Mortgage Loan Compliance | Lehman Brothers Alleged Fraud: Sufficient

Former Lehman Brothers Holdings Inc executives, directors, auditors and underwriters on Wednesday lost their bid to dismiss an investor lawsuit seeking to hold them responsible for losses tied to the investment bank's collapse.

In a 106-page ruling, U.S. District Judge Lewis Kaplan in Manhattan said the plaintiffs, which includes individuals, pension funds, and companies, sufficiently alleged that Lehman materially misled them about its accounting and their ability to manage risk before filing bankruptcy on September 15, 2008.

Kaplan said "it is entirely plausible" that the "misleading picture" Lehman portrayed about its financial conditions inflated its stock price, and resulted in investor losses.

The complaint "adequately alleges misstatements and omissions that overstated Lehman's financial strength, misstated and understated the extent to which it was leveraged, misstated its risk management practices, and understated its exposure to Alt-A and commercial real estate assets," Kaplan wrote.

The investors had bought some of the more than $31 billion of equity and debt that Lehman had issued under a 2006 shelf registration statement and subsequent filings. Among the defendants who failed to win dismissal are former Lehman Chief Executive Richard Fuld, and former auditor Ernst & Young.

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Mortgage Loan Compliance | Robo-Cops Want Answers on Robo-Signing

On Monday the Associated Press reported that county officials in Massachusetts, North Carolina and Michigan said they have received thousands of mortgage documents with questionable signatures since last fall. Questionable signatures or forged signatures and false affidavits, also called robo-signing, led to a temporary halt to foreclosures earlier this year. Even though banks and foreclosure processers promised to stop the practice it is still a widespread problem.

Lawmakers and enforcement agencies called for hearings and further investigation today after learning that the illegal practices are continuing. County officials who are responsible for keeping land records, including property deeds, say that they have received thousands of robo-signed documents filed in their offices since October.

"Wall Street and some in Washington want us to believe that robo-signing is a thing of the past," said Sen. Sherrod Brown, D-Ohio. "But the same risky practices that put our economy on the brink of collapse continue to infect the housing market." Sen. Brown, Chair of the Financial Institutions and Consumer Protection Subcommittee, said the subcommittee will hold a hearing on the robo-signing issue.

Rep. Maxine Waters, D-Calif., a senior member of the House Committee on Financial Services said the lenders who continue the practice "need to be investigated and prosecuted." She told The Associated Press that she believed regulators should step in and that the absence of stronger regulation is "the reason why the system broke down in the first place." She said the county officials' findings show lenders will not stop practices like robo-signing on their own.

"They have complete disregard for the damage they have already caused and have no intention of changing their ways," said Waters, who also called for more hearings on the issue.

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Mortgage Loan Compliance | FHA’s Temporary Borrower Bail-Out

In 2010, approximately 17,000 homeowners received a government-supported delay on their mortgage payments. About 3,500 borrowers with FHA-insured loans fall behind on their mortgages each month due to unemployment, officials said, and another 10,000 unemployed homeowners have taken advantage of a three-month delay in mortgage payments in the past year.

Starting August 1, 2011 the Federal Housing Administration will extend the period for unemployed homeowners to miss mortgage payments to a full year from three or four months. This will stall the foreclosure process from beginning and will allow qualified homeowners to go without making a monthly payment for 12 months.

The extended grace period only applies to FHA-backed loans, which are usually given to low- and middle-income borrowers and represent about 14 percent of all active mortgages and roughly 25 percent of new mortgages. The grace period also applies to homeowners in the government's Home Affordable Modification Program.

Housing and Urban Development Secretary Shaun Donovan said the change will likely only help "tens of thousands" of homeowners.

Donovan said administration officials hope private lenders and government-controlled mortgage companies Fannie Mae and Freddie Mac, which back 90 percent of all new mortgages, will adopt a similar policy.

New rules already going into effect on October 1, 2011 for mortgage giants allow for long-term forbearance when a home has been destroyed or if the homeowner or a dependent has a long-term disability or illness.

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Mortgage Loan Compliance | Failed Modifications Turn Into Lawsuits

Bank of America is among a growing number of banks with legal complaints accusing them of disregarding what should be binding agreements to reduce the monthly mortgage payments of troubled borrowers।

Many of these suits involve permanent modifications through the U।S. Treasury-administered Home Affordable Modification Program, which offers incentives to loan servicers who extend modifications, as well as so-called proprietary modifications, which banks offer independently of the government guidelines.

In the most recent HAMP report The U।S. Treasury said that 70 percent of the trial modifications initiated since June 1, 2010 under the program's guidelines have been made permanent, up from 42 percent for trials started before that date.

Both government officials and mortgage lenders have been touting statistics showing an increase in the number of modifications being extended। The Big Four, as well as Hope Now, mortgage servicers and others have reported that up to 1.8 million loans were modified in 2010, up from 1.2 million modifications in 2009.

However earlier this month, U।S. Treasury officials announced it was withholding incentives from Wells Fargo & Co., Bank of America Corp. and JPMorgan Chase & Co. for incorrectly determining that borrowers were ineligible for HAMP modifications, a claim that the banks denied.

But even as troubled borrowers increasingly manage to wrangle modification deals from reluctant banks, they're finding that problems persist long after the ink dries on their new loan contracts।

The Connecticut Fair Housing Center looked at hundreds of mortgage modifications granted in recent years to clients of partner organizations in several different states and found that nearly a 25 percent were having problems with inaccurate balance statements, erroneous default notices and other issues।

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