Rating agencies win dismissal of Ohio funds lawsuit

CINCINNATI, Mon Dec 3, 2012 — The three major credit rating agencies won a fresh court victory as a federal appeals court rejected claims by five Ohio pension funds alleging that they lost hundreds of millions of dollars on risky mortgage debt because they relied on flawed ratings.

The 6th U.S. Circuit Court of Appeals in Cincinnati upheld the September 2011 dismissal of the lawsuit against Moody’s Corp’s Moody’s Investors Service, McGraw-Hill Co.s’ Standard & Poor’s, and Fimalac SA’s Fitch Ratings.

Pension funds led by the Ohio Police & Fire Pension Fund had claimed to have lost $457 million by having made 308 investments in mortgage debt between Jan. 1, 2005, and July 8, 2008, and relying on ratings they called “unfounded and unjustified.”

Wells Fargo third-quarter net up on strong mortgage lending

SAN FRANCISCO, Fri Oct 12, 2012 – Wells Fargo & Co. on Friday reported a 22 percent increase in third-quarter profit on a surge in mortgage lending.

The fourth biggest U.S. bank said net income totaled $4.9 billion, or 88 cents a share, in the quarter, up from $4.1 billion, or 72 cents a share, in the same period a year earlier. The bank’s latest EPS topped the analysts’ consensus estimate of 87 cents, according to Thomson Reuters I/B/E/S.

Wells Fargo, the largest U.S. home lender, posted mortgage banking revenue of $2.8 billion, up more than 50 percent from a year ago. The bank made $139 billion in mortgages versus $89 billion a year ago, but up only slightly from the second quarter.

Wells Fargo and other banks are experiencing a jump in home lending as borrowers refinance their homes at low interest rates.

The bank’s net interest margin – the spread it makes on what it pays on deposits and makes on loans – fell to 3.66 percent from 3.91 percent in the second quarter, a bigger drop than it had warned of last month. Banks are seeing the margin shrink as older loans with higher interest rates are paid down.

Equifax settles U.S. charges of improperly selling consumer data

WASHINGTON, Wed Oct 10, 2012 – Consumer credit rating company Equifax Inc. has agreed to pay $393,000 to settle allegations that it improperly sold information on consumers who had fallen behind on their mortgages, the Federal Trade Commission said on Wednesday.

Equifax Information Services LLC improperly sold 17,000 such lists of consumer information to Direct Lending Source, which turned around and sold them to companies under investigation for allegedly duping consumers with mortgage rescue scams, the FTC said.

Direct Lending Source agreed to pay a $1.2 million civil penalty.

Equifax ended its business relationship with Direct Lending Source and its affiliates in the summer of 2011, said Equifax spokesman Tim Klein.

“We reached an agreement with the FTC regarding issues they brought to our attention regarding Direct Lending, which was a former customer of Equifax,” Klein said. “As part of this settlement we did not and do not admit to any wrongdoing.”

Direct Lending Source could not be located for a comment. It does not appear to have a website and a telephone number listed as belonging to the company has been disconnected.

In the past several years, the FTC has filed more than 40 cases against companies that promise mortgage relief services but fail to deliver, the agency said.

Wells Fargo reports higher profit on mortgage gains

SAN FRANCISCO, Fri Apr 13, 2012 – A surge in mortgage banking income lifted Wells Fargo & Co’s. first-quarter profit by 13 percent, but its shares fell on concern that the bank is falling behind on its drive to cut expenses.

Wells Fargo, the fourth largest U.S. bank and the country’s biggest mortgage lender and servicer, said on Friday that net income increased to $4.25 billion, or 75 cents a share, from $3.76 billion, or 67 cents a share, year earlier.

The results beat analysts’ average forecast of 73 cents per share, according to Thomson Reuters I/B/E/S, but the bank’s shares opened lower and were off 1.4 percent in early trading.

Shares of JPMorgan Chase & Co., which also reported stronger-than-expected results on Friday, were trading down by 2.2 percent and the KBW Banks Index .BKX was off 2.4 percent.

Total revenue at Wells rose to $21.6 billion, from $20.3 billion a year earlier, signaling stronger demand for consumer and commercial loans.

“We’re seeing improvement,” Wells Chairman and Chief Executive John Stumpf said in a conference call with respect to the U.S. housing market. Profit in general benefited from “improvement in the economy,” he said.

The bank’s expenses increased to $13 billion from $12.5 billion in the fourth quarter, partly because of higher personnel costs related to mortgage banking compensation and higher legal reserves.

