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Issue link: http://digital.themreport.com/i/120611
themreport.com In the Hot Seat Drawing hard-hitting commentary from MReport's online readership, headlines capturing the industry's legal missteps and settlement scandals took precedence this month. FDIC's Non-Public Settlements Disclosed A report revealing closeddoor deals with banks and lenders called the organization's actions into question. FDIC may be sweeping some of its settled cases under the rug to keep the spotlight off bank's mistakes, according to a report from the Los Angeles Times. The Times obtained more than 1,600 pages of FDIC settlements from 2007 through 2013 addressing a variety of behaviors (ranging from reckless lending to inflated appraisals). According to the report, many of these settlements went unannounced, sparing the institutions from negative attention. These "no-pressrelease arrangements" sometimes help FDIC close deals with defendants in the least costly manner possible. FDIC spokesman David Barr told the Times that the agency only announces settlements in failed-bank suits when damage payments and media interest merit an announcement. He also commented that FDIC's attorneys make it clear to defendants that while their cases may not be publicized, they cannot legally be kept secret. However, the Times found several settlements with larger payments from prominent lenders, including agreements with Quicken Loans (for $6.5 million) and Residential Capital (for $7.5 million) over loans sold to IndyMac. Barr released the following statement to theMReport.com: 8 | The M Report "The FDIC brings actions against professionals who have acted negligently and contributed to the failure of an insured institution. These suits maximize recoveries for creditors of the failed bank receivership, including uninsured depositors and the deposit insurance fund. Pursuing a settlement agreement in many cases avoids costly and protracted litigation and results in greater recoveries. When a settlement agreement is reached, terms and conditions are publicly available, as federal law prohibits the FDIC from entering into confidential settlements with professionals of failed institutions. We are re-evaluating the optimal method to continue to provide settlement information in a manner that may enhance accessibility for the public. Given the attention, our intention is to provide all settlement documents in a central location on our website and update it as additional settlements are reached, similar to the existing selfinitiated process of disclosing all [director and officer] suits authorized by the board and tracking them on a monthly basis. This will also complement our existing process of publishing all final enforcement orders on our website on a monthly basis." Investor Wins Restraining Order Against Nationstar KIRP successfully halted the company's sales initiatives for various non-performing assets, claiming the auctions could cause financial harm to investors. A justice for New York's Supreme Court has ordered Nationstar to stop the auction of some of its mortgage notes through Auction.com. KIRP, LLC, a major investor in six residential mortgage-backed security trusts sponsored by Residential Accredit Loans, filed a complaint against Nationstar over its selling of non-performing loans backing securities. In its filing for a restraining order, KIRP argues that as master servicer, Nationstar has the authority to foreclose or modify the loans, not to sell them. The memorandum goes on to note that the loans auctioned off were sold at steep discounts, causing financial harm to investors. "It appears from the prices posted on the website that the bulk auction sales, not surprisingly, resulted in sales of the loans at significant discounts," the filing reads. "Plainly, Nationstar's dumping of trust assets in bulk at fire sale prices through a two-day Internet auction is not an act taken in the best interests of the certificateholders." An analysis of the case by Barclays holds that although most servicing agreements list alternatives to foreclosure on non-performing loans, it isn't always clear whether or not those lists are exhaustive—in other words, engaging in an unlisted alternative (such as a sale) may or may not be allowed. House Panel Hounds FHA Commissioner Squaring off against Congressional critics, Carol Galante defended the agency's practices and efforts to reduce its role in the mortgage marketplace. At the second in a series of hearings held by the House Financial Services Committee on the role of the Federal Housing Administration (FHA), the agency's commissioner, Carol Galante, faced a series of questions and criticisms from lawmakers while staunchly defending the role and actions of the FHA in recent years. Chairman Jeb Hensarling (R-Texas) opened the hearing by declaring, "The American people deserve and demand a healthy economy . . . . I have great fears that FHA as it is operating today is an impediment to both." It was established during the hearing that FHA insures 56.4 percent of mortgage loans today. The VA insures another 23.9 percent, leaving the private sector with a minimal 19.7 percent market share. Galante was quick to assert in her testimony that FHA's "market share has been declining steadily since its peak in 2009." Are you an origination news junkie? Go to TheMReport.com and sign up to receive MReport news daily! 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