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OCC Personnel Changes Elevate Role of Enterprise Governance and Ombudsman, Indicate Increased Focus on Fair Lending
On February 7, the OCC announced that Larry Hattix will serve as Senior Deputy Comptroller for Enterprise Governance and Ombudsman. The move also elevates enterprise governance to the OCC’s Executive Committee. In the new position, Mr. Hattix will oversee the agency’s enterprise governance function, national bank and savings association appeals program, and the agency’s customer assistance group. Mr. Hattix has served as Ombudsman since January 2008, prior to which he served as Assistant Deputy Comptroller for the Cincinnati/Columbus Field Office, where he directly supervised 40 banks. On the same day, the OCC announced Donna Murphy as Director for Community and Consumer Law, a position that oversees the OCC’s law department division that provides legal interpretations and advice on consumer protection, fair lending, and community reinvestment and development issues. Ms. Murphy had served as Principal Deputy Chief for the Housing and Civil Enforcement Section, Civil Rights Division, at the Department of Justice since October 2010. Prior to that, she served as Deputy Chief and Acting Chief for the Housing and Civil Enforcement Section.
Democratic Lawmakers Seek Information Regarding Independent Foreclosure Review Settlements
On January 31, Senator Elizabeth Warren (D-MA) and Representative Elijah Cummings (D-MD), House Oversight Committee Ranking Member, sent a letter to the Federal Reserve Board and the OCC seeking documents and information regarding the regulators’ decision to enter into settlements with certain mortgage servicers subject to consent orders issued in April 2011 to (i) resolve allegations that the firms engaged in improper mortgage servicing and foreclosure practices and (ii) end the Independent Foreclosure Review process established by the prior consent orders. The lawmakers are seeking (i) all documents regarding the performance of the independent consultants engaged by the servicers to conduct the foreclosure reviews, (ii) all documents created by the servicers or the consultants to update the regulators on the status of the foreclosure review process, (iii) all documents compiled by the regulators indicating the total amount of settlement funds paid to each consultant, (iv) the number of borrowers who requested review, by gender, race, zip code, and property value, (v) the total number of reviews initiated by each contractor, and (vi) the average time each contractor required to complete a review of a borrower’s file.
On the same day, House Financial Services Committee Ranking Member Maxine Waters (D-CA) sent a separate letter requesting that the regulators ensure the final agreements entered in lieu of the foreclosure reviews include certain specific provisions, including (i) reordering of the matrix categories, (ii) requirements that principal reduction be provided as a form of indirect relief, and (iii) appointment of an independent monitor. Representative Waters also seeks information about payments to the consultants and how the regulators decided on the $8.5 billion settlement amount. Finally, a recent report noted that Representative Carolyn Maloney (D-NY) initiated her own inquiry into the settlements and payments to the consultants. According to the report, the letter may be used to support a request that the regulators claw back some of the payments made to the consultants.
OCC Names Acting Head of Large Bank Supervision
On January 30, the OCC announced that Martin Pfinsgraff will serve as acting Senior Deputy Comptroller for Large Bank Supervision, replacing Michael Brosnan who will become Examiner-in-Charge of an OCC-supervised institution. Mr. Pfinsgraff currently serves as Deputy Comptroller for Credit and Market Risk. He previously held senior positions with iJet International, Prudential Insurance Company, and Prudential Investment Corporation. Darrin Benhart, one of the two Deputy Comptrollers in the Credit and Market Risk Group, will serve as acting Senior Deputy Director for that group.
