Articles Posted in Banking Law

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One of the less-reported issues in recent years during the real estate collapse in this country is the issue of security fraud in New York.

Plenty of news agencies have hit on the problems homeowners face in foreclosures and how bank officials used robo-signing practices and other unethical and unlawful means to secure a foreclosure. Certainly, that has been a big problem.
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But there are other victims of the collapse of the real estate market and that has been investors. While banks charge high interest rates on mortgages and take the interest up front before the homeowner actually builds any equity, there is a better way for them to make money.

The banks take groups of mortgages and sell them off to investors. The investment groups get information about the types of loans, possibly the borrowers, the location of the houses and other information. But officials in recent years have questioned whether bank officials committed securities fraud by withholding key information or misleading investors.

One of the chief culprits of this alleged activity, some believe, has been Countrywide, which was purchased in 2008 by Bank of America. Some believe that Countrywide officials misled investors into buying mortgages rife with issues.

But The New York Times is reporting that the Securities and Exchange Commission has filed fraud charges against six former executives with Freddie Mac and Fannie Mae. The Times reports that the S.E.C. is trying to make a splash and show that it isn’t afraid to try to take down the government-backed mortgage giants.

But the newspaper raises some issues. The first is where the fraud was committed. Among the S.E.C.’s filings are accusations of executives committing intentional fraud, which is the most serious violation. The S.E.C. alleges that these executives misled investors about Freddie and Fannie’s involvement in subprime mortgages by playing down those loans even though their value on the books increased in the years before the 2008 housing collapse.

The cases, The Times reports, will hinge on what information was publicly filed in S.E.C. filings and what information was provided to investors, who had to make a decision whether to invest in these securitizations. The article goes on to state that the case may turn on what a “subprime” mortgage really is and whether investors were misled.

The article also asks why there are no criminal charges. The S.E.C. “charges” are civil rather than criminal and the author suggests no criminal investigation will follow this case. The Justice Department earlier this year dropped its case against Freddie Mac. The civil case requires a lower standard of proof as well.

Also asked is whether this case will act as a preview to other actions brought by the S.E.C. The agency has filed nearly 40 cases related to the financial collapse. But this case deals with senior executives like few others. Will officials go after other executives?

While the burden of proof is lower than in a criminal case, proof is still required in order to investigate and take on these cases. Many investors have lost retirement savings and hope that these allegations of securities fraud turn into more than a dog and pony show for government bureaucrats.
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A trustee of a $1.75 billion mortgage pool has sued Bank of America in Manhattan recently, seeking to force the company to buy back the underlying loans after alleging the company made misrepresentations about how the loans were made in the first place, Thomson Reuters reports.

Among the most complex areas in the legal system, banking law in New York can apply to a wide range of issues, from mergers and acquisitions to insider trading issues and truth in savings and truth in lending matters.
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These matters are complex and there is often a lot at stake. Banks are critical in making sure our economy moves forward. Credit and loans, as well as people’s savings accounts and investments must be secure and sound. But banks, like any average person, must make investments in order to generate money to please shareholders.

And as the economy has weakened and investors have lost money, people are looking for someone to blame. This goes for individual investors as well as big banks. Because lenders were affected by the real estate crash, they are now at the forefront of many investor lawsuits. These lawsuits must be defended in order to ensure banks can survive and continue serving customers. Conversely, consumers have a right to be treated fairly and may have to take a bank on in court in order to win justice in a foreclosure case or other litigation.

In this case, a lawsuit filed in state court in Manhattan alleges that Countrywide, which Bank of America acquired in 2008, issued 4,484 loans and materially misrepresented the quality of its underwriting and loan documentation. The lawsuit was filed by the banking unit of US Bancorp.

According to the lawsuit, soon after the loans were sold to the trust of investors, the loans became “delinquent and default” at a “startling” rate, the lawsuit states. Out of a sample of 786 loans, 66 percent breached at least one representation made by the bank, the trust alleges.

Bank of America has had to fend off lawsuits filed against Countrywide, which the bank paid $2.5 billion for three years ago. Yet, write downs and legal costs have increased the estimated cost to $30 billion.

The documentation used by loans during the 2008 peak of the real estate market in the United States has been called into question on all sides. Foreclosure defense attorneys have said banks used “robo-signed” documents by mortgage servicers and filed inaccurate paperwork in trying to take away a home that a person has failed to make monthly mortgage payments on. Now investor groups are alleging that bad documentation of loans has caused problems.
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