TheMReport

November 2012

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THE LATEST SERVICING House Questions Cordray on Mortgage Disclosures Task Force Targets Chase with Lawsuit Announcing a Martin Act suit against the big bank, the RMBS Working Group is going after the financial institution for alleged fraudulent practices. T Securities (RMBS) Working Group fired its first shot against a major bank. New York attorney general he New York banking community is react- ing as the Residential Mortgage-Backed the company's portfolio included many loans made to borrowers who were likely to default—and ultimately did. Schneiderman's complaint and co-chair of RMBS Working Group Eric T. Schneiderman announced a Martin Act law- suit against JPMorgan Chase Bank, JPMorgan Securities LLC (formerly known as Bear Stearns & Co.), and EMC Mortgage LLC (formerly EMC Mortgage Corporation) for alleged fraudu- lent practices designed to promote the sale of RMBS to investors. Schneiderman's complaint alleges that Bear Stearns led in- vestors to believe that the quality of loans in its mortgage-backed securities had been carefully eval- uated and would be monitored, both of which never happened. Instead, the attorney general alleges, Bear Stearns ignored the defects its review uncovered and kept investors in the dark about its review procedures. As a result, 50 | THE M REPORT goes on to accuse Bear Stearns of misrepresenting the loans in its RMBS, saying they were originated following underwriting standards. "While the 'due diligence' review that defendants repre- sented they undertook should have assessed the quality of the loans deposited into the RMBS, defendants' actual due diligence process was very different from their public representations about it," Schneiderman wrote in the complaint. "Defendants failed to use due diligence as a tool to identify and eliminate the many defective loans that they pur- chased from originators." As a result of Bear Stearns' and the other defendants' alleged negligence, investors suffered cu- mulative losses of approximately $22.5 billion. In addition, another $30 billion in unpaid principal on mortgages remains in those trusts, 43 percent of which is currently 90 days past due, in foreclosure, or considered REO. Schneiderman and RMBS Working Group anticipate more losses from those mortgages. According to FHFA Inspector General Steve Linick, the defen- dants also sold misrepresented mortgage-backed securities to Fannie Mae and Freddie Mac. The lawsuit is the first legal R ANSWERING INQUIRIES RELATED TO LEADERSHIP AND MORTGAGE INDUSTRY PRACTICES, THE DIRECTOR OF THE CFPB FACED CRITICISM ON CAPITOL HILL. criticism from members of Con- gress during a recent hearing. Rep. Jeb Hensarling (R-Texas) ichard Cordray, director of the Consumer Financial Protection Bureau (CFPB), faced another round of called Cordray "an unlawful appointee and most probably an unconstitutional one as well." He stated Dodd-Frank "has made [Cordray] a very powerful appointee, but it has not made [him] a legitimate appointee." Regardless, Cordray has served as the director of the CFPB since its beginning, and as another rep- resentative pointed out, has taken part in 27 congressional hearings since accepting the position. Cordray presented his semiannual report to the representatives, outlin- ing the agency's efforts thus far, as he previously did for the Senate. More than one representa- ability for the misconduct that led to the crash of the housing market and the collapse of the American economy, Schneiderman. "Our lawsuit demonstrates that there is one set of rules for all—no matter how big or powerful the institution may be—and that those rules will be enforced vigorously." " said Attorney General action from the group, a state- federal task force created by President Obama to investigate the organizations responsible for "misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities." "This lawsuit will bring account- tive expressed concern regarding efforts to consolidate mortgage disclosure forms. One pointed out that the proposed rule is itself more than 1,000 pages, which does not imply a simple rule. Another asked if the CFPB would be able to consolidate mortgage disclosure into a one- page document to simplify the information for borrowers. Cordray stated the agency is "well on our way to simplifying those forms. the paperwork borrowers see when closing a loan is required by state law, which the CFPB does not have the authority to circumvent. Additionally, "it's not accurate " However, much of to try to make something so simple when it isn't so simple," Cordray stated. SECONDARY MARKET ANALYTICS SERVICING ORIGINATION

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