Johnston & Associates Special July Newsletter

In this newsletter we cover the following:
  • Johnston & Associates Named as Preferred Vendor Law Firm for The Mortgage Collaborative
  • Johnston & Associates Published Again – “Fannie Mae Backs Dreamers”
  • Compliance Article – Tug-of-War in Regulation Rollback
  • Compliance Article – Commitment Letters are another Tool at a Lenders Disposal
  • Lehman Bros. Litigation Tip – Subject Matter Jurisdiction Argument
  • Complimentary Webinar Recordings and Presentation Materials Available from Johnston & Associates Mortgage Banking
  • The Legal Services we offer at Johnston & Associates
  • Conference Attendance by Johnston & Associates
Welcome to a Special July Installment of Johnston & Associates’s Newsletter

To all our preexisting clients, industry friends and strategic partners whom are in receipt of this special July installment of Johnston & Associates’s Newsletter, as well as any and all new readers whom have decided to subscribe hereto, we welcome and thank you for taking the time to read about those topics that we believe to be of great importance to the mortgage banking industry.

In this Newsletter, we have a lot of great information and updates to provide, which include: (1) our formal announcement that Johnston & Associates has been named as a preferred vendor law firm for The Mortgage Collaborative; (2) a link to a recent article that Johnston & Associates’s James Brody had published in Mortgage Compliance Magazine; (3) two valuable regulatory compliance articles that have been prepared exclusively for our Newsletter subscribers; and (4) a timely legal update from the Johnston & Associates – Lehman Bros. Defense Group (i.e., Johnston & Associates has been and continues to be representing one of the largest blocs of defendants in and out of the Lehman litigation, including as many as 30 banks, credit unions, lenders and brokers, with an average alleged exposure of $7MM).

Finally, as many of you already know, the professionals who comprise Johnston & Associates’s Mortgage Banking Practice Group represent our clients in matters that include, but are not limited to, repurchase and make-whole lawsuits, Servicer litigation, third-party mortgage fraud litigation, appeals to HUD’s Mortgagee Review Board, preparation of policies and procedures, creation of Loan Officer Compensation plans, formation of Marketing Service Agreements, assisting with the negotiation and review of Broker and Correspondent LPAs, and much, much more.

Johnston & Associates Named as Preferred Vendor Law Firm for The Mortgage Collaborative

As most of our readers may know, The Mortgage Collaborative (“TMC”) is the only independent cooperative in our nation’s mortgage banking industry and was founded in 2013 in order to help provide our country’s mortgage lenders better financial execution, reduced costs, enhanced expertise, improved compliance, and to otherwise help its members access the dynamic and changing consumer base in America.

Through its naming the mortgage banking law firm of Johnston & Associates as a preferred vendor law firm, “…TMC and its nearly 200 member companies will receive access to and benefits from a highly regarded boutique law firm that has over 50 years of collective experience representing banks, brokers, credit unions and lenders, all across the country, in connection with repurchase related disputes, regulatory compliance issues, mortgage fraud prosecution and recovery, pursuit of and defense against the potential liability associated with the hiring of experienced loan officers, educational services, and much, much more.”

If interested in learning more about TMC, its naming of Johnston & Associates as preferred vendor law firm and, whether you are an existing client of Johnston & Associates or not, the many incredible benefits available to TMC’s members in general and with regard to industry specific legal advice specifically, please feel free to contact Johnston & Associates’s Mortgage Banking Chairman, James Brody.

Fannie Mae Backs “Dreamers”

In May 2019, as part of Johnston & Associates’s efforts to educate the industry on timely and relevant legal topics, its Chairman James Brody published an article, entitled “Fannie Mae Backs ‘Dreamers’”.  As discussed in the article, over this last year, there appears to have been an unannounced shift in the various agency requirements for DACA (Deferred Action for Childhood Arrivals) Visa Status borrowers. Please click on the following link to read more.

Tug-of-War in Regulation Rollback

On June 25th, 20019, President Trump signed an Executive Order establishing the “White House Council on Eliminating Regulatory Barriers to Affordable Housing.”

The new Council is being tasked with identifying the federal, state, local and tribal policies that contribute to increasing the costs of affordable housing development and recommending policies that would streamline the regulatory burdens that would speed the development of affordable housing construction. The Council has a January 2021 deadline in reporting its findings.

The current Executive term has seen a cancellation of over 130 rules in areas of industry, ranging from health care to the environment. And, although his changes on immigration touched the mortgage industry, the Executive promise of regulatory reduction has largely stayed away from the current housing market, until now.

The Executive Order to eliminate regulatory barriers came just days after The National Association of Mortgage Brokers (“NAMB”) urged Congress to enact regulations to require all bank mortgage loan originators (“LOs”) to pass the SAFE Act mortgage competency test.  Further, the House of Representatives passed H.R. 1500, which would roll back changes at CFPB since Trump officials took over.

Robert D. Broeksmit, President and CEO of the Mortgage Bankers Association (“MBA”) commended President Trump’s administration for shining further light on the housing affordability challenges facing low-to-moderate-income Americans and the middle class.

