IN THE UNITED STATES DISTRICT COURT FOR WESTERN DISTRICT OF TEXAS UNITED STATES COURTHOUSE 501 WEST FIFTH STREET AUSTIN, TEXAS 78701

Transcription

1 1 o f10 Case 1:14-cv-733-LY-ML DISTRICT COURT WESTERN TEXAS IN THE UNITED STATES DISTRICT COURT FOR WESTERN DISTRICT OF TEXAS UNITED STATES COURTHOUSE 501 WEST FIFTH STREET AUSTIN, TEXAS DAVID AND BARBARA MCCRAE, qui tam CONSUMER FINANCIAL PROTECTION BUREAU v. PHH MORTGAGE CORPORATION (dba BURNET MORTGAGE SERVICES; CENTURY 21 MORTGAGE; COLDWELL BANKER CIVIL ACTION NO. MORTGAGE; DOMAIN DISTINCTIVE PROPERTY 1: LY-ML FINANCE; ERA MORTGAGE; INSTAMORTGAGE.COM MORTGAGE SERVICE CENTER; MORTGAGEQUESTIONS.COM; MORTGAGESAVE.COM PHH MORTGAGE SERVICES) Ad BARRETT BURKE DAFFIN FRAPPIER TURNER AND ENGEL, LLP, ad VARIOUS ACTORS AND EMPLOYEES OF DEFENDANTS JOHN DOE JURY TRIAL DEMANDED

2 2 o f10 Case 1:14-cv-733-LY-ML DISTRICT COURT WESTERN TEXAS Motio for Discovery As stated i our complait, the plaitiffs are brigig this actio o behalf of the Uited States of America, specifically the Cosumer Fiacial Protectio Bureau, who are charged sice 2014 with all regulatory actio i these matters. The Uited States of America Departmet of Justice has disclosed o ogoig ivestigatio or curret eforcemet actio regardig these defedats at this poit. The plaitiffs have visited the local FBI offices i Austi, represetig the Departmet of Justice, ad reported our cocers, as First Relator, o 26 December 2013, more tha six moths ago. The plaitiffs are i o fear of retaliatio; we see o eed to file our complait uder seal ad have accordigly waived that privilege. The plaitiffs have ot retaied cousel at this date, ad are cotiuig to seek competet ad available cousel, at a reasoable cost. Util that evet, the plaitiffs see o reaso to delay this actio ad are proceedig pro se. If cousel becomes available at some poit before trial, he ca easily step i. Our iitial motio for productio of all defedat busiess records for past four years relatig to foreclosure actios ad leder owed properties has bee deied. We have accordigly examied the SEC filigs of PHH Corporatio for available iformatio cocerig their commo practices. We are ow askig for productio of specific iformatio detail supportig those public accoutig disclosures. The PHH Corporatio SEC 10Q filigs report: QTR Foreclosures Defaults Complaits Litigatio ResolutiosCommet + REO/Value (mil) 2Q /217 UNK UNK Philip Liza/$16M 1Q /220 UNK UNK UNK UNK Ocwe, et al. 4Q /223 UNK UNK New Jersey 3Q /212 UNK UNK UNK UNK 2Q /226 UNK UNK UNK UNK 1Q /172 UNK UNK UNK UNK 4Q /176 UNK UNK UNK UNK

3 3 o f10 Case 1:14-cv-733-LY-ML DISTRICT COURT WESTERN TEXAS 3Q /171 UNK UNK UNK UNK 2Q /149 UNK UNK UNK UNK 1Q /136 UNK UNK UNK UNK 4Q /131 UNK UNK UNK UNK 3Q /127 UNK UNK UNK UNK 2Q /135 UNK UNK UNK UNK 1Q /144 UNK UNK UNK UNK 4Q /145 UNK UNK UNK UNK 3Q /134 UNK UNK UNK UNK x50% / 2450 X50% / 1225 Overlap Defective Without supportig detail, we are assumig that the umber of foreclosure actios overlap by ~45 days of 90 i the quarter ad are reducig total actios ad value claimed by 50%. Without supportig detail, we are assumig half of those foreclosures are defective i some aspect, i accord with Joseph A. Smith idustry metrics. Attached Exhibit P-8a, The Metric System PHH Corporatio, o Form 10Q reports Idustry Treds Regulatory Treds Focus o foreclosure practices Durig the third quarter of 2010, several of our mortgage servicig competitors aouced the suspesio of foreclosure proceedigs i various judicial foreclosure states due to cocers associated with the preparatio ad executio of affidavits used i coectio with foreclosure proceedigs i such states. I additio, at least oe such competitor has aouced the temporary suspesio of foreclosure proceedigs i all 50 states while it reviews its foreclosure procedures. Due i part to these aoucemets, we have received iquiries from regulators ad attoreys geeral of certai states requestig iformatio as to our foreclosure processes ad procedures.

