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45 » VISIT US ONLINE @ DSNEWS.COM ROYAL BANK OF SCOTLAND TO PAY FANNIE, FREDDIE $5.5 BILLION e Federal Housing Finance Agency (FHFA) announced in July that it reached a settlement on behalf of Freddie Mac and Fannie Mae with the Royal Bank of Scotland. e settlement will total $5.5 billion; $975 million will go to Freddie Mac, while $4.53 billion will go to Fannie Mae. e case, FHFA v. e Royal Bank of Scotland Group plc et al., Case No. 3:11-cv-1383, alleges that, amongst other things, the Royal Bank of Scotland was in violation of federal and state security laws that deal with private-label residential mortgage-backed securities. e securities in question were purchased by Freddie Mac and Fannie Mae from 2005 to 2007. e lawsuit was filed back in 2011. During the suit, the Royal Bank of Scotland motioned for a stay of discovery, contending that because the FHFA was bringing private causes of action under federal securities laws—and the agency was acting as conservator to Freddie Mac and Fannie Mae—the suit fell under the Private Securities Litigation Reform Act and was subject to an automatic stay while the court considered dismissal. e Royal Bank of Scotland also argued that, even if their motion for a stay of discovery was not covered under the Private Securities Litigation Reform Act, it still would fall under the Federal Rule of Civil Procedure 26, which states: "e party seeking a protective order has the burden of showing that good cause exists for issuance of that order," Gambale v. Deutsche Bank AG, 377 F.3d 133, 142 (2d Cir. 2004) a burden that requires "a strong showing." Moss v. Hollis, CIV. No. B-90- 177 (PCD), 1990 WL 138531, at "e pendency of a dispositive motion is not, in itself, an automatic ground for a stay." e court ultimately found that the Royal Bank of Scotland did not meet its burden of proof. e suit against the Royal Bank of Scotland is one of 18 lawsuits filed by the FHFA as conservator for Fannie Mae and Freddie Mac; it is the 17th settlement. INCOME CAN'T KEEP UP; CALIFORNIA MARKETS AT RISK Prices may be strong in many markets, but according to the recent Housing and Mortgage Market Review published by Arch MI, unless wages can keep up, affordability may become a problem. It could be particularly bad for buyers in the California markets. "A tight job market, interest rates that are still low, and an overall shortage of housing are pushing up home prices faster than incomes," said Dr. Ralph G. DeFranco, Global Chief Economist of Mortgage Services at Arch Capital Services Inc. "at's good news for those who already own, but bad news for those looking to buy. I expect prices and rates to rise, meaning affordability will only worsen from here. In fact, once mortgage interest rates reach 5 percent, homeownership in high-cost areas like California could be out of reach for many people who qualify now." In California in particular, home prices are outpacing incomes. Seven of the nation's 10 least affordable cities are in California, and San Francisco has the highest housing costs relative to income in the country. According to Arch MI, median Debt to Income ratio (DTI) in San Francisco is 61 percent. By contrast, the most affordable city in the country—Detroit— has a DTI of 13 percent. What may come as a surprise to some is the rising affordability of housing in New York City, which has experienced a drop of 8 percent in its median DTI since 2015. However, New York is still more expensive than all but nine American metro areas. At the state level, the Arch MI Risk Index model revealed that Alaska, North Dakota, and Wyoming are at risk for home price declines due to weak employment and home sales, as well as declining oil and mining activity. Other states at risk for home price declines include Louisiana, New Mexico, Oklahoma, and West Virginia.

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