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Financial Crisis 9/26/2008 2:47:59 PM EST Related Expert Commentary Selected LexisNexis Expert Commentary addressing issues related to the ongoing financial crisis
Hudson Cook on Correction of Federal Truth in Lending Mistakes - Despite the compliance program that a creditor maintains and the training a creditor offers to its lending personnel, an occasional truth in lending mistake is inevitable. Assuming that the creditor does not discover the error when the creditor receives a class action complaint, the creditor generally asks two questions upon learning of the error: "What is my liability?" and "How can I correct the problem?" Section 130 of the Truth in Lending Act ("TILA") 15 U.S.C. § 1640 imposes civil liability for certain disclosure violations, but also provides various protections to creditors that have made mistakes. These range from complete protection from liability in some situations, eventual protection pursuant to a limitations period in others, and corrective measures that a creditor can take to "cure" a violation. Although these various safeguards are all welcome, a creditor whose back is against the wall due to a pervasive truth in lending mistake may find the protection TILA offers illusory. In this commentary, Robert A. Cook and Daniel J. Laudicina discuss various protections offered by Sections 130(b) through 130(g) of TILA and the pitfalls that surround some of these "protections."
Hudson Cook, LLP on Proposals Addressing Credit Card Lending Practices - The Credit Cardholders' Bill of Rights Act of 2008, H.R. 5244, would amend the federal Truth in Lending Act, while the Office of Thrift Supervision and the Federal Reserve Board announced proposed regulations that would prohibit certain practices deemed to be unfair practices regarding credit cards. The regulations would apply to all savings associations and banks. Further, a bill similar to the House Bill is expected to be introduced by Senator Chris Dodd in the near future. Daniel J. Laudicina and Clayton C. Swears of Hudson Cook, LLP examine how each proposal addresses specific issues relative to current credit card lending practices.
Fanto on Bank Currency Reporting Obligations - The currency reporting obligations of financial institutions administered by FinCEN are a broad and useful tool of federal criminal investigators to reach criminal activities other than the classic organized criminal enterprises. This sometimes has unintended consequences, as former NY Governor Spitzer learned when a bank's basic reporting duty of the large payments to a prostitution ring was enough to focus investigators upon him.
Fanto on Rationalization of the Hedge Fund Industry: A Prelude to Regulation? - Hedge funds have been of continuing concern to financial regulators. Why is there a special concern about hedge funds now? In the current financial upheaval, many of our largest regulated financial institutions have encountered considerable trouble. Professor Fanto examines if this flurry of activity is a prelude to eventual regulation of hedge funds and is thus laying the grounds for future legislation to this effect.
Fanto on Rationalizing U.S. Financial Regulation: The Treasury's Plan - Financial and corporate crises bring regulation; the bigger the crisis, the more the regulation. One forgets that, only about a year ago all the talk in financial and business circles focused on the need to roll back Sarbanes-Oxley, which was allegedly proving to be too burdensome for U.S. business. Regulation, or at least constraining regulation, tends to disappear only in the good times.
Cope on Requiring D&O Insurers to have the Duty of Defense under their Policies - Will the New York Insurance Department require D&O insurers to have the duty of defense under insurance policies issued to public companies? The New York Insurance Department is currently taking that position based on the New York legislatures failure earlier this year to pass legislation that would have explicitly exempted D&O policies from that requirement. This startling position conflicts with New York case law as well as the D&O insurance industrys longstanding practice. The decision effectively limits the rights of sophisticated insureds to defend themselves and would have an overall chilling effect on the D&O industry given that it applies to both admitted companies and insurers doing business in New Yorks Free Trade Zone.
Veach on Union Indemnity's Belated Distribution - James Veach writes about a receiver's efforts to complete the liquidation of Union Indemnity Insurance Company, a New York insurer that failed more than two decades ago. Union Indemnity is a cautionary tale about the unintended consequences of litigation and the effect of legislative changes undertaken during the life of an insurance company receivership.
