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Financial Services Law Insights and Observations

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  • CFPB Seeks Third Round of Feedback on Mortgage Closing Forms

    Lending

    On January 24, the CFPB announced a third round of testing of prototype mortgage closing forms as part of its Know Before You Owe campaign. In this round, the CFPB asks the public to compare two versions of its prototype closing forms and consider how each works with the prototype initial disclosure form the CFPB previously developed. The CFPB asks consumers to consider certain specific questions, including whether changes to loan terms or costs are easily identifiable from initial disclosure to closing. The CFPB also seeks comment on whether the disclosures are easy for lenders and settlement agents to use and explain. As with prior rounds of testing, the CFPB will travel to local communities to review the forms with the public. A fourth and final round of testing is expected next month.

    CFPB Mortgage Origination

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  • FHFA Releases Analysis of Principal Forgiveness Loan Modification Option

    Lending

    On January 23, the Federal Housing Finance Agency (FHFA), the entity serving as conservator for Fannie Mae and Freddie Mac, released a letter sent to certain members of Congress describing the internal analyses that resulted in FHFA’s decision not to use principal forgiveness as part of Fannie Mae’s and Freddie Mac’s loan modification programs. In short, the letter and analyses support FHFA’s previous publicly-stated conclusion that FHFA lacks statutory authority to incur the taxpayer losses that would result from the use of principal forgiveness. The letter concludes that “forbearance achieves marginally lower losses for the taxpayer than forgiveness,” but both provide the same more affordable payment for the borrower. The additional costs of principal forgiveness would not be offset by preservation of Fannie Mae and Freddie Mac assets.

    Freddie Mac Fannie Mae

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  • Georgia Federal Court Allows RESPA Class Action to Proceed

    Lending

    On January 18, the U.S. District Court for the Northern District of Georgia denied a motion to dismiss a putative class action suit alleging violations of the Real Estate Settlement Procedures Act (RESPA). Bolinger v. First Multiple Listing Serv., Inc., No. 10-00211-RWS, 2012 WL 137883 (N.D. Ga. Jan. 18, 2012). Georgia residents who purchased properties listed on the First Multiple Listing Service, Inc. (FMLS) database claim that member agents and brokers paid fees to FMLS out of settlement proceeds but did not disclose those fees on the HUD-1 settlement statement. Plaintiffs also claim that FMLS used those fees to pay kickbacks to member brokers for referrals of listing business. As such, plaintiffs allege that defendants violated (i) Section 8 of RESPA; (ii) the Sherman Act; and (iii) several Georgia state laws. The court found that plaintiffs alleged sufficient facts for their RESPA claims to survive the motion to dismiss. The Court did, however, dismiss plaintiffs’ claims under the Sherman Act, holding that the plaintiffs failed to allege facts showing that defendants engaged in price-fixing by agreeing to fix broker commissions.

    RESPA

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  • Illinois Adds Short Sale Provisions

    Lending

    On January 13, Illinois enacted SB 1259, thereby amending the Code of Civil Procedure to require a mortgagee to respond within ninety days to a residential mortgagor’s request to engage in a “short sale,” which the amendment defines as “the sale of real estate that is subject to a mortgage for an amount that is less than the amount owed to the mortgagee on the outstanding mortgage note.” In order to trigger the mortgagee’s response requirement, the mortgagor must present a bona fide written offer from a third party to purchase the property as a short sale. A mortgagee’s failure to accept the offer does not impair or abrogate its rights or affect the foreclosure proceedings, and the ninety-day response period does not stay the foreclosure proceedings. The bill became effective immediately upon passage.

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  • First Circuit Finds Waiver of Rescission Rights Through Loan Modification, Affirms District Court Dismissal for Failure to State a Claim Under Massachusetts' TILA Equivalent

