Banking Law Prof Blog

Eighth Circuit Recognizes Limits on Federal Preemption

The U.S. Court of Appeals for the Eighth Circuit recently ruled that national bank assignees or purchasers of mortgages are not completely shielded from state law violation claims by a blanket claim of federal preemption.  The case is Thomas v. U.S. Bank. 

Plaintiff/Appellants are Missiouri homeowners who received "high loan-to-value" second mortgages (reflecting total debt of 125% of the value of their homes) from FirstPlus Bank, a federally insured state-chartered bank which has since failed.  Their mortgages were purchased or assumed by other banks, including some national banks.

Plaintiffs claim that the loans violated state law, specifically the Missouri Second Mortgage Loans Act (MSMLA) which limits the type and amount of closing costs and fees that can be imposed on residential second mortgages secured by MissourI real estate.

The national banks removed the case to federal court and successfully moved for dismissal of the case, contending that state law claims were completely preempted by the Depository Institutions Deregulation and Monetary Control Act (DIDA). 

On appeal, the Eighth Circuit reversed and remanded to state court for trial.  The Eighth Circuit opinion distinguished preemption under the National Bank Act (NBA) and the limited scope of preemption provided by the plain language of DIDA.  NBA would have applied if national banks had originated the loans.  DIDA applies to loans originated by statte-chartered banks.

State law claims in this case are not preempted because state law usury limits are higher than the ceiling provided under federal law -- even though these claims are for non-refundable broker's fees that exceeded MSMLA limits and for closing costs and fees that exceeded the fees actually charged by third-party providers where the originator FirstPlus retained the difference.

The state law remedy -- forfeiture of interest and twice the interest paid -- is not preempted here -- if the state law claims can be established at trial.

Link:  http://www.aba.com/aba/documents/GeneralCounsel/BankingDocket/ThomasvUSBankNational.pdf

(ag) Sept. 5, 2009, in Federal Preemption, Lending Issues, Consumer Protection, Predatory Lending, Dual Banking

Baltimore City's Reverse Redlining Lawsuit Against Wells Fargo

In a letter ruling dated July 2, 2009, Chief Judge of the U.S. District Court for the District of Maryland Benson Everett Legg issued an order denying Wells Fargo's motion to dismiss a lawsuit filed by the City of Baltimore.  The City's lawsuit alleges that Wells Fargo targeted black neighborhoods in baltimore for predatory residential mortgage loans.

The case will now go forward to discovery and filing of summary judgment motions.  The case is styled Mayor and city Council of Baltimore v. Wells Fargo Bank, N.A., Civil No. L-08-62.

(ag) Aug. 5, 2009, in Predatory Lending

Let's Not Be Hasty

An interesting article in the American Banker for April 26, 2008, is entitled "Financial Execs Urge Rapid Regulatory Reform." Well, let's see what this is about!  Representatives of the Financial Services Roundtable (with membership comprising the 100 largest integrated U.S. financial firms) say they would like to see a single federal regulator as an option for financial firms AND a regulatory system based on broad principles and prudential oversight.  The article suggests that the Bear Stearns collapse has triggered these proposals, that they will enable regulators to respond to similar crises more expeditiously, and that they should be adopted post haste. 

Wait a minute:  The Financial Services Roundtable was arguing for a single regulator and more flexible, principles-based regulation long before now.  And most observers believe that we will see Congressional response to the subprime mortgage and financial markets crisis.  Those of us who have seen how heavy-handed Congressional response to crisis can be hope not to see reforms that are rushed through.

(ag) March 27, 2008, in Federal Banking Agencies/Subprime Lending

Points to Ponder Regarding the Subprime Mortgage Market Collapse

My conclusions:

   1. There’s blame enough to go around.
   2. Those who do not remember the past are condemned to repeat it.
   3. If it sounds too good to be true, it probably is.
   4. If you don’t understand it, don’t invest in it.
   5. What goes around comes around.
   6. It’s still good to be the little pig who built his house of brick.
      
