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Financial Services Law Insights and Observations

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  • FRB Governor Reviews Mortgage Servicing Enforcement Actions

    Lending

    On January 7, Federal Reserve Board (FRB) Governor Sarah Bloom Raskin, in a speech to the Association of American Law Schools, reviewed the status of federal banking regulators’ enforcement responses to what she characterized as the "foreclosure crisis". Governor Raskin described the enforcement actions brought last year by the FRB and other banking regulators against mortgage servicers as “only a start in a comprehensive enforcement response to the foreclosure crisis” and provided a reminder that anticipated monetary penalties for alleged deficient servicing and foreclosure practices are still to come. Further, Governor Raskin identified strong enforcement as a necessary incentive to developing an improved mortgage servicing model.

    Foreclosure Federal Reserve Mortgage Servicing

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  • Illinois Amends Mortgage Originator Licensing Requirements

    Lending

    On January 6, the Illinois Department of Financial and Professional Regulations published amendments to regulations governing mortgage originator licensing. The amendments, which are effective immediately, include an increase in certain fees paid by mortgage loan originators to cover costs incurred by the Department in providing current services. Other amendments include those to (i) reestablish and update license reporting provisions, including through the use of the Nationwide Mortgage Licensing System and Registry, to implement state-law changes required by the federal SAFE Mortgage Licensing Act; (ii) require submission of a purchasing activity report; and (iii) establish a new standard for payment processing by servicers. The purchasing activity report requires annual reporting of (i) the names of originating entities, (ii) dollar amounts for each loan by property address, (iii) dollar amount of Illinois loans contained in a multi-state property portfolio, and (iv) total dollar amount for all Illinois loans purchased.

    Mortgage Origination

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  • Freddie Mac, Fannie Mae Announce Unemployment Forbearance Programs

    Lending

    On January 6, Freddie Mac published Bulletin 2012-2, which allows servicers to offer eligible borrowers a short-term unemployment forbearance period, and the possibility of an extended unemployment forbearance period, if needed. On January 11, Fannie Mae followed with Servicer Guide Announcement SVC-2012-01, implementing a substantially similar program. Under the new programs, servicers may suspend or reduce an eligible borrower’s mortgage payments for a period of six months. With approval from Freddie Mac or Fannie Mae, respectively, servicers also may extend the six-month forbearance period for up to an additional six months, provided that the period does not extend beyond a date that would cause the delinquency to exceed twelve months. Further, following an unemployment forbearance period, a borrower may be re-evaluated for a new Home Affordable Modification Program (HAMP) or non-HAMP trial-period plan if the borrower was complying with the terms of the existing trial plan before obtaining unemployment forbearance. Under the Freddie Mac program, servicers must incorporate unemployment forbearance into their operations by February 1, 2012, but servicers have until March 1, 2012 to comply under the Fannie Mae program.

    Freddie Mac Fannie Mae Mortgage Servicing

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  • Oklahoma District Court Dismisses Most Claims in Putative Wrongful Foreclosure Class Action

    Lending

    On January 6, the U.S. District Court for the Western District of Oklahoma dismissed the majority of claims brought by two borrowers seeking to represent a class of borrowers against Bank of America Corporation, Bank of America N.A., and BAC Home Loans Servicing, LP (collectively BAC) for alleged wrongful foreclosure practices. Risener v. Bank of Am. Corp., No. 10-1110 (W.D. Okla. Jan 6, 2012). In this case, the borrowers claim that after their original servicer ceased operations, their loan servicing was assigned to BAC and their loan was inaccurately recorded as being in default. According to the borrowers, multiple attempts to prove that the borrowers were not in default were ignored by the defendants. Further, according to the borrowers, BAC Home Loans Servicing, LP, continued to send default notices and threatened to foreclose, refused to verify the borrowers’ default status, and reported false information about borrowers to credit reporting agencies.

    As such, the borrowers allege that defendants (i) violated the Fair Debt Collections Practices Act (FDCPA) by using false, deceptive, or misleading representations in the collection of debts and by failing to provide certain required notices; and (ii) violated the Fair Credit Reporting Act (FCRA) by providing false information to credit reporting agencies and by failing to investigate the disputed default loan status. Agreeing with a recent Georgia decision involving a similar fact pattern, the court held that because the borrowers allege their loan was not in default, BAC could not have been “debt collectors” subject to the FDCPA, because the FDCPA requires a loan to be “in default”, not “allegedly in default.” Further, the borrowers do not allege that Bank of America Corporation or Bank of America, N.A. ever attempted to collect a debt and, therefore, regardless of their status as a debt collector, cannot be found in violation of the FDCPA. With regard to the borrowers’ FCRA claims, the court held that the FCRA does not include a cause of action for the act of providing false information but that borrowers’ claims that BAC Home Loans Servicing failed to investigate were sufficiently supported by the allegations in the complaint and therefore could proceed.