    Lending

    On January 6, the U.S. Court of Appeals for the First Circuit affirmed two prior court rulings against a plaintiff for failure to state a claim for relief under the Massachusetts Consumer Credit Cost Disclosure Act (MCCCDA), Massachusetts' equivalent of the Truth in Lending Act (TILA). The First Circuit also concluded that execution of a loan modification meant that plaintiff waived any rescission rights under the MCCCDA, an issue which the district court did not reach. DiVittorio v. HSBC Bank USA, N.A., No. 11-1188, 2012 WL 33063 (1st Cir. Jan. 6, 2007). In DiVittorio, plaintiff sought to rescind a loan agreement on the ground that the disclosures made at closing did not comply with the MCCCDA. Plaintiff argued that he was entitled to rescission, damages and attorneys' fees because (i) the APR was not calculated in conformity with applicable regulations, (ii) the disclosure significantly underestimated the finance charge for the loan, and (iii) the disclosure failed to specify explicitly that payments were to be made monthly. The First Circuit, however, found that plaintiff, following repeated defaults on the loan obligation, knowingly and willingly entered into a loan modification agreement that contained a release by plaintiff with a waiver provision which waived any rescission rights he may have had. The modification had been entered into with the assistance of counsel and approved by the bankruptcy court. Independent of the modification agreement, the First Circuit concluded that plaintiff failed to state a claim for relief under TILA or the MCCCDA because (i) the performance-based reduction in interest rate was used in APR calculations, reflecting the parties' legal obligations, and was adequately set forth in the loan documents; (ii) there was no need to include in the disclosures any "unanticipated" additional interest charged as a result of late payments, as such falls outside the definition of "finance charge"; and (iii) the disclosure that there would be 360 payments spanning thirty years was sufficient such that a reasonable person would have understood that payments were to be made on a monthly basis, despite the form's failure to use the term "monthly" or to refer to the life of the loan over "360 months."

    TILA

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  • Fannie Mae Updates Maximum Allowable Foreclosure-Related Fees

    Lending

    On January 11, Fannie Mae published Service Guide Announcement SVC-2012-2, which updates limits for certain foreclosure-related fees. Effective January 1, 2012, Fannie Mae increased the maximum allowable fees for certain pre-foreclosure mediation services performed on loans secured by properties in Florida. Fannie Mae also announced an increase in the maximum allowable foreclosure attorney fees for mortgage loans, participation pool mortgage loans, and MBS mortgage loans serviced under the special servicing option secured by properties located in Hawaii, Iowa, Kentucky, Louisiana, New Mexico, North Dakota, Oklahoma, South Dakota, and Wisconsin. While most of these increased allowable attorney fees are effective for loans referred to an attorney on or after January 1, 2012, the Hawaii fee changes apply to loans referred on or after May 1, 2011.

    Fannie Mae

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  • Fannie Mae Issues Lender Letter Regarding HOPE Hotline Counseling

    Lending

    On January 11, Fannie Mae issued Lender Letter LL-2012-1, reminding servicers to continue to refer borrowers to the Homeowner’s HOPE Hotline, and noting that Fannie Mae now will pay counseling fees directly. For cases initiated prior to January 1, 2012, servicers must invoice counseling fees no later than March 31, 2012 and must submit requests for reimbursement of invoiced fees no later than April 30, 2012.

    Fannie Mae

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  • HUD Proposes Eliminating Maximum Loan Limit Appeals

    Lending

    On January 13, the U.S. Department of Housing and Urban Development (HUD) published a proposed rule to eliminate the process by which interested parties may appeal the maximum allowable loan limit for a geographic area. Noting the modern availability of sales-transaction data at the county level, HUD states that there is no longer a need to allow requests for alternative limits. Further, the appeals disrupt HUD’s overall loan limit determination process, and, by eliminating appeals, HUD will be able to release annual loan limits earlier, thereby providing more certainty to the market. HUD also noted that, because of the availability of transaction data, it received zero requests for appeal of the 2011 loan limits.

    HUD

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  • Rhode Island Court Appoints Special Master to Oversee Foreclosure-Related Negotiations

    Lending

    On January 5, the U.S. District Court for the District of Rhode Island judge responsible for handling “hundreds” of cases related to mortgage servicing and foreclosure practices appointed Merrill Sherman as special master to assist with resolution of the backlog of pending cases. In re Mortgage Foreclosure Cases, Misc. No. 11-mc-88-M-LDA (D.R.I. Jan. 5, 2012). Under the order, Ms. Sherman, formerly the President and CEO of Bancorp Rhode Island, Inc., has authority to, among other things, (i) order parties to meet and engage in settlement negotiations, (ii) order production of information to facilitate negotiations, and (iii) establish certain other procedural mechanisms to support discussions. The special master also may, among other things, make recommendations for court action to facilitate settlement or better manage the litigation.

    Foreclosure

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  • Fannie Mae CEO Announces Resignation

    Lending

    Fannie Mae CEO Michael Williams today announced his plans to resign. Mr. Williams will continue to serve in his current role until the Fannie Mae board of directors appoints a successor.

    Fannie Mae

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