"It's sort of a little poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end." - Warren Buffett, commenting on banks and investment banks that designed and marketed complex investments that have since gone sour, as reported by Reuters News.

(ag) March 25, 2008, in Subprime

Mayor of Baltimore Sues Wells Fargo

Here's a novel approach:  The Mayor and City Council of Baltimore filed suit in the U.S. District Court for the District of Maryland, Baltimore Division, against Wells Fargo Bank, N.A. and Wells Fargo Financial Leasing, Inc., claiming that "reverse redlining" that targeted Baltimore's underserved and vulnerable, primarily African-American, neighorhoods has resulted in a foreclosure crisis and substantial and irreparable damage to the neighborhoods and to the City of Baltimore.  The suit is brought under the Fair Housing Act

Link to Complaint for Declaratory and Injunctive Relief and Damages:  http://www.aba.com/aba/documents/GeneralCounsel/BankingDocket/Baltimore.pdf

(ag) Jan. 9, 2008, in Predatory Lending

The Fed's New HOEPA Regs Are Out for Comment

The Federal Reserve Board today announced that the long-awaited regulations Congress has pushed for to address predatory lending are out for public comment.  The proposed regulations will amend Regulation Z (Truth in Lending) for the purpose of protecting consumers from unfair or deceptive home mortgage lending and advertising practices.

I'll have more to say about this tomorrow after I've had a chance to look at the proposed regulations in  greater detail.

LInk:  http://www.federalreserve.gov/newsevents/press/bcreg/20071218a.htm

(ag) Dec. 18, 2007, in FRB, Predatory Lending

New Agreement to Assist Subprime Borrowers

Treasury Secretary Henry Paulson and other financial institution regulators yesterday announced the new plan for assistance to subprime borrowers.   More commentary to follow . . .

Here's a link to the White House Fact Sheet:  http://www.whitehouse.gov/news/releases/2007/12/20071206-7.html

(ag) Dec. 7, 2007, in Subprime Lending

Bernanke's Congressional Testimony

Yesterday, Federal Reserve Chairman Ben Bernanke testified before the Joint Economic Committee of the U.S. Congress on "The Economic Outlook".  His last appearance before this committee was in March.  In the meantime, many unpleasant repercussions have hit the fan in the subprime lending market.

Chairman Bernanke began his testimony with the good news:  "Real gross domestic product (GDP) grew at an average pace of nearly 4 percent over the second and third quarters despite the ongoing correction in the housing market.  Core inflation has improved modestly, although recent increases in energy prices will likely lead overall inflation to rise for a time."

The rest of the testimony painted a not-so-bright picture, outlining problems in the subprime markets and the Federal Reserve's response.  With respect to the many cries for help from distressed borrowers, Chairman Bernanke stressed mitigation (loan workout) efforts by lenders.  He also praised the efforts of community-based organizations to help consumers, including NeighborWorks America, and foreclosure prevention programs, such as the Home Ownership Preservation Initiative, a program of the Federal Reserve Bank of Chicago. 

In discussing possible Congressional response to the subprime mortgage crisis, Chairman Bernanke sees an expanded role for the Federal Housing Administration (FHA).  After much prodding by Congress, the Federal Reserve finally plans to use its authority under the Home Ownership and Equity Protection Act (HOEPA), to propose rules by the end of this year to address unfair or deceptive mortgage lending practices.  These rules would apply to subprime loans offered by any mortgage lender. 

So,  about those rules . . .   I'm reminded of that fifties song fragment:  Just a wishin' and hopin' and thinkin' and prayin' . . .    We'll see when they get here.

Link to testimony:  http://www.federalreserve.gov/newsevents/testimony/bernanke20071108a.htm

(ag) Nov. 9, 2007, in Subprime Lending

College Towns and the Subprime Meltdown

Here's a bit of good news:  College towns appear to be escaping many of the housing market issues stemming from the subprime mortgage mess.  Thanks to Dale Duhan for forwarding this New York Times article. 

