS systematically disregarded the underwriting guidelines stated in the offering documents. It also alleges that the offering documents contain untrue statements of material fact concerning the evaluation of the borrowers’ capacity and likelihood to repay the mortgage loans, reduced documentation programs, loan-to-value ratios, and credit enhancement. The NCUA asserts 24 separate counts for relief under Sections 11 and 12(a)(2) of the Securities Act of 1933, the California Corporate Securities Law, the Kansas Uniform Securities Act, the Texas Securities Act, and the Illinois Securities Act. Complaint.
NCUA Sues UBS Over $1.1 billion in RMBS Sold to Collapsed Credit Unions
On September 6, 2012, the National Credit Union Administration Board (NCUA) sued UBS in the United States District Court for the District of Kansas. The NCUA filed the suit in its capacity as Liquidating Agent of U.S. Central Federal Credit Union and Western Corporate Federal Credit Union, which collectively are alleged to have purchased over $1.1 billion in RMBS from UBS. The complaint alleges that the originators of the mortgages collateralized into the RMBS had “systematically abandoned” the underwriting guidelines described in the offering documents. The NCUA also alleges that the offering documents contained untrue statements of material fact concerning weighted average LTV ratios, the evaluation of the borrowers’ capacity and likelihood to repay the mortgage loans, and the reduced documentation programs used by the originators. The NCUA asserts claims under Sections 11 and 12(a)(2) of the Securities Act of 1933, Sections 25401 and 25501 of the California Corporate Securities Law, and the Kansas Uniform Securities Act. The NCUA seeks rescission or rescissionary damages or, in the alternative, compensatory damages. NCUA Complaint.
Agency Proposed Rule on Appraisals for Higher-Risk Mortgages
On August 15, the Fed, CFPB, FDIC, FHFA, NCUA, and OCC issued a proposed rule to establish new appraisal requirements for “higher-risk mortgage loans”. The proposed rule would implement amendments to the Truth in Lending Act enacted by the Dodd-Frank Act, which classify mortgage loans as higher-risk if they are secured by a consumer’s home and have interest rates above a certain threshold. Comments must be submitted by October 15. Joint Release. Proposed Rule.
Agency Guidance on Mortgage Servicing for Servicemembers
On June 21, the Fed, CFPB, FDIC, NCUA, and OCC issued guidance to mortgage servicers to address risks related to military homeowners who have informed the servicer that they have received military Permanent Change of Station orders. If the agencies determine that a servicer has engaged in unfair, deceptive, or abusive practices, or practices that otherwise violate Federal consumer financial laws and regulations, the agencies will take supervisory and enforcement actions. Guidance. Fed Release.