Housing Finance

Continuing Casualties of the Housing Market Crash

By Melani Tiongson, J.D. Candidate 2018 | Posted on

The housing crisis was a nationwide banking emergency that coincided with the US’s recession in December 2007. The housing bubble burst, which resulted in a steep decline in home prices; this drastic dip led to an insurmountable number of mortgage delinquencies and eventual foreclosures throughout the late 2000s.

But despite nearly a decade having passed, America’s housing market is still very much in recovery after its unprecedented crash. Distressed mortgages continue to fall prey to mishandling and bad faith, particularly at the hands of hedge funds and private equity firms that are “quick to push loans into foreclosure” and shirk on their promises to “keep owners in their homes.”

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Fannie Mae Seeks to Ease Mortgage Rules

By Myriam Denis, J.D. Candidate 2016 | Posted on

Despite current low interest rates, the U.S. housing market is still struggling and is not back to the pre-2008 crisis status. The federal government wishes to increase available housing credit to bring more people into the housing market by expanding mortgage availability with lower down payments. These changes could set the stage for more lending.

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White House Mortgage Policy Advances Housing Finance Reform

By Nahal Bahri, J.D. Candidate 2015 | Posted on

While the economy has been improving since the financial crisis, the housing market has been slow to recover. The White House has proposed a plan to help homeowners refinance their mortgages while Congress has proposed the Housing Finance Reform and Taxpayer Protection Act of 2014 (introduced in 2013) as part of the greater system of housing finance reform with the hopes of boosting the housing market.

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Investing in Real Estate is Back… And in a Big Way

By Lei Chen, J.D. Candidate 2016 | Posted on

In 2008, the collapse of major lenders and investors set the fire of the global financial crisis. Recently, Wall Street announced a similar activity, its latest trillion-dollar idea that involves slicing and dicing debt tied to single-family homes and selling the bonds to investors around the world.

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Controversial Second Phase of Help to Buy Plan Now Underway

By Vinh-Khoi Le, J.D. Candidate 2016 | Posted on

Last Tuesday, October 8, 2016, England enacted the second phase of its Help to Buy plan, which encourages low-deposit borrowing for purchases of newly built and already existing homes.  The first phase of the plan was enacted this April, and the plan is set to run for the next three years.

Under the first phase, the government will provide a 20% equity loan toward the purchase of a new home priced at £600,000 or less when the purchaser deposits 5% of the purchase price up front. These loans are interest free for the first five years, accrue at an interest rate of 1.75% for the sixth year, and accrue at a floating rate of 1% plus the Retail Price Index inflation rate for every subsequent year.

Under the second phase, registered lenders, who have paid the necessary fees to the government, may offer a mortgage covering up to 95% of the purchase price of a new or existing home valued at £600,000.  The purchaser, however, is required to deposit 5% of the value up front.  In return, lenders will receive a seven-year guarantee from the government covering 15% of the loan value.

The four participating lenders have already revealed their rates, but some lenders have been more reluctant to join the program. RBS and NatWest are offering a two-year, no fee fixed-rate mortgage (FRM) starting at 4.99% for those depositing 5% of the home value. Halifax is offering a starting rate of 5.19% with a £995 fee. While somewhat competitive for the low-deposit market, these rates are not competitive with higher-deposit rates.

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Week in Review: JPMorgan Returns to the Hot Seat

By Christopher Hammond, J.D. Candidate 2015 | Posted on

Once again, JPMorgan found itself discussing yet another settlement and facing bad publicity linked to excessive risk-taking.  Last week, news broke that the bank had agreed to a $920 million settlement in the “London Whale” derivatives trading case; plus, the Consumer Financial Protection Bureau ordered JPMorgan to refund over $300 million to customers based on alleged wrongdoing in its credit card and debt collection procedures. 

Another settlement deal surfaced this week—and its numbers are much larger.  The U.S. Department of Justice is seeking $11 billion (with a ‘B’) in compensation for JPMorgan’s actions leading up to the Financial Crisis, including selling mortgage backed securities the bank knew were essentially worthless.  According to the Washington Post, it would be “the biggest settlement a single company has ever undertaken.”  On Thursday, the bank’s visible CEO Jamie Diamond flew to Washington, D.C., to meet with Attorney General Eric Holder for nearly an hour.  Instead of lobbying for looser restrictions on Wall Street, Diamond was seeking an end to federal and state probes (which still represent a large liability to the bank) and, perhaps more importantly, attempting to avoid criminal charges.

All of the rhetoric and press releases notwithstanding, the Administration’s handling of numerous JPMorgan investigations has been properly criticized for missing an opportunity to charge top Executives.  The S.E.C., D.O.J., and other regulators have thus far failed to press criminal charges, even when financial disclosures have misrepresented the bank’s business or mortgage-backed products.  To be sure, the government has charged front-line traders in the London Whale case, but those tasked with overseeing the bank’s actions have escaped indictment—perhaps for the very reason that Mr. Diamond is willing to personally negotiate with the nation’s top law enforcement official on their behalf. 