Wildermuth on the Repercussions of the Subprime Mortgage Crisis on CGL Insurance - The tentacles of the current "subprime mortgage crisis" are destined to reach into every corner of financial institutions in the United States and abroad, including components of the insurance industry. In a three-part series, insurance coverage litigation expert Matthew R. Wildermuth, Esq. explores the extent to which the claims arising out of this crisis -- and the current attempts to "cure" these problems -- will implicate coverage under, respectively, commercial general liability policies, directors and officers policies and professional liability/errors and omissions policies. The first of these articles focuses on potential exposures under traditional commercial general liability policies and explores, other topics.
Robert M. Jaworski on HUD'S 2008 Proposal to Reform The Real Estate Settlement Process: Will It Work? - HUD's 2008 Proposal offers a "new and improved" version of Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA), including a dramatic change to the form of Good Faith Estimate (GFE), modifications to HUD-1/1A Uniform Settlement Statement forms, new "closing script," and revision to the definition of a prohibited "required use" in connection with a referral to an affiliated business arrangement (AfBA). Robert M. Jaworski, Esq. analyzes the Proposal’s merits and explains why he believes HUD's declared intention to take final action by October 2008 is an extremely tight timetable for a rule of this significance.
Gerald M. Levinson on the Mortgage Forgiveness Debt Relief Act of 2007 - Because of the rash of mortgage defaults and foreclosures, and the overall turmoil in the housing market, last December Congress passed and the President signed into law the Mortgage Forgiveness Debt Relief Act of 2007. While this law offers struggling homeowners some help by excluding from taxable income the amount of forgiven or cancelled mortgage debt, the law is effective for a limited period and there are limitations on the relief the law provides.
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Boresta and Godellas on Regulation R Implementing Exceptions for Banks - As a result of the Gramm-Leach-Bliley (GLB) Act, banks are required to push out certain of their securities brokerage activities to registered broker-dealers. In September 2007, the SEC and the Federal Reserve Board jointly adopted Regulation R to implement several of the exceptions for a bank to engage in securities activities without being registered as a broker-dealer. In this commentary, Robert A. Boresta and Basil V. Godellas of Winston & Strawn LLP examine the provisions of Reg R.
Fanto on Foreign Broker Dealers and the SEC - Rule 15a-6 under the Exchange Act provides four exemptions permitting foreign broker-dealers to conduct a limited U.S. business without having to register. Professor James Fanto explores these four exemptions and the implications for US broker dealers, investors, and foreign broker dealers if the SEC has its way in broadening some of these exemptions for foreign broker dealers under Rule 15a-6.
Fanto on Déjà Vu All Over Again: A New Wave of Bank Bankruptcies? - For the past few months the FDIC has been recruiting those with experience in bank failures. With the recent failure of IndyMac (reportedly the third largest bank failure), one wonders whether the future will repeat the 1980s, when hundreds of S&Ls failed and regulators needed to step in to prevent a cascade of bank failures.
Wildermuth on the Repercussions of the Subprime Mortgage Crisis on D&O Insurance - Now that the subprime mortgage crisis has crashed the party of such Wall Street titans as Merrill Lynch and Bear Stearns, financial institutions everywhere are evaluating the extent to which subprime losses are going to affect their share price and bottom line and, more importantly, whether such losses are going to incite investors to bring suit against the institution. Several blockbuster suits have already been filed and many more are imminent, prompting general counsel everywhere to determine whether the institution has insurance coverage that will provide for the company's or its officers' defense against such claims and potentially respond to any judgment rendered in favor of the claimants. This article addresses the issues that should be at the forefront of general counsel's mind when evaluating how any directors and officers liability policy the company has in place may respond to claims and suits of this nature.
Cope on SEC Investigations: An Increasing Risk Leading to Unanticipated Coverage? - What happens when D&O policies do not expressly afford coverage for investigations by the Securities and Exchange Commission and other types of actions such as letters of inquiry? This is currently a pivotal issue given that SEC investigations have dramatically increased in recent years. However, only a few courts have addressed the issue directly.