4 4 o f10 Case 1:14-cv-733-LY-ML DISTRICT COURT WESTERN TEXAS Additioally, various iquiries ad ivestigatios of, ad legal proceedigs agaist, certai of our competitors have bee iitiated by attoreys geeral of certai states ad the U.S. Departmet of Justice, ad certai title isurace compaies have aouced that they will susped issuig title isurace policies o properties that have bee foreclosed upo by such firms. We have completed a comprehesive review of our foreclosure procedures ad based o this review we have ot halted foreclosures i ay states ad have o plas to iitiate a foreclosure moratorium. Potetial delays i completig foreclosures could egatively impact both our liquidity positio ad ultimate loss severities; however, these recet developmets are dyamic ad the ultimate outcome of these actios is ucertai. We cotiue to moitor ad evaluate the potetial impact that the additioal regulatory focus o foreclosure practices may have o our busiess. PHH Corporatio, o Form 10Q reports Durig the first quarter of 2011, various federal regulators completed a review of 14 etities ivolved i the mortgage servicig process ad oted weakesses i foreclosure goverace processes, foreclosure documet preparatio processes, ad oversight ad moitorig of third-party vedors, icludig foreclosure attoreys. These regulators took formal actios agaist each of the 14 etities subject to this review to address those weakesses ad risks. These actios require each etity, amog other thigs, to coduct a more complete review of certai aspects of foreclosure actios that occurred betwee Jauary 1, 2009, ad December 31, While we were ot icluded i these reviews, we have received iquiries ad requests for iformatio from regulators ad attoreys geeral of certai states as well as from the Committee o Oversight ad Govermet Reform of the U.S. House of Represetatives ad the U.S. Seate Judiciary Committee, requestig iformatio as to our foreclosure processes ad procedures, amog other thigs. While we have ot bee assessed ay material pealties resultig from our foreclosure practices to date, we expect the higher level of focus o foreclosure practices will result i higher legal ad servicig related costs as well as potetial regulatory fies ad pealties. Sice that time, 6 of those 14 etities (Ocwe, Chase, Citi, BOA, Wells, Greetree, have reached agreemet with the Departmet of Justice ad filed coset judgmets i various Federal District Court veues, each judgmet

5 5 o f10 Case 1:14-cv-733-LY-ML DISTRICT COURT WESTERN TEXAS edorsed by all fifty State Attoreys Geeral of that time. We are assumig eight of those actios remai i process. Each of those coset judgmets detail various fies, pealties ad restitutio, ad establish a oversight admiistrator, Joseph A. Smith, to moitor compliace with existig law. These laws pertai to everyoe i the idustry i the Uited States. It appears that ~40% of the idustry is ow compliat with existig law ad regulatio. PHH Mortgage Corporatio may also be compliat. We eed to review the busiess record detail coverig the 29 metrics established by Joseph A. Smith. The review of these records is likely to determie the existece or oexistece, ad defie the size, of a class of plaitiffs, ad supply basis for a request to certify such a class. The curret pro se plaitiffs, at that future time, will very likely be represeted by cousel. We believe this iformatio has already bee collected by PHH Corporatio i the course of their ormal cotact with regulatory eforcemet iquiry, ad is readily available as electroically stored iformatio. The plaitiffs are able to receive it i ay format. We ote that PHH Corporatio has used agets, such as BBDFTE i Texas, to implemet much of their foreclosure actio. This motio for discovery must exted to ay ad all such idetifiable agets. I our capacity as qui tam agets for the CFPB, we have also asked each State AG directly for such ivestigatory files as may be held by the Texas AG ad all other state AG s. This detail iformatio appears readily available. PHH Corporatio, o most recet Form 10K reports (p.6)- We are subject to umerous federal, state ad local laws ad regulatios ad may be subject to various judicial ad admiistrative decisios imposig various requiremets ad restrictios o our busiess. By agreemet with our private label cliets i our mortgage busiess, we are also required to comply with additioal requiremets that our cliets may be subject to through their regulators. These laws, regulatios ad judicial ad admiistrative decisios iclude those pertaiig to the followig areas: real estate settlemet procedures; cosumer credit provisios; fair ledig, fair credit reportig ad truth i ledig; the establishmet of maximum iterest rates, fiace charges ad other charges; secured trasactios; collectios, foreclosure, repossessio ad claims-hadlig procedures; privacy regulatios providig for the use ad safeguardig of o-public persoal fiacial iformatio of borrowers ad guidace o o-traditioal mortgage loas issued by the federal fiacial regulatory agecies;