While the financial penalties being discussed are stiff, they represent only a small fraction of the damage done to the global economy, JPMorgan shareholders, and (ultimately) dinner tables across the country.  Columbia Law School professor John C. Coffee Jr. provided some insight to the back-and-forth.  He told the Post:  “If I was in [Holder’s] position, I would be concerned about my legacy. . . .  There’s been a lot of criticism of officials in Justice being much too soft, timid.”

City Council Votes in Richmond, CA, Mortgage Eminent Domain Proposal and UPDATE

By Christopher Hammond, J.D. Candidate 2015 | Posted on

After a seven-hour meeting that dragged into early Wednesday morning, the Richmond City Council voted 4-to-3 to continue pursuing its plan to condemn underwater mortgages using the city’s eminent domain power.  The development is just the latest in an ongoing and high-stakes dispute over a novel property law argument. 

Here is the background:  The city of Richmond, California, has long-faced deteriorating property values.  Once a shipbuilding powerhouse for the U.S. Navy during World War II, the region’s declining industrial based has hit Richmond particularly hard.  City leaders have struggled to attract redevelopment capital, as businesses have largely opted for other booming Bay Area locations.  And when the mortgage crisis hit, Richmond’s communities experienced rampant foreclosures.

In response, the City has considered a novel move:  mortgage condemnations through the power of eminent domain.  That is, the City’s proposl would condemn the underwater mortgage obligations, but not the real estate itself.  If implemented, banks would be forced to write down large portions of a borrower’s principal.  The Network has previously covered the mortgage eminent domain proposal and Mortgage Resolution Partners, which had backed Richmond’s plan.  And last September, the Berkeley Center for Law, Business and the Economy and Berkeley Business Law Journal hosted Adjunct Professor Bill Falik—who is a partner at MRP—to discuss the innovative (though controversial) scheme.  The Network covered counterarguments as well.

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Private Equity Giant Blackstone Agrees to $85 Million Settlement

By Christopher Hammond, J.D. Candidate 2015 | Posted on

As the real estate market was turning sour in 2007, Blackstone Group LP was preparing to go public.  Timing was not quite perfect, however, as the world’s largest private equity firm happened to be heavily invested in property and other particularly vulnerable holdings.  While Blackstone’s IPO launched at $31 per share, market troubles and the firm’s exposure led to sharp declines within the next year–in 2008, its shares were trading at less than one-quarter of that price.  Litigation ensued, with some investors claiming that Blackstone’s executives had not properly disclosed the declining values of some of its assets during the IPO process.

After five years of litigation, the parties have reached a settlement.  A U.S. federal judge, sitting in Manhattan, must still approve of the $85 million agreement.  For more detailed coverage of the case and its developments, see Businessweek and Reuters.

FTC Wins Injunction Against Defendants Promising Mortgage Relief

By Sarah G. Nowland, J.D. Candidate 2014 | Posted on

Recently the FTC won injunctive relief after filing a complaint against ten phony mortgage relief operations.  The complaint alleges that three individuals and seven companies “prey on financially distressed homeowners by luring them into membership programs or loan modification services with promises that they will receive legal representation . . . to save their homes from foreclosure.”  Defendants charged up-front fees and then failed to follow through on their promise of services.  A temporary restraining order was issued against Defendants, freezing their assets and shutting down their businesses and websites.  (more…)

The Alternative Investment Fund Managers Directive – UK Treasury Releases Near-Final Draft of Implementing Regulations

By Goodwin Procter LLP - Glynn Barwick | Posted on

[Editor’s Note: The following Post is authored by Goodwin Procter LLP’s Glynn Barwick.]

The UK Treasury has recently published a new, and near final, version of the implementing Regulations for the Alternative Investment Fund Managers Directive (the “AIFMD”). (We have commented on the consequences of the AIFMD for EU managers and non-EU managers in our 4 January, 11 January, 27 February and 27 March client alerts.) This updated version of the implementing Regulations represents a considerable improvement for managers compared to the initial draft.

In summary, with effect from the implementation date (22 July 2013), European managers of Alternative Investment Funds (“AIFs”) – essentially:

(a) any European manager of a PE, VC, hedge or real estate fund will need to be authorised in its home member state and comply with various requirements regarding the funds that it manages concerning information disclosure and third-party service providers; and

(b) any non-European manager of a PE, VC, hedge or real estate fund will need to comply with various marketing and registration restrictions if it wishes to obtain access to European investors.

This Client Alert discusses the major changes to the AIFMD implementing Regulations.

Click here to read the complete story.