Notwithstanding the foregoing, some housing advocates—including those who support upzoning—are not celebrating. The regulatory dismantling that Carson has already accomplished in his role at HUD has done more harm than good, said Diane Yentel, the President of the National Low Income Housing Coalition.

So what does that mean for Lenders?

State financial regulators and attorney generals, particularly in the more consumer-protective states, have in several instances signaled that they view themselves as leaders of the resistance to deregulation at the federal level and intend to continue protecting consumers. These statements can be read in their entirety in Bloomberg BNA.

Several federal consumer financial protection laws empower state regulators and attorney generals to bring their own enforcement actions for violations of federal law.  Of particular note is section 1042 of the Dodd-Frank Act, which empowers state financial regulators and state attorneys general to bring civil lawsuits for violations of Title X of the Dodd-Frank Act.

In addition, it could mean a return of the Big Banks with a push for less rep and warrant relief. For the past six years, there has been a quiet revolution in the mortgage market: Big banks like JPMorgan, Bank of America and Citibank have moved out and nonbank lenders have moved in — in a big way – up from 10% of the mortgage industry to 50%.

Big banks have become far less competitive in the overall mortgage market because they have had to shell out billions of dollars in fines and legal settlements resulting from the financial crisis. If the bigger banks get back into the market, they would likely reduce any rep and warrant relief offered to non-delegated lenders to help prevent any future financial turmoil due to the move.

Lenders should ensure their policies and processes meet all regulatory guidelines, not just at the federal level, but at the State level as well. If a lender is thinking about making a shift in its processes as a result of deregulation, they should seek proper counsel on how that deregulation could affect their market. For new investor relationships, lenders should pay special attention to their obligations and how any early pay-offs or defaults will impact their business. Having contracts reviewed by in-house General Counsel or an outside firm will highlight those risks and changes from previous contracts.

Commitment Letters are another Tool at a Lenders Disposal

In a time when housing inventory is tight and all-cash buyers are plentiful, it’s not uncommon for sellers to request non-cash buyers to waive their mortgage contingency to be able to just have their offer considered.

In a contract between a buyer and a seller of a house, there are typically a couple of standard contingencies built into the contract to protect the buyer, including a mortgage contingency. While a real estate contract should always include a mortgage contingency clause, some sellers will not agree to mortgage contingency clauses.

While Mortgage contingency clauses are designed to protect both the home seller and the home buyer from uncertainty in the home sale transaction, in today’s hot real estate market, many sellers are opting to not accept any offers to purchase with any type of mortgage contingency clause. This allows sellers to close faster or keep down payment funds if financing falls through. Additionally, real estate agents may use the lack of a mortgage contingency as part of their listing presentation to sell faster.

Besides the risk of forfeiting the escrow deposit, when a borrower doesn’t have a mortgage contingency option or the option period is very short, it can wreck havoc for the Loan Officer and Lenders who are trying to originate that mortgage application.

As a solution, one should consider Lender Commitment Letters. The Lender Commitment Letters are not the same as pre-qualification letters or pre-approval letters. A pre-approval letter is not enough to satisfy the mortgage contingency requirement because pre-approval for a mortgage is not a mortgage commitment. The lender can still refuse to provide financing for a large amount of reasons even if the buyer has been pre-approved for credit.

As a general rule, the buyer must request a commitment letter from the lender. The Commitment Letter will show that the buyer actually has the financing necessary to satisfy the mortgage contingency requirement and financing will only be denied for very specific reasons. Although most companies in the Industry function with a standard pre-approval process, the Lender Commitment Letter is another tool lenders have to help their borrowers get into their dream home.

Lehman Bros. Litigation Tip – Subject Matter Jurisdiction Argument

Once again, Johnston & Associates has been and continues to be representing one of the largest blocs of defendants in and out of the Lehman litigation, including as many as 30 banks, credit unions, lenders and brokers, with an average alleged exposure of $7MM.  In addition, we have experience handling well over 100 matters, both in and out of court, involving claims made by Lehman and Aurora.  As such, we are more than happy to share some of our insights with the industry in general, as well as discuss our insights on an individual level.

With regard to our current Lehman Bros. litigation tip, lenders involved in the ongoing litigation in the New York Bankruptcy Court have generally argued that the Court lacks subject matter jurisdiction because Lehman did not have any contingent or unmatured claims at the time of its bankruptcy filing on September 15, 2008, which is a prerequisite to a finding that the claims are property of LBHI’s bankruptcy estate for subject matter jurisdiction purposes.  The argument has been based on five assignment agreements dated in 2008, 2010, 2012, 2013 and 2014 from LBB to LBHI, which purported to assign rights, remedies, representations, and warranties contained in the underlying LPAs and broker agreements with respect to certain loans.  Many of these defendants have generally argued that the dates of these assignments show that LBB did not assign either the indemnification remedy or the representations and warranties prior to the filing of the bankruptcy petition, and therefore they could not be part of LBHI’s bankruptcy estate and the bankruptcy court has no jurisdiction over them.  Therefore, subject matter jurisdiction continues to be an open issue in these disputes and it is still unclear if the Court actually has subject matter jurisdiction.