6 6 o f10 Case 1:14-cv-733-LY-ML DISTRICT COURT WESTERN TEXAS taxig ad licesig of vehicles ad evirometal protectio; ad isurace regulatios ad licesig requiremets pertaiig to stadards of solvecy that must be met ad maitaied; reserves ad provisios for ueared premiums, losses ad other obligatios ad deposits of securities for the beefit of policyholders. There has bee a heighteed focus of regulators o the practices of the mortgage idustry. Cosistet with some of our peers, we have experieced iquiries ad requests for iformatio from regulators ad attoreys geeral of certai states as well as various govermetal agecies. We are workig diligetly i assessig ad uderstadig the implicatios of the developmets i the regulatory eviromet, ad we are devotig substatial resources towards implemetig all of the ew rules ad towards complyig with requests, iquiries, examiatios ad proceedigs while meetig the eeds ad expectatios of our cliets. Further (p.8)- O December 4, 2013, our subsidiary PHH Mortgage Corporatio etered ito a Coset Order with the New Jersey Attorey Geeral ad the New Jersey Divisio of Cosumer Affairs, Office of Cosumer Protectio. The New Jersey Attorey Geeral coducted a review of our servicig practices, specifically our compliace with the New Jersey Cosumer Fraud Act i coectio with customer service ad other matters related to loss mitigatio activities for certai borrowers. The Coset Order requires us to: (i) make a $6 millio cash paymet to certai borrowers atiowide ad to the State of New Jersey; (ii) implemet certai servicig practices; ad (iii) provide New Jersey quarterly reports for two years related to, amog other thigs, loa modificatios, foreclosure activities ad the resolutio of borrower calls to our loss mitigatio departmet. We have completed the settlemet paymet ad are complyig with the other requiremets of this Order. Durig 2013, we received documet subpoeas from the Office of Ispector Geeral of the U.S. Departmet of Housig ad Urba Developmet ( HUD ) ad the U.S. Attorey s Office for the Souther District of New York. The HUD subpoeas request productio of certai documets related to, amog other thigs, our origiatio ad uderwritig process for loas isured by the Federal Housig Admiistratio ( FHA ). The U.S. Attorey s Office subpoea requests productio of certai documets related to, amog other thigs, foreclosure expeses that we icurred i coectio with the foreclosure of loas isured or guarateed by FHA, Faie Mae or Freddie Mac. We have also udergoe a regulatory examiatio by a multistate coalitio of certai mortgage bakig regulators ad such regulators have alleged various violatios of federal ad state laws related to our mortgage servicig practices prior to July We believe that we have meritorious defeses to these various allegatios. However, there ca be o assurace that claims or litigatio will ot arise from these iquiries or similar iquiries by other govermetal authorities or that fies or pealties will ot be assessed agaist us i coectio with these matters. I additio to the icreased regulatory focus o origiatio ad servicig practices described above, Faie Mae ad Freddie Mac have also had a cotiued focus o foreclosure practices. They have assessed compesatory fees agaist us for failig to meet certai foreclosure timelies specified i their respective servicig guides. Although such compesatory fees have ot bee material to date, there ca be o assurace that the assessmet of ay such compesatory fees will ot be material to our results of operatios or cash flows i the future.... We expect that the higher level of legislative ad regulatory focus o mortgage origiatio ad servicig practices will result i higher legal, compliace ad servicig related costs as well as potetial regulatory fies ad pealties. It is also reasoably possible that we could experiece a icrease i mortgage origiatio or servicig related litigatio i the future. For more iformatio, see Item 1A. Risk Factors Risks Related to our Compay Our Mortgage busiesses are complex ad heavily regulated, ad the full impact of regulatory developmets to our busiesses remais ucertai. I additio, we are subject to litigatio, regulatory ivestigatios, iquiries ad proceedigs ad we may icur fies, pealties, ad icreased costs that could egatively impact our future results of operatios, liquidity ad cash flows or damage our reputatio. i this Form 10-K.