Wells said it is targeting expenses of $11.25 billion in the fourth quarter, at the upper end of the range set out in its efficiency program called Project Compass. The bank previously said expenses could drop to as low as $10.75 billion, but it said on Friday higher-than-expected revenue from its mortgage business and acquisitions would also result in higher costs.

Bank of America CEO says mortgage process ‘healing’

NEW YORK – Thu Mar 8, 2012: Though costly for banks, a $25 billion settlement over foreclosure abuses will help a slowly improving housing market, Bank of America Corp. CEO Brian Moynihan said Thursday.

“The mortgage process is healing, which is good for all of us and the economy,” Moynihan said at an investor conference in New York.

The settlement, which will cost Bank of America $11.9 billion in cash payments and loan modifications, was announced Feb. 9, but final documents have not yet been filed.

Moynihan’s presentation was interrupted twice by protesters, including one who called for the breakup of the second-largest U.S. bank. Bank of America has lagged its peers in recovering from the financial crisis, as it struggles with losses and lawsuits tied to its 2008 purchase of subprime lender Countrywide Financial.

Fed may need to buy more mortgage bonds: Williams

SAN RAMON, Calif. – The U.S. central bank may need to buy more bonds to bolster a housing market whose distress is at the heart of a “frustratingly slow” economic recovery, a top Federal Reserve official said on Wednesday.

“Looking ahead, we may still need to provide more policy accommodation if the economy loses momentum or inflation remains well below 2 percent,” San Francisco Fed President John Williams said at the Bishop Ranch Forum, a business group in this San Francisco suburb. “Should that occur, restarting our program of purchasing mortgage-backed securities would likely be the best way to provide a boost to the economy.”

Williams, a voting member this year on the Fed’s policy-setting panel, is on the dovish end of a policy spectrum, more concerned with the harm wrought by continued high unemployment than with the threat of inflation.

The Fed is increasingly pinpointing housing as the key to the nation’s recovery, and Williams is the second regional Fed president inside of a week to make the case for more monetary policy accommodation through the purchase of more mortgage-backed securities.

Chicago Fed President Charles Evans last Thursday said he would be “aggressive” in seeking more help for the economy through the purchase of such bonds.

Further bond purchases by the Fed would amount to a third round of quantitative easing, a controversial move that drew criticism both at home and abroad the last time the Fed took that path.

Goldman to face mortgage debt class-action lawsuit

NEW YORK – Goldman Sachs Group Inc was ordered by a federal judge to face a securities class-action lawsuit accusing it of defrauding investors about a 2006 offering of securities backed by risky mortgage loans from a now-defunct lender.

U.S. District Judge Harold Baer in Manhattan certified a class-action lawsuit by investors led by the Public Employees’ Retirement System of Mississippi.

These investors claimed they lost money in the GSAMP Trust 2006-S2, a $698 million offering of certificates backed by second-lien home loans made by New Century Financial Corp, a California subprime mortgage specialist that went bankrupt in 2007.

Thursday’s decision is a setback for Goldman, which had sought to force investors to bring their cases individually.

Class certification lets investors pool resources, which can cut costs, and can lead to larger recoveries than if investors are forced to sue individually.

Goldman spokesman Michael Duvally declined to comment.

The bank is one of many accused by Congress, regulators and others of having fueled the nation’s housing crisis and 2008 financial crisis in part by having misled investors about the quality of mortgage debt they sold.

Goldman in 2010 agreed to pay $550 million to settle U.S. Securities and Exchange Commission fraud charges over a collateralized debt obligation it sold, Abacus 2007-AC1 CDO.

Bank of America lawyer says settlement challenger is Baupost

NEW YORK ― Walnut Place, a group of undisclosed investors who oppose Bank of America Corp’s. $8.5 billion mortgage bond settlement, is the Baupost Group, a distressed debt fund, according to an attorney for the bank.

“Walnut Place is actually a made up name,” Theodore Mirvis, an attorney with Wachtell, Lipton, Rosen & Katz who represents Bank of America, said at a hearing in New York state Supreme Court Thursday.

The “real” firm, which sued Bank of America and Bank of New York Mellon, as trustee, over mortgage-backed securities trusts is Baupost — “known as a distressed debt or sometimes a vulture fund,” Mirvis said.

Baupost spokeswoman Elaine Mann declined to comment on whether the Boston-based hedge fund was behind Walnut. David Grais, an attorney at Grais & Ellsworth LLP in New York who represents the Walnut entities, also declined to comment on whether Walnut was Baupost.

