MReport March 2017

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TH E M R EP O RT | 47 SERVICING THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T LOCAL EDITION THE LATEST JPMorgan to Pay $797.5 Million to Lehman WITHOUT ADMITTING WRONGDOING, JPMORGAN SETTLED A FINAL PAYMENT TO LEHMAN REGARDING QUESTIONABLE PRACTICES AS LEHMAN'S LARGEST SECURED CREDITOR. NEW YORK // JPMorgan Chase and Co., headquartered in New York City, agreed to pay a $797.5 million settlement to Lehman Brothers to resolve legal issues leading up to the 2008 financial crisis. This settlement is the final payment that JPMorgan will make to Lehman for the ques - tionable practices it exercised as Lehman's primary creditor. The Wall Street Journal noted, "Lawyers for Lehman said in a filing with the U.S. Bankruptcy Court in New York that the global settlement 'finally resolves the last of [Lehman's] disputes with JPMorgan, its largest secured creditor, and enables creditor distributions of nearly $800 million.'" Details of the settlement were released to the public in early February, but it required ap - proval from Shelly Chapman, a U.S. bankruptcy judge based in Manhattan, according to Reuters. While there was no actual admittance of wrongdoing, the specific allegations include the fact that JPMorgan used their position as Lehman's clearing bank to unfairly extract collateral from Lehman before the firm went bankrupt. This left other Lehman creditors in the hole, as Lehman no longer had the means to repay the debts. Prior to the $797.5 million set - tlement, JPMorgan was required to pay $1.42 billion to resolve two litigation issues from Lehman. This allowed Lehman to finally pay back $1.49 billion of owed debt to creditors. Reuters reported, "In a court filing, lawyers for Lehman said the settlement avoids the uncer - tainty of continued litigation and millions of dollars of additional legal fees, and is 'in the best interests of the Lehman estate and its creditors.'" JPMorgan is likewise pleased to have fully resolved the matter. "We are pleased to have resolved Lehman's remaining claims and to put the matter behind us," said JPMorgan spokesman Brian Marchiony," according to WSJ. CitiMortgage Accelerates Close of Mortgage Servicing Business CITIMORTGAGE IS TRANSFERRING $97 BILLION IN UPB OF SERVICING RIGHTS TO NEW RESIDENTIAL INVESTMENT CORP. MISSOURI // New Residential Investment Corp. announced at the end of January that it entered into an agreement to purchase nearly $97 billion in unpaid principal balance (UPB) of mortgage servicing rights from Missouri-based CitiMortgage Inc. The agreement represents an acceleration of Citigroup's initia - tive to move out of mortgage servicing. "Over the past several years, we have made significant prog - ress transforming our business to deliver a sustainable annuity of growth," stated CitiMortgage President and CEO C.D. Davies. "CitiMortgage remains a critical part of serving our customers, deepening relationships with ex - isting and prospective retail bank clients and driving growth in our core markets. We will continue to originate loans for current and new clients." The move represents the company's "increasing focus on retail banking customers," Director of Citi Public Affairs Mark Rodgers told MReport. As the release notes, all loans sold to New Residential in the agree - ment were third-party loans, and CitiMortgage plans to maintain its focus on all loans which originated within the firm's retail banking unit. The New Residential and CitiMortgage agreement was accompanied by a Nationstar Mortgage Holdings subservicing agreement with New Residential for the mortgage loans in question. Of course, regulatory approval will forestall some of the ex - pected proceedings. A release by New Residential stated, "Citi will continue to subservice the port- folio on behalf of NRM, pending receipt of GSE and regulatory approvals to transfer servicing to Nationstar Mortgage LLC." All involved parties apparently expect that the agreement will be approved by the respective regu - latory bodies, with Nationstar re- leasing a statement in anticipation of the subservicing agreement. "This announcement further demonstrates Nationstar's role as a leading subservicing provider to the residential mortgage servicing market," stated Nationstar CEO Jay Bray. "We look forward to welcoming over 750,000 custom - ers to Nationstar, and believe our strategic relationship with New Residential will create meaning- ful value for these customers and our shareholders." Moody's had this to say of the subservicing agreement: "If not managed properly, the opera - tional and integration risks to Nationstar of such a large servic- ing transfer have the potential to negatively impact the com- pany's credit profile. However, Nationstar has a solid track record of successfully boarding and integrating large servicing transfers." The move by Citi seems indicative of general trends throughout the banking industry. As Fitch Ratings aptly noted, "Mortgage servicing market share for nonbanks has grown steadily over the past several years. A report from federal regulators noted that non-banks accounted for 32 percent of total mortgages serviced by the top 30 firms in 2015, up from just 7 percent in 2011." The continuing growth of nonbank players in the mortgage servicing market will likely be a consistent factor driving the industry in upcoming years. New Residential was not avail - able for comment at the time this article was published. LOCAL EDITION SERVICING "Over the past several years, we have made significant progress transforming our business to deliver a sustainable annuity of growth." —C.D. Davies, President and CEO, CitiMortgage

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