Link:  Download college_towns_escape_the_pain.doc

(ag) Nov. 6, 2007, in Subprime Lending

HR 3915 - The Mortgage Reform & Anti-Predatory Lending Act of 2007

This week, Representatives Brad Miller (D-NC), Mel Watt (D-NC) and Barney Frank (D-MA) introduced HR 3915, "The Mortgage Reform and Anti-Predatory Lending Act of 2007".  This bill is intended as comprehensive legislation to combat abuses in the mortgage lending market and to provide protections for mortgage consumers and investors.

The bill covers the following major areas:  1.  Establishing a federal duty of care in mortgage lending, prohibiting "steering" borrowers to higher priced loan products if they can qualify for a lower priced, more favorable loan, and setting up a new system for licensing and registration of mortgage originators, including brokers and bank loan officers; 2.  Requiring, as a minimum underwriting standard for mortgage loans, that the borrower must have a reasonable ability to repay; 3.  Attaching limited liability to secondary market securitizers of home mortgage loans that do not meet these new standards; 4.  Expanding consumer protections for "high cost home loans" under HOEPA and including protections for renters of foreclosed homes.

My take:  The subprime mortgage debacle demonstrates the need for better underwriting standards.  The public is crying for new protections.  So, just introducing this bill is a popular palliative move, but the bill itself will generate such controversy that delay is certain and passage very uncertain.

(ag) Oct. 25, 2007, in Consumer Protection, Predatory/Subprime Lending

Consumer Information for Subprime Lending - Please Send Comments by Oct. 15

Very Important Opportunity to Comment:  The Federal Banking Agencies have jointly published Proposed Illustrations of Consumer Information for Subprime Lending.  The comment period ends Oct. 15, 2007, and the agencies have received only three -- count 'em, three -- comments.  The proposal is only 6 pages & it's easy to comment online.  You can even look at the three comments received, if you need something to start your thinking about this.  Consumers as well as financial institutions should review and comment on this proposal.  Please comment.  You can make a difference.

Link: http://www.ots.gov/CL.CFM?DON=73374&AN=1&catNumber=67

(ag) Oct. 11, 2007, in Subprime Lending

Avoiding Foreclosure: Consumer Resources

The ultimate downside of subprime lending -- for consumers and financial institutions -- is foreclosure.  Here is a concise listing of helpful resources for consumers seeking to avoid foreclosure.

Link:  http://www.federalreserve.gov/pubs/foreclosure/default.htm

(ag) Oct. 8, 2007, in Subprime Lending

States Address Subprime Lending

Attorneys general and banking regulators from ten states have formed a task force aimed at pursuading mortgage-servicing companies and investors to restructure troubled subprime loans. The task force, led by Iowa Attorney General Tom Miller, has invited a dozen of the nation's largest subprime-mortgage-servicing companies to meet in Chicago.

Link:  http://www.law.columbia.edu/center_program/ag/predatorylend

Link:  http://www.state.ia.us/government/ag/latest_news/releases/sept_2007/Foreclosure_Hotline.html

Kansas Attorney General Paul Morrison today announced the creation of a state task force to examine mortgage foreclosures and the underlying causes, including mortgage fraud and subprime lending.  State Bank Commissioner Tom Thull will chair the new task force, which will include representatives from the lending and real estate industries, as well as consumer advocates.

Link:  http://cjonline.com/stories/092807/sta_203542402.shtml

New Mexico Governor Bill Richardson has established a Governor's Task Force on Mortgage Lending, composed of representatives of the banking, finance, and mortgage industry, the real estate industry, homebuilders, lawyers, New Mexico government and the general public.  The purpose of the Task Force is to examine the consequences of subprime mortgage lending in New Mexico, to review the Home Loan Protection Act, NMSA 1978, §§ 51-21A-1 et seq., homebuyer counseling, financial literacy education, and licensing requirements for originators, and to consider the effectiveness of plain language underwriting and more detailed disclosure requirements.  A report is due by Oct. 31, 2007.