7 7 o f10 Case 1:14-cv-733-LY-ML DISTRICT COURT WESTERN TEXAS Further (p.12)- We are curretly subject to iquiries, requests for iformatio, ivestigatios, ad proceedigs as a result of our mortgage origiatio ad servicig practices, icludig iquiries ad requests for iformatio from ad ivestigatios by regulators ad attoreys geeral of certai states, the U.S. Departmet of Housig ad Urba Developmet, the U.S. Attorey s Office for the Souther District of New York, the Committee o Oversight ad Govermet Reform of the U.S. House of Represetatives, ad the U.S. Seate Judiciary Committee. The Bureau of Cosumer Fiacial Protectio (the CFPB ) has iitiated a admiistrative proceedig allegig that our former reisurace activities violated certai provisios of the Real Estate Settlemet Procedures Act ad other laws. We have received documet subpoeas from the Office of Ispector Geeral of the U.S. Departmet of Housig ad Urba Developmet ( HUD ) ad the U.S. Attorey s Office for the Souther District of New York. The HUD subpoeas request productio of certai documets related to, amog other thigs, our origiatio ad uderwritig process for loas isured by the Federal Housig Admiistratio ( FHA ). The U.S. Attorey s Office subpoea requests productio of certai documets related to, amog other thigs, foreclosure expeses that we icurred i coectio with the foreclosure of loas isured or guarateed by FHA, Faie Mae or Freddie Mac. These matters are at varyig procedural stages ad the resolutio of ay of these matters may result i adverse judgmets, fies, pealties, ijuctios ad other relief agaist us, paymets made i settlemet arragemets, as well as moetary paymets or other agreemets ad obligatios, ay of which could have a material adverse effect o our busiess, fiacial positio, results of operatios, liquidity or cash flows. There has bee a heighteed focus of regulators o the practices of the mortgage idustry, icludig ivestigatios of ledig practices, foreclosure practices, ad loss mitigatio practices, amog other matters. Our mortgage origiatio ad servicig competitors have bee subject to actios from, ad settlemets with, the U.S. Departmet of Justice uder the False Claims Act ad other statutes, allegig, amog other thigs, reckless mortgage ledig practices ad improper or iadequate certificatio to the govermet i coectio with the Federal Housig Admiistratio s Direct Edorsemet Ledig Program. We have icurred icreased expeses associated with these matters, ad there ca be o assurace that we will ot icur fies, pealties, further settlemet paymets or icreased legal costs i coectio with existig iquiries, requests for iformatio ad ivestigatios, or that future regulatory ivestigatios may ot arise. The heighteed focus of regulators o the practices of the mortgage idustry have resulted ad could cotiue to result i ew legislatio ad regulatios that could materially ad adversely affect the maer i which we coduct our mortgage busiess ad have resulted i icreased origiatio ad servicig costs ad potetial litigatio associated with our mortgage busiesses. We are moitorig a umber of recet ad pedig chages to laws ad regulatios ad other fiacial reform legislatio that are expected to impact our Mortgage segmets. These developmets iclude but are ot limited to: (i) regulatios from the Dodd-Frak Act, icludig the risk-retetio requiremets ad defiitio of qualified mortgages ; (ii) proposed chages to the ifrastructures of Faie Mae ad Freddie Mac; ad (iii) curret rules proposed ad adopted by the CFPB, icludig uiform stadards for the mortgage servicig idustry. Certai provisios of the Dodd-Frak Act ad of pedig legislatio i the U.S. Cogress may impact the operatio ad practices of Faie Mae ad Freddie Mac, ad could reduce or elimiate the GSE s ability to issue mortgage-backed securities, which would materially ad adversely affect our busiesses ad could require us to fudametally chage our busiess model sice we sell substatially all of our loas pursuat to GSE-sposored programs. These developmets could also result i heighteed federal regulatio ad oversight of our busiess activities ad icrease costs ad potetial litigatio associated with our busiess activities. The full impact these developmets may have o our mortgage origiatio, servicig ad securitizatio or structured fiace trasactios remais uclear.

8 8 o f10 Case 1:14-cv-733-LY-ML DISTRICT COURT WESTERN TEXAS Regrettably, opposig cousel has bee uable to meet coveietly i our required Rule 26 meetig ad discuss these matters. The court has before it a motio for Alterate Dispute Resolutio, also opposed by cousel for PHH. Cousel for BBDFTE has ow appeared. We have faith that we will all meet at some poit. This motio covers core iformatio, ad must be available to all parties. No doubt we will all have other cocers after review of core iformatio, ad be better able to come to grips with the issues. For Truth, Justice, ad America, Date: 19 September 2014 Sigature: /s/ David McCrae, Pro se 350 Cee Ru/Bertram, Texas Xstek99@gmail.com

9 9 o f10 Case 1:14-cv-733-LY-ML DISTRICT COURT WESTERN TEXAS Case Number: 1:14-cv [PROPOSED] ORDER GRANTING Motio for Discovery DATE: TIME: COURTROOM: JUDGE: Lee Yeakel / Mark Lae The Court has cosidered the Motio for Discovery Fidig that good cause exists, the Motio is GRANTED / DENIED. MAKE IT SO. DATED: Uited States District/Magistrate Judge

10 10 o f10 Case 1:14-cv-733-LY-ML DISTRICT COURT WESTERN TEXAS SERVICE I have served this Motio for Discovery To McGlechey Stafford, PLLC aderso@mcglechey.com sdsmith@mcglechey.com thicks@mcglechey.com ahamilto@mcglechey.com dwalker@mcglechey.com afoster@mcglechey.com Barrett, Burke, Daffi, Frappier, Turer ad Egel ladoab@bdfgroup.com couryj@bdfgroup.com By Swor to o09/19/2014 by /s/david McCrae, Pro se 350 Cee Ru / Bertram Texas Xstek99@gmail.com