Although it is doubtful that the Court will grant any early motions to dismiss based on this argument…as there has not been one single lender or law firm that has been able to prevail on a motion to dismiss these RMBS cases to date, we still believe that this is a very good argument that could win the day when all is said and done.

Should you have any questions regarding how Johnston & Associates’ Mortgage Banking Practice Group can be of assistance to you and/or your company, please contact its Chairman James Brody and/or its Co-Chair Ingrid Peterson.

Complimentary Webinar Recordings and Presentation Materials
We are pleased to offer complimentary recordings and other presentation materials from our recent webinars:
  • April 18, 2019 – “Annual Regulatory Round-up: Invaluable Tips for Maintaining Compliance in 2019 and Beyond” webinar. To access the recording of this webinar, click as follows:
  • January 17, 2019 – “Lehman Bros. GSE and RMBS Litigation: A Comprehensive Review and Analysis” lender only webinar (only available by individual request)
  • July 26, 2018 – “Loan Officer Compensation Tips and Trends: How to Gain a Competitive Edge While Remaining Compliant” webinar
  • June 28, 2018 – “Repurchase and Indemnification Claims in 2018 and Beyond: A Comprehensive Update” webinar
  • May 10, 2018 – “Mergers and Acquisitions in the Mortgage Banking Industry: Expert Insights and Forecasts for 2018 and Beyond” webinar
These materials may be downloaded from our Johnston & Associates website or, for more information concerning any of the foregoing webinars and/or the subject matter of these webinars, please contact its Chairman James Brody.
Legal Services Offered by Johnston & Associates in the Mortgage Banking Industry

Johnston & Associates is a full suite boutique law firm, which amongst other practices such as real estate and commercial litigation, has a nationally recognized Mortgage Banking Practice Group.  With an experienced team of mortgage banking lawyers (including senior litigation attorneys, former in-house General Counsel and in-house Compliance Counsel from a well-known bank and mortgage company, etc.), certified fraud examiner and forensic underwriters, and an extremely competent support staff, all of whom are dedicated to aggressively and competently serving the needs of our valued clientele, Johnston & Associates’ Mortgage Banking Practice Group is known all across the country for the experience and results that it brings to the areas of regulatory compliance, mortgage banking litigation, and a broad range of mitigation services.

Amongst the many legal services Johnston & Associates offers the mortgage banking industry (e.g., brokers, lenders, servicers, vendors and more), such include, but are in no way limited to, as follows:

  • Mortgage Repurchase and Make-Whole Indemnification Litigation and Mitigation (e.g., Secondary Market Investors, Agencies, etc.)
  • Mortgage Industry Litigation (e.g., Servicer and Sub-Servicer Disputes, 3rd Party Fraud Recovery, CPL and Title Policy Actions, Appraiser E&O Claims, Loan Officer Actions, etc.
  • Mortgage Repurchase and Make-Whole Alternative Dispute Resolution (e.g., Arbitration, Mediation, etc.)
  • Regulatory Compliance, Administrative and Business Services (e.g., Mock Audits, LO Compensation, MSAs, Licensing, CA Dep’t of Business Oversight, HUD Review Board, etc.)
  • Transactional Matters (e.g., Drafting and Negotiating Broker and Correspondent Loan Purchase Agreements, Mergers & Acquisitions, etc.)
Should you have any questions regarding how Johnston & Associates’ Mortgage Banking Practice Group can be of assistance to you and/or your company, please contact its Chairman James Brody and/or its Co-Chair Ingrid Peterson.
Conference Attendance by Johnston & Associates

Johnston & Associates will have a number of its attorneys in attendance and/or speaking at the following upcoming conferences:

  • July 15-16, 2019: A number of attorneys from Johnston & Associates’s Mortgage Banking Practice Group will be in attendance at the CaliforniaMBA’s Western Secondary Conference in San Francisco, CA.
  • August 18-21, 2019: A number of attorneys from Johnston & Associates’s Mortgage Banking Practice Group will be in attendance at The Mortgage Collaborative’s 2019 Summer Member Conference in Nashville, TN.
  • September 22-24, 2019: A number of attorneys from Johnston & Associates’s Mortgage Banking Practice Group will be in attendance at The Mortgage Bankers Association’s Regulatory Compliance Conference in Washington, DC.
  • October 27-30, 2019: A number of attorneys from Johnston & Associates’s Mortgage Banking Practice Group will be in attendance at The Mortgage Bankers Association’s Annual Convention & Expo in Austin, TX.

If you or someone from your company will also be in attendance at the foregoing conferences and would like to set up a complimentary appointment to meet with Johnston & Associates’ Mortgage Banking Practice Group, please contact its Chairman, James Brody, to schedule a date and time. We hope to see you there!

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