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Freddie and Fannie address new rules for private flood insurance
On June 5, Fannie Mae issued a Selling Notice to address new regulations on private flood insurance taking effect July 1. (See previous InfoBytes coverage here.) While the joint final rule issued by the federal banking agencies in February applies the private flood insurance provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) to supervised financial institutions, Fannie Mae stated that it is not subject to the final rule and will continue to apply its current Selling Guide eligibility standards and procedures to all loans in FEMA-designated special flood hazard areas (SFHA), or to loans secured by residences that are in a SFHA at the time of origination. Under the Selling Guide, “private flood insurance policies may be delivered as an alternative to National Flood Insurance Program (NFIP) policies” provided the terms and amount of coverage meet the specified qualifications and the property insurer meets the rating requirements.
On June 6, Freddie Mac released Guide Bulletin 2019-11, which, among other things, also emphasizes that it is not subject to the final rule, and is separately authorized by the Biggert-Waters Act to accept private flood insurance policies and establish requirements for issuers of these policies on premises securing Freddie Mac Mortgages. Specifically, Freddie Mac stated that it will continue to apply its current criteria when accepting private flood insurance policies, and that its requirements will “apply to all Seller/Servicers, including an institution subject to the federal banking agencies’ rule regardless of the rule provision (mandatory or discretionary) used to accept a private flood insurance policy.”
Maryland amends statute of limitations for UDAP actions against mortgage servicers
On May 25, the Maryland governor signed HB 0425, which amends the state’s statute of limitations applicable to certain civil actions relating to unfair, abusive, or deceptive trade practices (UDAP) filed against a mortgage servicer. Specifically, the bill requires that an action filed by a homeowner alleging damages arising out of a UDAP violation shall be filed within the earlier of: (i) 5 years after a foreclosure sale of the residential property; or (ii) 3 years after the mortgage servicer discloses its UDAP violation to the homeowner. The bill is effective October 1.
FDIC fines banks for flood insurance, BSA violations
On May 31, the FDIC announced its release of a list of administrative enforcement actions taken against banks and individuals in April. The list reflects that the FDIC issued 17 orders, which includes “two consent orders; three terminations of consent orders; five Section 19 orders; three removal and prohibition orders; and four orders to pay civil money penalty.” Among other actions, the FDIC assessed civil money penalties against three separate banks (see here, here, and here) for alleged violations of the Flood Disaster Protection Act, including failing to (i) obtain flood insurance coverage on loans at or before origination; (ii) maintain, increase, extend, renew, or provide written notification to borrowers concerning flood insurance coverage on loans secured by collateral located in special flood hazard areas; (iii) follow force-placement flood insurance procedures; or (iv) provide borrowers with notice of the availability of federal disaster relief assistance within a reasonable timeframe.
The FDIC also assessed a civil money penalty against a New York-based bank related to alleged violations of the Bank Secrecy Act.
FHFA officially launches the Uniform Mortgage-Backed Security
On June 3, the Federal Housing Finance Authority (FHFA) officially launched the Uniform Mortgage-Backed Security (UMBS), a common security through which Fannie Mae and Freddie Mac mortgage-backed securities will be issued. FHFA Deputy Director Robert Fishman noted that the new UMBS will bring “additional liquidity and efficiency to the market.” Moreover, “[b]y addressing structural issues and trading disparities, the UMBS will benefit taxpayers and the nation's housing finance system.” As previously covered by InfoBytes, in March 2018, FHFA announced the UMBS, stating that it would replace all current offerings of mortgage-backed securities that occur in the to-be-announced (TBA) forward market. The FHFA also indicated that the UMBS would be issued using the Common Securitization Platform (CSP) through the Enterprises’ joint venture, Common Securitization Solutions (CSS).
Minnesota adds mortgage originator licensing exemption
On May 22, the Minnesota governor signed HF 990, which exempts manufactured home dealers and salespersons from the state’s licensing requirements for residential mortgage originators. Under the bill, manufactured home dealers or salespersons qualify for the exemption if they (i) perform only clerical or support duties in connection with assisting a consumer in filling out a loan application; (ii) do not receive any direct or indirect compensation from any individual or company, in excess of the customary salary or commission, for assisting consumers with loan applications; and (iii) provide specified disclosures. The bill takes effect on August 1.
