Orrick's Financial Industry Week in Review - November 7, 2011

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Financial Industry Developments

Independent Foreclosure Review

On November 1, the OCC announced that, in connection with the enforcement actions taken against 14 large mortgage servicers in April 2011, borrowers with foreclosure proceedings on their primary residences initiated by those servicers between January 1, 2009 and December 31, 2010 can request an independent consultant to review the potential foreclosure deficiencies if the borrowers believe they have suffered financial injury as a result of errors, misrepresentations, or other deficiencies in foreclosure proceedings. The Fed also announced that the four large mortgage servicers subject to enforcement actions that are supervised by the Fed (GMAC, HSBC, SunTrust, and EMC) will be required to conduct this program as part of their compliance with Fed procedures. The independent review is free of charge for borrowers. Requests for review by the servicers' independent consultants must be received by April 30, 2012. 
OCC Release. Fed Release.  

OCC Issuance on Revision of Appeals Procedures

On November 1, pursuant to Section 316 of the Dodd-Frank Act, the OCC released an issuance revising the procedures for national banks to appeal agency decisions and actions to include federal savings associations.  Issuance.

Hearing on the Private Mortgage Market Investment Act

On November 3, the House Subcommittee on Capital Markets, Insurance, and Government-Sponsored Enterprises held a hearing on the proposed Private Mortgage Market Investment Act. Hearing Testimony.

MSRB Amendments to Underwriter Fair Dealing Proposal

On November 3, the MSRB filed amendments to its proposal regarding the duties of underwriters of municipal securities to state and local governments. The amendments would enhance certain disclosure requirements for underwriters as well as clarify the risk disclosure requirements of the proposal. Comments on the proposal should be submitted to the SEC. MSRB Release. MSRB Amendments.

HUD Rule to Improve HOME Program

On November 4, HUD proposed a new rule under its Home Investment Partnerships Program ("HOME"). The proposed regulatory requirements would, among other things, require state and local governments to: (i) adopt policies and procedures to improve project oversight; (ii) develop a system for assessing the relative risk of projects, and more closely monitor HOME-funded sub-recipients; and (iii) assess the capacity of developers and the long-term viability of projects prior to committing HOME funds. HUD Release.

Rating Agency Developments

On November 2, Moody's released its approach to rating U.S. credit tenant lease financings. Moody's Methodology.    

On November 1, S&P updated its methodology for identifying, categorizing, and rating bank hybrid capital. S&P Release.

On October 28, S&P revised its assumptions for U.S. transactions backed by tobacco settlements. S&P Release.

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

 

Asset Management

 

CFTC Adoption of Final Form PF

On October 31, pursuant to Sections 404 and 406 of the Dodd-Frank Act, the CFTC adopted a new rule requiring certain advisers to private funds that are dually registered with the CFTC and the SEC to report information to the SEC on a new Form PF for use by the Financial Stability Oversight Council to monitor risks to the U.S. financial system.   The SEC approved the joint rule on October 26. Most private fund advisers will be required to begin filing Form PF following the end of their first fiscal year or fiscal quarter ending on or after December 15, 2012, depending upon the type and amount of AUM. However, certain large reporting advisers will be required to file Form PF following their first fiscal year or fiscal quarter after December 15, 2012. CFTC Release. Final Rule. Form PF.

FINRA Rule Amendment on Protection of Documents from Discovery

On November 2, the SEC approved an amendment to FINRA Rule 9251 that explicitly protects from discovery during FINRA proceedings those documents that federal law prohibits FINRA from disclosing. The amended rule text will be effective December 2. 
FINRA Notice and Amended Rule.

 

RMBS Litigation

 

Investor Group Sues UBS for Mortgage-Backed Securities Losses

On November 2, 2011, Capital Ventures, an investor group, sued UBS in Massachusetts federal court, claiming that UBS Securities misled it into purchasing securities backed by faulty mortgage loans by misrepresenting the quality of those loans in the offering materials. Capital Ventures alleges it purchased more than $109 million worth of mortgage-backed securities from UBS over six separate transactions and that a significant portion of that value has been lost as the mortgages underlying the securities have defaulted.  Capital Ventures alleges claims under the Massachusetts Uniform Securities Act. Complaint.

Government Sues Allied Home Mortgage For Fraud Under the False Claims Act

On November 1, 2011, the United States filed suit in the Southern District of New York against Allied Home Mortgage, a mortgage lending company, for allegedly defrauding the government into insuring its now-defaulted loans. The complaint alleges that Allied and CEO Jim Hodge violated the False Claims Act ("FCA") by making misrepresentations to the Department of Housing and Urban Development to ensure the company could continue originating mortgages insured by the Federal Housing Administration ("FHA"). The complaint alleges that Allied submitted loans to the FHA originated out of "shadow branches" it did not disclose to the government and then illegally routed those mortgages through HUD-certified mortgage branches to avoid detection by the government. The government also contends that Allied failed to implement sufficient quality control measures to ensure underwriting standards were being met.  The government seeks a permanent injunction and treble damages. Complaint.

Bank of America's Motion to Consolidate Actions by Bond Insurers Denied

On October 31, 2011, Justice Bransten of the Supreme Court for the State of New York denied Bank of America's ("BofA") motion to split the successor liability claims from four separate lawsuits pending against the bank and consolidate those claims into a single case. Four monoline insurers that insured Countrywide mortgage-backed securities – MBIA Inc., Syncora Guarantee Inc., Ambac Assurance Corp., and Financial Guaranty Insurance Co. – have sued BofA and Countrywide for fraud and breach of contract. BofA argued that the nearly identical successor liability claims in the four suits should be severed from the individual cases, consolidated, and stayed until after primary liability is decided. Justice Bransten agreed the claims were similar but found severance and consolidation would prejudice MBIA, the first to file suit, by unduly delaying its claims while the other insurers conduct discovery. Decision.

 

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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