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Goldman Sachs to Pay $5 Billion Over 'Shoddy Mortgages'

Goldman Sachs will pay $5 billion to settle both federal and state inquiries into its sale of "shoddy mortgages," AP's Ken Sweet reports. The sum includes $1.8 billion in mortgage forgiveness and refinancing, $2.39 billion in civil penalties and $875 million in cash payments.

The deal is with the U.S. Department of Justice, the New York attorney general, the Illinois attorney genearl and other regulators.

Supreme Court: Bankrupt Homeowners Can't Void Second Mortgages

The U.S. Supreme Court ruled this week that homeowners who declare bankruptcy can't void second mortgages even if their homes aren't worth what they owe on their primary mortgages, the Associated Press reports. The court was unanimous in the decision.

The Floridian homeowners said their second loans were worthless.

Fannie and Freddie Won't Forgive Mortgage Debt. Here's the Problem

The Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae and Freddie Mac, won't allow homeowners to get forgiveness on their mortgages even if they owe substantially more on their homes than they are worth, The Huffington Post's Ben Hallman reports. Leaders of FHFA think that giving debt forgiveness to some homeowners would encourage other people to stop paying their mortgages in order to get debt forgiveness too. But the Congressional Budget Office has found that principal reduction plan could help 1.2 million borrowers save their homes and also save Fannie and Freddie, as well as taxpayers, $2.8 billion, Hallman reports.


Lingering Foreclosures Could Be Time-Barred

Banks may be running out of time to get their money back in New York foreclosure cases because some cases could become time-barred by a six-year statute of limitations, The New York Law Journal's Andrew Keshner reports. One Long Island judge ruled that the statute of limitations starts when the entire mortgage balance was declared due in full but a bank failed to file its second mortgage complaint within six years.

Elizabeth Lynch, supervising attorney for MFY Legal Services' foreclosure project, told Keshner that it is rare that homeowners have not made some post-acceleration mortgage payments, which can start the statute of limitations clock again.

There are approximately 92,000 foreclosure cases pending in New York.

Borrowers Bouncing Back From Foreclosures

Homeowners who lost their properties to foreclosures are starting to bounce back and are qualifying for new mortgages, The Wall Street Journal's Annamaria Andriotis, Laura Kusisto and Joe Light report. More than 5 million families lost their homes to foreclosure between 2007 and 2014, but foreclosures and other negative credit events come off credit reports after about seven years. “'The dark shadow of the foreclosure crisis is finally beginning to fade,”' Mark Zandi, chief economist at Moody’s Analytics, a unit of Moody’s Corp, told the WSJ. '“That should be a positive for single-family housing and, by extension, for the broader economy.”'

Investors Need a More Muscular SEC

New York Times editor Gretchen Morgenson argues that investors need a more muscular Securities and Exchange Commission. Even though billions of dollars have been paid by financial firms to settle regulatory and legal actions related to the mortgage crisis, most of that money went to the Department of Treasury or states. The SEC has collected $2.6 billion in penalties and disgorgement of profits in its actions, but class actions on behalf of stockholders and debtholders has recovered much more for investors, Morgenson reports. In six cases involving both private lawsuits and SEC action, the SEC recovered $400 million, while private plaintiffs recovered $3.8 billion. The agency "is clearly hamstrung in its efforts to generate recoveries on behalf of harmed investors" and should be authorized by Congress to be able to recover penalties equal to investor losses, Morgenson argues. Investors also should be able to bring private actions udner the securities laws, she argues.

Justices Mull if Homeowners Can Wipe Out Underwater Mortgages

The U.S. Supreme Court heard argument in a couple of cases yesterday over whether homeowners can void mortgages that are completely underwater, Supreme Court Brief's Marcia Coyle reports. The U.S. Court of Appeals for the Eleventh Circuit allowed homeowners whose homes were worth less than their primary mortgage to void a second mortgage. Bank of America appealed.

At issue is whether a bankruptcy court can "strip off" those valueless mortgages. The lawyer for the homeowners told the justices that eight circuit courts allow liens to be voided in Chapter 13 bankruptcies, and that resolving subordinate liens has been the "biggest obstacle to the housing recovery." Bank of America's counsel, however, argued that properties can have real value if liens are not stripped off because the housing market is moving back up.

Court Upholds $8.5 Billion Bank of America Mortgage Crisis Accord

The Appellate Division, First Department, has upheld the $8.5 billion settlement of claims against Bank of America for its involvement with the mortgage crisis, the New York Law Journal's Ben Bedell reports. The appellate panel reversed a lower court judge, who ruled that Bank of New York Mellon, which was the trustee for the pooled mortgage trusts, had abused its discretion in waiving claims that dissident investors said were worth $30 billion to $50 billion. Bank of New York Mellon agreed with the reasoning that investors should not try to force Bank of America to buy back mortgages it had modified.

Holder Wants to Pursue Banking Executives

Outgoing Attorney General Eric Holder wants executives at Wall Street banks to face criminal charges, Bloomberg's Keri Geiger reports. Holder has asked U.S. attorneys involved in residential mortgage-backed securities cases to report in 90 days whether they can develop cases against individual bankers. The decision on whether action will be appropriate will be up to Loretta Lynch, the nominee to replace Holder, he said in a speech Tuesday.

Banks Get to Hold Onto Hedge-Fund Investments

Banks will have another two years before they have to start abiding by the Volcker rule, which would force them to sell their stakes in private-equity and hedge-fund investments, Bloomberg's Jesse Hamilton and Cheyenne Hopkins reported earlier this month. The rule was enacted to make the financial system less vulnerable to risky investments as happened in the 2008 Great Recession. The banking industry lobbied for the delay, among other reasons, because they said having to sell their stakes quickly might force them to "accept discount prices."


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