    Foreclosure FDCPA FCRA

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  • Ninth Circuit Clarifies TILA Delivery Requirements

    Lending

    The U.S. Court of Appeals for the Ninth Circuit recently held that lender compliance with the Truth In Lending Act’s (TILA) delivery obligation requires that the borrower be permitted to keep written copies of the right-to-rescind notice. Balderas v. Countrywide Bank, N.A., No. 10-55064, 2011 WL 6824977 (9th Cir. Dec. 29, 2011). In this case, the borrowers allege that the lender improperly pressured them into a loan and then refused to grant their request to rescind the loan, which allegedly occurred within the three-day rescission period. The borrowers claim that the lender provided defective copies of the Notice of Right to Cancel, which did not include the closing date or the expiration date for the rescission period. TILA requires that when the rescission notice is provided in writing, as it was in this case, the lender must deliver to the borrower two copies including the rescission expiration date. The district court ruled that a copy of the Notice of Right to Cancel attached to the complaint proved that the rescission notice was delivered to the borrowers, and on that basis dismissed the case. The Ninth Circuit disagreed, holding that the Notice of Right to Cancel in the record proves only that borrowers signed the document possessed by the lender. To “deliver” the notice in compliance with TILA requires a “permanent physical transfer from one party to another”; momentary delivery does not suffice. While the document in the record provides the lender with a rebuttable presumption of delivery, it does not prove that two copies were delivered to the borrowers as required. The court held that the borrowers should be permitted to attempt to rebut the presumption and prove their allegations of improper delivery to a trier of fact.

    TILA

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  • OCC Supports Independent Foreclosure Review Program with Public Service Adds

    Lending

    On January 4, the OCC announced that it placed print and radio public service advertisements to inform mortgage borrowers of the Independent Foreclosure Review program launched by the OCC in November 2011. The print feature explains that borrowers foreclosed upon between January 1, 2009 and December 31, 2010 are eligible to have their foreclosures independently reviewed to determine if the borrowers suffered financial injury as a result of any errors by certain large, federally regulated mortgage servicers. The ads will run in Spanish and English in 7,000 small newspapers and on 6,500 small radio stations.

    Foreclosure

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  • Fannie Mae and Freddie Mac Announce Guaranty Fee Increase

    Lending

    On December 30, Fannie Mae and Freddie Mac announced a 10 basis point increase of the guaranty fee charged for all mortgages delivered for securitization on or after April 1, 2012. The credit fee on whole loans will also increase by the same amount. The increases are required by the Temporary Payroll Tax Cut Continuation Act enacted on December 23, 2011, and a subsequent directive from the Federal Housing Finance Agency. The Act uses the increase in fees to cover fiscal costs associated with a two-month extension of a payroll tax reduction.

    Click here for a copy of the Freddie Mac announcement; click here for the Fannie Mae announcement.

    Freddie Mac Fannie Mae

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  • Freddie Mac Revises Guide to Reflect Changes to Relief Refinance Mortgage Requirements

    Lending

    On January 5, Freddie Mac issued Bulletin 2012-1, which revises the Freddie Mac Relief Refinance Mortgage - Same Servicer program requirements for mortgages with loan-to-value (LTV) ratios less than or equal to 80 percent. Effective immediately, the minimum Indicator Score requirement for such loans is eliminated, provided the principal and interest payment does not increase by more than 20 percent. Freddie Mac also eliminated the maximum total LTV and Home Equity Line of Credit total LTV ratio requirement of 105 percent for Relief Refinance Mortgages - Same Servicer and Relief Refinance Mortgages - Open Access with LTV ratios of less than or equal to 80 percent.

    Freddie Mac

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  • Michigan Enacts Several Foreclosure-Related Bills

    Lending

    In late December, Michigan enacted several bills related to certain of the state's foreclosure rules. HB 4542 and 4543 alter and extend through the end of 2012 Michigan's pre-foreclosure notice and mediation procedures. Among the changes is a shift from mandatory to optional filing of a one-time pre-foreclosure notice publication. The new laws also (i) make clear that a borrower's housing counselor may initiate a pre-foreclosure mediation on the borrower's behalf, (ii) extend to thirty days the time for a borrower or housing counselor to respond to a pre-foreclosure notice, and (iii) allow foreclosure by advertisement before the end of the 90-day stay period if a borrower fails to return a completed financial package within sixty days of the pre-foreclosure notice. Additionally, pre-foreclosure notices mailed on or after February 1, 2012 must (i) provide certain detailed contact information related to scheduling mediation, (ii) state the length of the redemption period, and (iii) include certain statements regarding responsibility for property damaged during the redemption period. Finally, HB 4544, among other things, reduces to six months the redemption period on non-agricultural properties over three acres when the amount claimed due exceeds two-thirds of the original mortgage balance.

    Foreclosure

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  • New York Limits Exemptions for Mortgage Licensing and Registration Requirements

    Lending

    On January 4, the New York Department of Financial Services (DFS) published a final rule eliminating certain exemptions to the state's mortgage licensing and registration requirements. The rule narrows the definition of "exempt organization" by excluding nonbanking subsidiaries of bank holding companies, including, for example, subsidiaries acting as insurance, escrow, or title companies. Such subsidiaries now will be required to either register or become licensed with the DFS before soliciting, negotiating, placing, processing or making mortgage loans. Newly covered entities must file an application for licensure or registration by April 3, 2012 and complete such processes by July 2, 2012. The rule allows the DFS Superintendent to adjust the compliance dates.

    Mortgage Licensing

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