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On August 24, the SEC issued a cease and desist order to a bank for allegedly misstating representations regarding the securitization of commercial real estate (CRE) loans. According to the order, from the first quarter of 2017 to the first quarter of 2019, the respondent bank made filings with the SEC in which it reported gains that it received from the sales of loans included in five CRE securitizations. Among other things, the SEC alleged that the bank: (i) “failed to document adequately and incorporate all reasonably available market data into its valuation assumptions for the CRE certificates” it received as consideration in the CRE securitizations, and (ii) “omitted and misstated material information related to the certificates and the assumptions that it had used in valuing those certificates in certain of its quarterly and annual financial statements.” The SEC noted that the bank allegedly improperly used unreasonably low assumptions for the prepayment risks applicable to the CRE certificates. In particular, the SEC alleged that the bank used baseline prepayment assumptions of 0 percent or 5 percent constant prepayment yields (CPY) while not properly documenting why other approaches were not adopted, such as the existing convention of using 100 CPY, or using available market research which indicated comparable loans generally exceeded 30 percent CPY. Without admitting or denying the allegations, the bank agreed to pay a $1.75 million civil penalty. The company will also cease and desist from committing or causing any future violations of the Exchange Act.
On April 7, the U.S. District Court for the Northern District of California granted preliminary approval for a $13 million settlement in a class action against an affiliate of a real estate services company for allegedly violating the TCPA by soliciting calls to consumers. According to the plaintiff’s motion for preliminary approval, the plaintiff alleged that he received unwanted telephone solicitations on behalf of the defendant to his residential telephone lines that he had previously registered on the “Do Not Call” registry, in addition to alleging that he received repeated unwanted telemarketing calls even after he had requested that the defendant and/or its agents to not to call him back. If the settlement is approved, each member of the settlement class, which consists of individuals in the U.S. who received two or more calls since September 13, 2014 on their residential telephone number from the defendant’s affiliate that promoted the purchase of the defendant’s goods and services, would receive $350.00. The proposed settlement also seeks an additional $2.77 million in attorney fees and costs.
On April 5, the FTC approved a final order settling charges arising from a 2017 FTC administrative complaint alleging that a Louisiana appraisal board unreasonably restrained price competition for real estate appraisal services provided to appraisal management companies in the state. Under the Dodd-Frank Act, appraisal management companies are required to pay “a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.” The FTC alleged that the appraisal board exceeded Dodd-Frank’s mandate by requiring appraisal fees “to equal or exceed the median fees” identified in survey reports commissioned and published by the appraisal board, and then investigated and sanctioned companies that paid fees below the specified levels. Under the terms of the order, the appraisal board is prohibited from adopting a fee schedule for appraisal services or taking any other actions that may raise, fix, maintain, or stabilize prices, compensation levels, rates, or payment terms for real estate appraisal services. Additionally, the appraisal board must rescind Rule 31101 in the Louisiana Administrative Code, which effectively sets minimum fees for real estate appraisals.
On March 4, the U.S. Treasury Department announced that the Financial Action Task Force (FATF) concluded its sixth plenary meeting, in which it, among other things, “agreed upon a revised standard to combat the misuse of anonymous shell companies and set the stage for its members and the broader global FATF network to be held accountable to more stringent standards.” FATF adopted amendments on beneficial ownership transparency for legal persons, which will “enhance the quality of beneficial ownership information (BOI) collected by governments,” and will “enable efficient access by law enforcement to this information and require improved international cooperation.” FATF also agreed upon a new updated Mutual Evaluation Methodology and an updated Mutual Evaluation Procedures. FATF will publish a report on migrant smuggling, which is intended to “raise awareness to the importance of developing a comprehensive understanding of the financial component of this criminal activity among both the public and private sectors.” Additionally, FATF is planning to launch a public consultation on updated Risk Based Guidance for the real estate sector this spring.
On December 20, the OCC issued Bulletin 2021-65 announcing the revision of the Other Real Estate Owned (OREO) booklet of the Comptroller’s Handbook, which applies to the OCC’s supervision of community banks. The updated booklet replaces the booklet of the same title issued in September 2020, and rescinded OCC Bulletin 2020-79, “Other Real Estate Owned: Updated Comptroller’s Handbook Booklet.” (Covered by InfoBytes here.) Among other clarifying changes, the updated booklet: (i) defines physical possession as it pertains to OREO properties; and (ii) updates ownership obligations and actions as they pertain to the Fair Housing Act.