Subprime Mortgage Securities Litigation - Shareholders in companies that invested in bundled mortgages (packages of prime and subprime mortgages bundled together) have filed securities class actions against the investing companies, alleging that the companies failed to disclose the weakness of the investments, even as the weakness became evident; according to the plaintiffs, this failure to disclose caused the stock to trade at artificially inflated prices. This commentary summarizes the allegations of these complaints and assesses published recent court decisions concerning them.
Wilson on the Liability Faced by Financial Institutions from Exposure to Subprime Mortgages - Citigroup,Bear Stearns, HSBC and other publicly-traded financial institutions recently disclosed write downs in the billions of dollars to reflect the decline in the value of their mortgage-related investments and, in some cases, revealed additional exposure attributed to off-balance-sheet investments. Some analysts expect the losses to increase further as the true value of these assets is determined. The disclosures have led to inquiries by the Securities and Exchange Commission and other government agencies into the accounting procedures and the public statements made by some corporate officers about these assets. In response, investors have commenced class action suits under the anti-fraud rule of the federal securities laws against some of these companies alleging that they improperly represented and failed to disclose their true exposure to the risks associated with these assets. This commentary written by James M. Wilson discusses this ongoing issue.
Wilson on Losses Attributable to Subprime Mortgages - Until recently, many investors and analysts assumed that the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) would not suffer the same kind of bruising losses that other large financial institutions have endured due to investments tied to sub-prime mortgages (e.g., mortgage backed securities and collateralized debt obligations (CDOs). Now, it appears that Fannie Mae and Freddie Mac also were caught up in the sub-prime frenzy. Moreover, according to the New York State Attorney General, some of the reported losses may be related to their involvement in another scandal that is emerging the artificial inflation of home appraisal values. James M. Wilson's commentary examines how this latest development bodes for the near-term future of the U.S. housing market.
Bruce J. Bergman on The Subprime Mess -- Effect on Foreclosures - Written by foreclosure expert Bruce J. Bergman, this commentary addresses the likely effect the subprime situation will have on foreclosure actions and why it's a "mess" -- including potential problems affecting deeds in lieu of foreclosure, forbearance, and borrowers who have declared bankruptcy.
Jaworski on Subprime: Final Guidance - In his analysis of the Final Guidance on Subprime Mortgage Lending issued by federal bank regulators on June 29, 2007, mortgage compliance expert Robert M. Jaworski, Esq., answers important questions, such as to whom does the guidance apply, to what loans does the final guidance apply, what are "subprime loans," and what specific types of subprime loans are the agencies most concerned about in the final guidance?
Wildermuth on the Repercussions of the Subprime Mortgage Crisis on E&O Insurance - This commentary explores the nature of the claims against these market participants, the factors that affect potential recovery against them and the extent to which insurance in the form of errors and omissions coverage may currently be available to soften the blow to these entities. In light of the increased scrutiny and proposed additional regulation under consideration in Washington regarding these market participants, this commentary also explores the extent to which these entities are likely to be able to maintain or procure effective insurance coverage for their operations and under what conditions it will be available.
Gkonos and Cawley on Financial Guaranty and the Subprime Crisis - In their analysis of financial guaranty insurance and the current subprime crisis, authors James S. Gkonos and Mark C. Cawley describe the nature of financial guaranty insurance and trace its history from its roots in suretyship, through the founding of monoline insurance companies dedicated solely to financial guaranty insurance, to the current regulatory regime. The commentary details the state statutes or regulations specifically tailored to the financial guaranty industry and describes basic regulatory principles common to these statutes. The commentary also explores the crisis facing the financial guaranty industry, the roots of that crisis in the subprime mortgage meltdown, and proposals floated by various federal and state officials to adapt the regulatory scheme to the problems highlighted by the subprime crisis and the possibility of additional regulatory restrictions on the activities of financial guaranty companies. Create an account or login to post comments.
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