Government

Illinois Attorney General Lisa Madigan filed a lawsuit against Standard & Poor's this week alleging the ratings agency inflated ratings of mortgage-backed securities investments - an act Madigan believes triggered the financial crisis. The suit, filed in Cook County Circuit Court, relies on internal emails from within the ratings agency as evidence of the company's misrepresentations of risk. Madigan references congressional testimony from a former managing director at S&P, stating ""profits were running the show.""

The Federal Reserve said Wednesday that it will hold a key benchmark interest rate near zero through 2014. The setting of this federal funds rate - the rate at which banks lend to one another - is one of the most fundamental and principal tools in the central bank's chest of economic influence. The Fed has kept the target range for the rate at 0 to 0.25 percent for three years now. The decision to maintain this range for another three years is testament to just how slow the U.S. economy's recovery is likely to be.

Despite rumors earlier in the week that President Barack Obama would announce a settlement between the state attorneys general and the nation's top servicers in his State of the Union address, the president made no such announcement Tuesday night. However, he did announce his intention to save millions of homeowners approximately $3,000 annually on their mortgages by allowing them to refinance at today's low interest rates. Obama also plans to create a Financial Crimes Unit to protect consumers from fraud schemes.

Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the reasons: loosening credit. The analytics firm notes the average credit score required to attain a mortgage loan is 700. While this is higher than scores required prior to the crisis, it is constant with requirements one year ago. Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes ""the clearest sign yet of an improvement in mortgage credit conditions.""

Settlement negotiations between state attorneys general and the top five servicers have dragged on for more than a year now throughout frequent reports that a settlement is close. Working out a deal that banks feel is fair and that attorneys general feel serves their states' residents has been challenging at best. However, with a settlement once again reportedly ""weeks away,"" it appears the proposal on the table is agreeable to more than just the five banks involved from day one. Both U.S. Bancorp and PNC may sign on, according to multiple reports.

Three community-based lenders went under over the weekend in Georgia, Florida, and Pennsylvania, marking the first bank failures of 2012. Altogether, the three closings are expected to cost the FDIC an estimated $243.8 million. Last year, the FDIC reported 92 closings nationwide - a sharp drop-off from the 157 bank seizures overseen by the agency in 2010 and the 140 institutions that became insolvent in 2009. FDIC officials maintain that bank failures stemming from the real estate downturn and the ensuing economic recession have peaked.

The Federal Housing Finance Agency (FHFA) says as of June 30, 2011, Fannie Mae and Freddie Mac held nearly 3 million first lien mortgages in which the borrower owed more on the loan that the home was worth. FHFA estimates principal forgiveness for all of these mortgages would require funding of almost $100 billion to pay down the loans to the value of the homes securing them. Members of Congress have questioned FHFA's reasoning for excluding principal forgiveness from the menu of loss mitigation tools available to the GSEs.

After HUD Secretary Shaun Donovan announced last Wednesday that a final settlement between state attorneys general and the nation's largest servicers is just weeks away, the news broke Monday that a settlement draft is now in the hands of the attorneys general for review. Dispelling rumors suggesting President Barack Obama will announce the settlement during his State of the Union address Tuesday evening, the lead negotiator for the states has issued a statement saying, ""...we won't reach a settlement any time this week.""

Homebuyers with enough cash in hand to cover their offer price in full are able to bid significantly lower on properties and according to a new industry report released Monday, because they offer a shorter and more reliable closing timeline without the impediments of a mortgage, they often win out with that lower bid. The study found that this low-bid-winning dynamic is particularly true for distressed properties because mortgage servicers selling foreclosed or REO homes generally prefer transactions that can settle within 30 days.

The Federal Housing Administration (FHA) has announced new measures to strengthen standards for the lenders it works with - measures the agency says will help it better manage the risk that comes with insuring mortgages against default. The new regulations raise the bar in terms of lender performance when it comes to seriously delinquent and claim rates, and shores up the agency's processes for requiring lenders to cover losses from insurance claims paid on mortgages that involve fraud or don't meet FHA's underwriting guidelines.