After 11 months of negotiations, the odds that the multistate attorneys general talks with most of the nation’s top mortgage servicers will yield any substantive, long-term fruit seem to shrink daily, as officials from two states – including one of the biggest – have decided to bail, in lieu of possible independent litigation. “I have lost confidence that the banks will bring to the table an agreement that properly holds them accountable for wrongful foreclosures,” said Massachusetts Attorney General Martha Coakley, one of two state AGs to withdraw from the negotiations last week, along with California AG Kamala Harris. “Because our office for some time has anticipated that result, we have begun preparing for litigation.

California. The state amended a number of its mortgage loan originator licensing provisions under the California Finance Lenders Law last week, including one amendment that permits applicants who have an expunged or pardoned felony conviction to obtain a license. The underlying crime, facts or circumstances can be considered when determining whether to issue a license. Another amendment permits a person exempt from the California Finance Lenders Law to register with the Commissioner of Corporations so as to sponsor one or more individuals required to be licensed under the SAFE Act if specific requirements are met.

Federal Housing Finance Agency. OIG Finds Room for Improvement. The FHFA recognizes how important it is to oversee Fannie Mae’s and Freddie Mac’s default-related legal services, but it needs to improve its capacity to identify new and emerging areas of risk, according to a new report released by the agency’s Office of Inspector General. Additionally, “FHFA does not have a continuous supervision plan or detailed examination guidance to govern its oversight of Fannie’s Retained Attorney Network, and it had not accomplished any targeted examinations of the RAN until it initiated a special review in late 2010, which has not yet been published,” the OIG said. Moreover, “FHFA also has not developed formal policies to address poor performance by law firms that have relationships – either directly through contract or through its loan servicers – with both enterprises to ensure that information is shared.”

Mortgage banking activity was one bright spot in an otherwise lackluster earnings period, according to a third quarter review by analysts at FBR Capital Markets. “Activity was up 35 percent from 2Q11 as we saw lower interest rates drive another refinance boom, whereby refinances accounted for almost 80 percent of all originations,” FBR said. The analysts expect originations and gain-on-sale margins to be up significantly from 2Q11 due to the persistent decline of mortgage rates through the quarter. “We continue to recommend investors stick with banks that have sizable mortgage banking operations because refinance levels should stay elevated from low interest rates, and some large players have exited the business, which should bode well for gain-on-sale margins,” the FBR team said.

The credit rating industry is generally making progress in implementing a landslide of new regulatory requirements – both in the U.S. and from overseas regulators – but several firms continue to wrestle with conflict-of-interest standards and other issues, according to an annual report released this week by the Securities and Exchange Commission. Problems were found at all 10 ratings firms. The three larger nationally recognized statistical rating organizations – Standard and Poor’s, Moody’s Investors Service and Fitch Ratings – all have more than 1,000 credit analysts and credit analyst supervisors, while...

The strategic default problem is not going away, keeping pressure on servicers and MBS investors to find ways to dis-incentivize these actions. House prices continue to fall, and more underwater homeowners are willing to batter their credit rating and default on their mortgage to get out of an uneconomic deal. In a recent report, analysts at Deutsche Bank said the threat of legal action and risks to assets other than the mortgaged property play a large role in a homeowner’s decision to strategically default. Eleven states are considered non-recourse states, either because they explicitly forbid deficiency judgments or...

Securitization market participants continue to face significant uncertainty from regulatory forces on both sides of the Atlantic that is dampening securitization activity, raising costs and probably leaving some deals undone. Much of the problem stems from capital requirements and the use of credit ratings, which have fallen into disrepute among many lawmakers and regulators in the wake of the collapse of the subprime mortgage market and the resulting credit market freeze in 2008. After last year’s enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Federal Reserve, the Federal Deposit Insurance Corp., the...

Transparency, investor access to information and a willingness to engage in loss mitigation can help reduce the wave of litigation and investor losses resulting from repurchase demands, according to mortgage litigation experts. There’s a better alternative to fighting out buyback claims in court: all counterparties should sit down and find ways to resolve issues that trigger repurchase claims in an open and forthright manner, said panelists on a webinar hosted by Inside Mortgage Finance Publications. “We have to work together because the country is hurting and the longer this drags on, the bigger the problem is going...

Lenders and consumer advocates are bitterly divided over rules for alternative mortgages released by the Consumer Financial Protection Bureau in July. While lenders generally support the preemption in the interim final rule, the Center for Responsible Lending raised major concerns about the rule and the “spread of the subprime virus.” The CFPB’s interim final rule on the Alternative Mortgage Transaction Parity Act was required by the Dodd-Frank Act. ...

Alt A mortgages and interest-only loans held by Freddie Mac will be subject to new buyback reviews due to issues with the government-sponsored enterprise’s settlement with Bank of America. An audit released last week suggests that the GSE lost billions of dollars by failing to include thousands of alternative mortgages in the buyback analysis. The Federal Housing Finance Agency’s Office of Inspector General conducted the audit and – at the request of the FHFA and Freddie – redacted the exact amount of money potentially “left on the table.” ...