(ag) Sept. 28, 2007, in Subprime Lending

Bernanke's Testimony to the House Financial Services Committee

Federal Reserve Chairman Ben Bernanke testified today before the House Financial Services Committee on "Subprime Mortgage Lending and Mitigating Foreclosures".  This is one of the clearest, most succinct summaries of the evolution of subprime mortgage lending -- benefits and downsides -- as well as securitization of these mortgages and the effect that has had on lenders, investors, and the financial markets. 

Chairman Bernanke also discusses potential regulatory and Congressional responses.  One of the key recommendations has to do with more even regulation of ALL lenders.

Link:  http://www.federalreserve.gov/newsevents/testimony/bernanke20070920a.htm

(ag) Sept. 20, in Subprime Lending

President Bush Announces His Plan for a New FHA Program

President Bush today announced a new FHA program for homeowners with good credit to refinance into more affordable loans.  The new program will be called FHA-Secure.  Another proposed reform deals with eliminating the tax imposed on debt forgiveness currently treated as income when a borrower cannot repay a home loan. 

Here's the link to the announcement:  http://www.whitehouse.gov/news/releases/2007/08/20070831-5.html

(ag) Aug. 31, 2007, in Subprime Lending

Foreclosure Resources

The Federal Reserve has assembled an information page with links to agencies and organizations that may be able to help consumers facing foreclosure.

Link:  http://www.federalreserve.gov/pubs/foreclosure/default.htm

(ag) Aug. 23, in Consumer Protection/Predatory Lending/Subprime Lending

Subprime Mortgages Threaten to Sink All Boats -- Countrywide In Particular

Everybody is watching Countrywide struggle for its life, as it exhausts its credit lines and liquidity becomes a critical issue.  Forbes.com has run an excellent series of articles on the subject.

(ag) Aug. 20, 2007, in Subprime Lending

It's Only a Pilot Program, But It's a Start

The Federal Reserve Board today announced the kick-off of a pilot program to conduct consumer protection examinations of non-depository mortgage lenders that are subsidiaries of banks and thrift holding companies and independent mortgage brokers doing business with these bank-related entities.  The focus of this pilot program is selected mortgage lenders with significant subprime mortgage operations.  State regulators participating in the program will bring in coordinated review of state-licensed subprime mortgage lenders and brokers.

This collaborative effort, which will involve information sharing, includes the Federal Reserve Board, the Office of Thrift Supervision, the Federal Trade Commission, the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators.

This pilot program obviously responds to Congressional criticism of the Fed's failure to act.  But will the pilot program include subsidiaries and affiliates of national banks?  One can only wonder how meaningful this effort can be if they are not.  The OCC and FDIC are NOT parties to this pilot program.

(ag) July 17, 2007, in Subprime Lending 

Neighborworks Center for Foreclosure Prevention

The federal banking agencies are talking more about helping borrowers facing mortgage delinquencies.  This is new territory for bank regulators, necessitated by the real estate downturn and the staggering repricing problems with adjustable rate mortgages.  Check out this week's press release from FDIC following Monday's meeting of the Alliance for Economic Inclusion.  The press release discusses a new entity called Neighborworks Center for Foreclosure Prevention.

Link:  http://www.fdic.gov/news/news/press/2007/pr07059.html

(ag) July 17, 2007, in FDIC/Subprime Lending

Subprime Mortgages - FDIC's Got Questions; Who's Got Answers?

FDIC is hosting a meeting Monday, July 16, 2007, of its Advisory Committee on Economic Inclusion.  The topic is:  The Subprime Mortgage Situation - How Did We Get Here and What Can We Do?

Link:  http://www.fdic.gov/news/news/press/2007/pr07058.html

(ag) July 14, 2007, in Subprime Lending