Like most hedge funds, Baupost doesn’t usually disclose its earnings or investments, but was reported to have $23 billion in assets last year.

Walnut Place is involved in separate cases against Bank of America.

In August, 11 entities sharing the name Walnut Place filed to remove the global $8.5 billion settlement case from New York state to federal court, citing its size and complexity.

The settlement was intended to resolve much of Bank of America’s remaining legal liability tied to its disastrous 2008 purchase of mortgage lender Countrywide Financial Corp. The deal, which was reached with over 20 institutional investors, would apply to other investors as well.

The decision to remove the case to U.S. District Court for the Southern District of New York is on appeal to the U.S. Court of Appeals for the 2nd Circuit.

Bank of New York Mellon is the trustee for the 530 mortgage securitization trusts covered by the proposed agreement.

Mirvis and Grais were in state court Thursday, arguing on a motion by Bank of America to dismiss a separate case that the Walnut Place entities brought against Countrywide Home Loans for breaching the agreements governing two mortgage-backed securities trusts. Trustee Bank of New York Mellon is also a defendant.

Goldman faces lawsuits over $15.8 billion in mortgages

NEW YORK ― Goldman Sachs Group Inc. faces lawsuits over $15.8 billion worth of mortgage securities, the bank said in a regulatory filing on Wednesday, a more than 30-fold increase from the amount disclosed three months earlier.

The aggregate figure, which is up from $485 million previously, does not represent how much money Goldman management estimates it may lose on the litigation. Goldman lifted that estimate of “reasonably possible” losses to $2.6 billion from $2 billion.

The bigger dollar figures come as investors in mortgage-backed bond deals have raced to take legal action or enter settlement negotiations before statutes of limitations expire, and as investors continue to worry about banks’ exposure to big lawsuits.

Goldman also added three European financial firms to a list of parties that have threatened to sue it, a more fulsome disclosure than some of its peers.

Goldman said HSH Nordbank, Norges Bank Investment Management and IKB Deutsche Industriebank AG have threatened to assert claims related to mortgage offerings, in addition to insurance giant American International Group Inc and Manulife Financial Corp’s John Hancock unit, whose legal threats it disclosed last quarter.

Goldman said it has entered agreements with some of the potential plaintiffs to stop statutes of limitations from running, thereby allowing negotiations to take place. It did not provide estimates for damages it might incur stemming from those discussions.

Judge to solve puzzle over Bank of America mortgage removal

NEW YORK ― Bank of America Corp’s $8.5 billion proposed mortgage-backed securities settlement is now in the hands of a New York federal judge. But it could end up back before state court in a legal tug-of-war over who should decide whether the pact passes muster.

The stakes are high for Bank of America, which had hoped the agreement would resolve uncertainty over potential liabilities tied to pools of soured loans sold to investors by Countrywide Financial Corp, the mortgage lender it bought in 2008.

While the proposed settlement was filed in state court in June as a special proceeding and not as a class action, an investor group called Walnut Place LLC removed the case to federal court in late August, arguing it should be treated as a “mass action” under a federal law.

The case is now before U.S. District Judge William Pauley, who may have reasons under class-action law to return the case to New York State Supreme Court, according to some experts.

Or, as sometimes happens in removals, the federal judge keeps the case and the state action ceases unless there are developments later that cause it to be remanded to state court for different reasons.

The settlement was negotiated by Bank of New York Mellon, the trustee for mortgage backed securities in Countrywide, with 22 institutional investors such as BlackRock Inc and Allianz SE’s Pimco. Countrywide was the largest U.S. mortgage lender before being taken over by BofA. The agreement also calls for the biggest U.S. bank by assets to improve its mortgage servicing practices.

On Sept. 21, Pauley will hear oral arguments for the bid by Walnut Place for the case to be resolved under the Class Action Fairness Act of 2005 that requires big-money class actions to be supervised by a federal judge.

“There have been various ways in which the federal court has managed to kick removals out without giving it much of a review but I prefer to think judges see it as part of their job,” said Eugene Beckham of Beckham and Beckham PA in Miami, who has written about removal procedures but is not involved in the mortgage settlement case.

“However, the federal courts can be very unforgiving and if you don’t follow the rules or you don’t have the right allegations they will usually remand it,” Beckham said.

He said that can lead to an attorney fee award or sanctions against lawyers deemed to have incorrectly removed a case.

Lawyers for law firm Grais & Ellsworth are leading the challenge for Walnut Place against the Bank of New York Mellon settlement.