Gretchen Morgenson had an interesting column today about judicial frustration with banks. One of the opinions she references is a recent order by Judge William Young (Dist. Mass.) in a predatory lending suit. The defendant Wells Fargo, as successor in interest to the lender, Wachovia FSB, argued that the state law causes of action on which the suit were based were preempted by a federal statute that governs federal savings banks. Judge Young agreed, but ordered that:
Wells Fargo, within 30 days of the date of this order, shall submit a corporate resolution bearing the signature of its president and a majority of its board of directors that it stands behind the conduct of its skilled attorneys and wishes to avail itself of the technical preemption defense to defeat [the plaintiff homeowner's] claim.
In other words, the Judge wants to make sure that Wells CEO and board are aware of how it is evading liability. This isn't the first time Judge Young has expressed his frustration with the mortgage industry. He authored one of the most colorful (and apt) descriptions of MERS: the "wikipedia of land registration systems." Alas, as in this case, it was all in dicta.
Putting aside the optics, I think there's an interesting legal issue possibly raised by the present case, Henning v. Wachovia: does federal preemption under the Home Owners Loan Act (HOLA) apply to a mortgage that was made by Wachovia FSB, but is now owned by Wells Fargo, N.A.? HOLA preemption only applies to federal savings and loans, not to national banks. So if a federal S&L makes a loan and holds it on balance sheet, it would seem clear that HOLA preemption would be relevant. But what if that federal S&L sold the loan to, say, me? Could I invoke HOLA preemption? That is, does HOLA preemption travel with the loan or is it personal to the federal S&L?
I've got to think that the answer is that preemption is not assignable, but the law here is not as clear as it might be. The reason I think it has to be non-assignable is that it can produce a regulatory vacuum of preemption without regulation and because were preemption assignable, we'd face a problem of preemption laundering. I've written about this, at length, in an article considering, among other things, whether preemption rights travel with a loan when it is securitized (and is no longer held by a federally chartered depository of some sort, but by a state law entity, such as a trust).
It was not clear to me from Judge Young's order whether the loan is currently owned by Wells Fargo directly or whether it is still held by Wachovia FSB as a Wells Fargo subsidiary or by some other entity. As far as I can tell, however, Wachovia FSB no longer exists. The OCC's list of federal savings associations, as of August 31, 2013, does not lit a Wachovia FSB. Therefore, it would seem that the loan is not currently owned by any entity that is regulated by HOLA and therefore entitled to HOLA preemption.
There may still be a timing issue--is HOLA preemption determined at the time the cause of action arises or at the time litigation is brought or at the time of the decision? I don't know what, if any, law exists on this. Again, however, I don't know all of the facts of the case; I don't know if the attorneys for the plaintiff raised the question of whether Wells Fargo gets HOLA preemption via Wachovia, and don't know whether the issue is waived if they did not raise it. Preemption aside, it will be interesting to see how the order to the Wells Fargo board plays out.