D.C. Circuit Forces Banking Regulators to Revisit Order Barring Bank Director from Bank Activities
On January 29, the U.S. Court of Appeals for the D.C. Circuit held that the OCC and the Federal Reserve Board (FRB) improperly prohibited a bank director from participating in future banking activities of several institutions based on an agreement the director made to avoid state-level prosecution on perjury charges. DeNaples v. OCC, No. 12-1162, 2013 WL 322531 (D.C. Cir. Jan. 29, 2013). Under Section 19 of the Federal Deposit Insurance Act, banking regulators can prohibit an individual from participating in the affairs of an insured depository institution if the individual has been convicted of certain criminal offenses, or if the individual has entered into a “pretrial diversion or similar program” related to those criminal charges. In this case, the OCC and the FRB determined that a bank director could not participate in the affairs of several institutions with which he was affiliated because the director entered an agreement with state prosecutors by which the prosecutors withdrew perjury charges in exchange for certain actions taken by the bank director. The agencies determined the agreement constituted a “pretrial diversion or similar program.” When the bank director refused to halt his participation, the OCC and the FRB issued cease and desist orders requiring the director to terminate his relationship with the institutions. On appeal, the court held that the regulators applied an improper definition of “pretrial diversion or similar program” when they reasoned that the ordinary meaning of the phrase extends to any conditional agreement to withdraw charges. The court held that the definition must require more than any quid pro quo, and that the regulators should consider whether an agreement to avoid charges includes a voluntary agreement for treatment, rehabilitation, restitution or other noncriminal or nonpunitive alternatives. The court vacated the agencies’ orders and directed the agencies to determine on remand whether the conditions required by the state-level agreement fit within the parameters of a “pretrial diversion or similar program,” as established by the court.
Federal Agencies Announces Numerous Appointments
SEC Names Office of Market Intelligence Chief. On January 22, the SEC announced that Vincente Martinez will serve as the head of the Office of Market Intelligence, a unit of the Enforcement Division that collects and evaluates tips, complaints and referrals. Mr. Martinez rejoins the SEC from the CFTC where he served as the first director of that agency’s whistleblower office. He previously spent eight years in the SEC’s Enforcement Division, most recently helping to develop Enforcement Division and SEC-wide policies and procedures for handling tips, complaints, and referrals. Lori Walsh, who is currently serving as the Acting Chief of the Office of Market Intelligence, will serve as Deputy Chief of the office.
FHFA Announces Deputy Director for Housing Mission and Goals. On January 15, the FHFA announced that beginning in March Sandra Thompson will serve as Deputy Director of the Division of Housing Mission and Goals with responsibility for overseeing the FHFA’s housing and regulatory policy, financial analysis, and policy research and analysis of housing finance and financial markets. Ms. Thompson will leave her current position as Director of the Division of Risk Management Supervision at the FDIC where she led the agency’s examination and enforcement program for risk management and consumer protection. The FHFA also promoted Nina Nichols to serve as Deputy Director of the Division of Supervision Policy and Support.
OCC Announces Chief Counsel. Last week, the OCC announced Amy Friend as the agency’s Chief Counsel beginning in February, replacing Julie Williams who retired last fall. Ms. Friend is a former assistant chief counsel at the OCC and served as chief counsel to the Senate Banking Committee during the development of the Dodd-Frank Act.
Federal Regulators Announce Additional Monetary Settlements in Lieu of Independent Foreclosure Review
On January 16, the Federal Reserve Board announced that two additional mortgage servicers subject to consent orders issued in April 2011 agreed in principle to a monetary resolution of allegations that the firms engaged in improper mortgage servicing and foreclosure practices. As described, the agreements in principle mirror those obtained by the Federal Reserve Board and the OCC from 10 other servicers, which were announced last week. Together the two firms will provide $232 million in direct payments to more than 220,000 borrowers whose homes were in foreclosure during 2009 and 2010. The companies also will provide $325 million in other assistance, such as loan modifications and forgiveness of deficiency judgments. On January 18, the Federal Reserve Board and the OCC announced an agreement in principle with another servicer that will provide $96 million in direct payments to more than 112,000 borrowers, and $153 million in other assistance. Under all three agreements, borrowers will be contacted by the end of March about their exact payout, which could range from hundreds of dollars to $125,000, depending upon the type of alleged servicing error.