On October 22, the FDIC adopted a final rule amending the Interagency Guidelines for Real Estate Lending Policies to include consideration of the capital framework established in the community bank leverage ratio (CBLR) rule into the method of calculating the ratio of loans in excess of the supervisory loan-to-value limits (LTV limits), which applies to all FDIC-supervised financial institutions. As previously covered by InfoBytes, the FDIC issued the proposed rule to amend the Interagency Guidelines for Real Estate Lending Policies in June by proposing to establish supervisory LTV criteria for certain real estate lending transaction types and allowing exceptions to the supervisory LTV limits. Among other things, the final rule: (i) “revises the Appendix so that all FDIC-supervised institutions calculate the ratio of loans in excess of the supervisory LTV limits using tier 1 capital plus the appropriate allowance for credit losses in the denominator, regardless of an institution’s CBLR election status”; and (ii) “provides a consistent approach for calculating the ratio of loans in excess of the supervisory LTV limits at all FDIC-supervised institutions,” and “would approximate the historical methodology . . . for calculating the ratio of loans in excess of the supervisory LTV limits.” The final rule is effective 30 days after publication in the Federal Register.
On June 15, the FDIC Board of Directors met in open session to discuss Real Estate Lending Standards and Minority Depository Institutions (MDIs), among other things. According to FIL-41-2021, the FDIC issued a proposed rule to amend the Interagency Guidelines for Real Estate Lending Policies “to conform the method for calculating the ratio of loans in excess of the supervisory loan-to-value (LTV) limits with the capital framework established in the community bank leverage ratio (CBLR) rule.” The proposed amendments would provide a consistent approach for calculating the ratio of loans in excess of the supervisory LTV limits at all FDIC-supervised institutions by, among other things, establishing supervisory LTV criteria for certain real estate lending transaction types and allowing exceptions to the supervisory LTV limits. Comments on the proposed rule are due 30 days after publication in the Federal Register.
During the meeting, the FDIC Board of Directors also approved and released an updated Statement of Policy Regarding Minority Depository Institutions to enhance the agency’s efforts to preserve and promote MDIs. In August 2020, the FDIC approved a proposed statement of policy, which updated and clarified the agency’s policies and procedures related to MDIs (covered by InfoBytes here). The recently updated statement of policy replaces the 2002 Statement of Policy and includes, among other things:
- Clarification of the FDIC’s expectations for technical assistance and illustration of opportunities for engagement with members of FDIC staff;
- Outreach efforts by the FDIC including, among other things, the establishment of the MDI Subcommittee of the Advisory Committee on Community Banking and enhanced activities to promote collaboration with MDIs;
- Definitions of terms utilized in the MDI program, detailed reporting requirements, and specific methods used to measure the effectiveness of MDI program activities; and
- Clarification of considerations made by examination staff when evaluating performance and assigning ratings.
After considering the comment letters, the FDIC revised the proposed statement of policy to identify, specifically, “state bankers associations as collaboration partners, along with other trade associations that support MDIs in the development of education and training events and other initiatives for MDIs.”
On February 10, the California Department of Real Estate reissued FAQs regarding licensing and examination processes of the department during Covid-19. The FAQs respond to questions regarding, among other things, capacity limitations at exam centers, how to reschedule a cancelled exam, the best way to complete a renewal of an expiring real estate license, completing continuing education requirements, how the shelter in place orders affect the fingerprinting process, and whether the DRE will accept electronic signatures on licensing documents.
On January 11, the Colorado governor extended previous executive orders permitting numerous state regulatory agencies to issue emergency rules for extending the expiration of certificates and licenses (previous coverage here). Among other things, the extension permits the Division of Banking to extend the expiration date of licenses issued to money transmitters, and the Division of Real Estate to extend licenses issued to real estate brokers, for an addition 30 days.
On September 21, the California Department of Real Estate issued FAQs on licensing processes during Covid-19. The FAQs respond to questions regarding, among other things, how to determine whether an exam has been cancelled and how to reschedule the exam, the best way to complete a renewal of an expiring real estate license, completing continuing education requirements, and whether the DRE will accept electronic signatures on licensing documents.
- Jedd R. Bellman to provide an “Attorney exemption/medical debt update” at the North American Collection Agency Regulatory Association annual conference
- Kathryn L. Ryan to discuss “What should crypto regulation look like: Legislation, regulation and consumer issues” at WCL's First Annual Virtual Currency Law Institute
- Elizabeth E. McGinn to discuss “How to mitigate and manage third-party risks: Leveraging tools and best practices” at The Knowledge Group’s webcast
- Elizabeth E. McGinn, Benjamin W. Hutten, and James C. Chou to discuss “The evolving regulatory landscape: Third-party and cyber risk management” at the 2022 mWISE Conference
- Sherry-Maria Safchuk to discuss “For your eyes only: Privacy updates for 2022-2023” at CCFL’s Annual Consumer Financial Services Conference
- James T. Parkinson to present a “Global anti-corruption update” at IBA’s annual conference