3rd Circuit holds trustee not liable for RMBS losses
On May 21, the U.S. Court of Appeals for the 3rd Circuit affirmed the trial court’s dismissal of an investor action against Residential Mortgage-Backed Securities (RMBS) trustees, concluding the investors failed to show that the trustees breached any duties owed under the governing documents. According to the opinion, investors filed suit against the owner trustee for fifteen RMBS trusts, which became “worthless in the wake of widespread loan defaults,” claiming breach of contract and the implied covenant of good faith. The investors argued the trustee (i) abdicated its responsibilities relating to the loan files; (ii) failed to provide written notice of default; and (iii) failed to intervene when other parties exercised their duties carelessly. The trial court dismissed all claims against the trustee.
On appeal, the appellate court concluded the trial court correctly dismissed the claims. Specifically, the appellate court noted that under the trusts’ governing documents, the trustee was acting as an “owner trustee,” which was “primarily ministerial, involving limited duties such as executing documents on behalf of the trusts and accepting service of legal process.” The trustee did not have an overarching duty to protect the trusts, as it agreed “to perform only the modest functions” under the governing agreements and therefore, was shielded from that general liability. The appellate court concluded that the investors failed to show the trustee breached any actual duties owed under the governing agreements, rejecting the investors’ three specific claims for breach of contract. Moreover, the court emphasized that the governing agreement “forecloses the implied duty [the investors] propose,” noting that the trustee negotiated for limited liability and received a fee in exchange for modest functions, making it “difficult to imagine” the trustee would willingly agree to “sweeping supervisory responsibility.”
Illinois amends Residential Mortgage License Act
On May 10, the Office of the Illinois Secretary of State published in the Illinois Register a notice by the Department of Financial and Professional Regulation of adopted amendments to certain parts of its Residential Mortgage License Act. In general, the amendments impact independent loan processor licensing as well as residential mortgage loan bond and advertising requirements. Specifically, an independent loan processing entity must employ one or more licensed mortgage loan originators (MLO) to be in compliance with the Act’s supervision and instruction requirements. In addition, any advertisement appearing in the state by a licensee concerning residential mortgage loans must clearly and conspicuously include the following: (i) the Nationwide Multistate Licensing System and Registry (NMLS) Consumer Access homepage; and (ii) a licensee’s unique NMLS identifier. If a MLO is advertised, licensees are also required to include the MLO employee’s individual NMLS unique identifier, in addition to listing the licensee’s NMLS unique identifier. Furthermore, licensees are prohibited from including a NMLS unique identifier in any advertisement related to “activities other than residential mortgage lending or brokering” unless certain criteria are met. The amendments became effective immediately.
Georgia amends mortgage lender licensing laws
On May 7, the Georgia governor signed HB 185, which amends various state laws related to financial institutions, including the licensing requirements for mortgage lenders and mortgage loan originators. The bill specifies that any licensed mortgage lender is authorized to engage in all activities that are authorized for a mortgage broker and therefore, is not required to obtain a mortgage broker license. Additionally, the bill specifies that a mortgage loan originator license shall become inactive in the event that a mortgage loan originator is no longer sponsored by a mortgage lender or mortgage broker that is licensed. The bill becomes effective July 1.
Kansas updates GAP waiver guidance
On May 19, the Office of the State Bank Commissioner of Kansas published in the Kansas Register an amended Administrative Interpretation No. 1004 covering Guaranteed Asset Protection (GAP). In general, the interpretation provides guidance for creditors to follow to exclude the cost of GAP waiver agreements from the calculation of the finance charge with consumer credit sales and closed-end consumer loans pursuant to the Uniform Consumer Credit Code. The revision amends paragraph 3(g) of the interpretation, which requires clear disclosure on how to contact the GAP provider in connection with claims for GAP coverage. Paragraph 3(g) states that the information must be written in bold font and the word “claims” must be bolded and underlined. Additionally, the form must also advise Kansas consumers that they can contact the Kansas Office of State Bank Commissioner with complaints about their GAP waiver agreement. The revised interpretation was effective on May 15.
Vermont streamlines mortgage licensing
On May 14, the Vermont governor signed S.154, which, among other things, amends the state’s mortgage licensing statute. Specifically, the legislation repeals various provisions of the state’s licensing process for mortgage lenders and servicers and replaces the provisions with a new chapter (8 V.S.A. Chapter 72) intended to streamline the law and bring more clarity and cohesion to the licensing process. The bill is effective July 1.