Federal Regulators Announce BSA/AML and Derivatives Trading Enforcement Actions Against Large Bank.
On January 14, the Federal Reserve Board and the OCC issued two consent orders against a large international bank and its trust company over alleged deficiencies in its Bank Secrecy Act and Anti-Money Laundering (BSA/AML) compliance programs. Under the Federal Reserve Board Order, the bank is required to conduct a full review of its compliance program and submit written reports to the Federal Reserve Bank of New York regarding the review’s findings and recommendations. Any proposed improvements are subject to approval by the Federal Reserve Bank of New York. The OCC Order identifies “critical deficiencies” in the bank’s BSA/AML compliance programs with respect to suspicious activity reporting, transaction monitoring, customer due diligence, and internal control implementation and requires specific corrective actions in response. Neither order requires a civil money penalty. On the same day, the Federal Reserve Board and the OCC issued consent orders concerning the bank’s derivatives trading activity. Under those orders, the bank must take corrective action as to its risk-management program, finance and internal audit functions, and Chief Investment Office, but the orders do not include a monetary settlement. The Federal Reserve Board stated that the corrective actions are necessary in light of disclosed, significant losses in a large synthetic credit portfolio managed by the Chief Investment Office. An OCC report found that the bank lacked adequate oversight to protect itself from such material risk, and had other inadequate risk management processes, trade valuation controls, and audit processes.
Federal Regulators Agree to Monetary Settlement With 10 Servicers In Lieu of Independent Foreclosure Review
On January 7, the OCC and the Federal Reserve Board announced that 10 of the 14 mortgage servicers subject to consent orders issued in April 2011 regarding alleged improper servicing and foreclosure practices agreed in principle to resolve those allegations by paying borrowers $3.3 billion directly and providing $5.2 billion in borrower assistance through loan modifications and forgiveness of deficiency judgments. For the settling servicers, the agreement ends the costly and ineffective Independent Foreclosure Review program required by the consent orders, pursuant to which the banks were to compensate borrowers for any financial injury and/or improper foreclosure identified by third-party consultants through a case-by-case loan file audit process or in response to borrower requests for review. The OCC states that more than 3.8 million borrowers are expected to receive compensation ranging from hundreds of dollars up to $125,000, without having to take any action to become eligible. The exact payout will depend on the type of alleged servicing error, and the regulators expect that borrowers will be contacted by the end of March with payment details. The regulators continue to seek similar agreements with the remaining companies subject to the 2011 consent orders.
OCC Extends Deadline for Application of Lending Limits Rule
On January 4, the OCC issued a final rule that extends until July 1, 2013 the temporary exception for the application of its lending limits rule to certain credit exposures. In June 2012, the OCC issued an interim final rule to implement Dodd-Frank Act revisions to the statutory definitions of loans and extensions of credit for lending limit purposes to include certain credit exposures arising from a derivative transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction. That interim rule gave institutions until January 1, 2013 to comply, and the OCC extended that date to April 2013 through a recent bulletin. The instant rule extends the date once more and explains that, without the extension, institutions that wish to use an internal model method to determine credit exposure for derivative transactions and securities financing transactions may not have sufficient time to develop, receive approval for, and implement such a model.
Senators Ask Regulators to Halt Bank Payday Lending
On January 2, a group of Democratic Senators sent a letter to the Federal Reserve Board, the FDIC, and the OCC seeking action to stop banks from making payday loans. The letter cites the agencies’ “long history of appropriately prohibiting . . . banks from partnering with non-bank payday lenders,” but claims that several banks are currently making payday loans directly to their customers. The products at issue are actually deposit advance loans, which the Senators claim are structured the same as traditional payday loans and put customers in a cycle of debt. The Senators call on the regulators to take “meaningful regulatory action” in response to the problem as they present it, but stop short of identifying specific banks or outlining potential federal legislation.