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Freddie Mac Appoints New CEO, OCC Names Senior Deputy Comptroller
On May 10, Freddie Mac announced that Donald Layton will serve as the organization’s Chief Executive Officer. Mr. Layton will join the firm on May 21, 2012. Mr. Layton has served as chairman & CEO of E*TRADE Financial and worked for nearly 30 years at JP Morgan Chase and its predecessors.
On May 7, the Office of Comptroller of the Currency announced the hiring of Paul Nash to succeed John Walsh as Senior Deputy Comptroller and Chief of Staff. Mr. Nash comes from the FDIC, where he served for two years as the Deputy to the Chairman for External Affairs.
Federal Banking Regulators Propose Joint Revisions to Leveraged Finance Guidance
On March 26, the Federal Reserve Board, the FDIC, and the OCC proposed revisions to the interagency leveraged finance guidance issued in 2001. Leveraged finance transactions are characterized by a borrower with a degree of financial or cash flow leverage that significantly exceeds industry norms as measured by various debt, cash flow, or other ratios. According to the agencies, the guidance needs to be revised given increasing leveraged lending volumes, deteriorating underwriting practices, limited protection of debt agreements, aggressive capital structures and repayment prospects, and less than satisfactory management information systems. Specifically, the agencies believe that the guidance should be updated to refocus attention on the following five key areas: (i) establishing a sound risk-management framework, (ii) underwriting standards, (iii) valuation standards, (iv) pipeline management, and (v) reporting and analytics. The agencies are accepting comments on the proposed guidance through June 8, 2012.
Banking Agencies Extend Deadline to Request Independent Foreclosure Review
On February 15, the Federal Reserve Board and the Office of the Comptroller of the Currency announced that the deadline for borrowers to seek review of their mortgage foreclosures under the Independent Foreclosure Review program has been extended to July 31, 2012. Under the program, an eligible borrower can have his or her foreclosure reviewed by independent consultants to determine whether the borrower was financially injured due to errors, misrepresentations, or other deficiencies in the foreclosure process. An injured borrower may be eligible for compensation or other remedies.
Federal and State Officials Announce Mortgage Servicing Settlement
On February 9, U.S. Attorney General Eric Holder, HUD Secretary Shaun Donovan, Iowa Attorney General Tom Miller, and several other state and federal officials jointly announced an approximately $25 billion agreement in principle between the federal government, 49 state attorneys general and the five largest mortgage servicers to settle various mortgage servicing and foreclosure related issues. Oklahoma Attorney General E. Scott Pruitt later announced an "independent mortgage settlement" between Oklahoma and the five servicers. The national-level agreement - with Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, and Ally Financial (the servicers) - was the culmination of several state and federal investigations and extended negotiations between the parties. The settlement's terms require a commitment of approximately $20 billion in financial relief for homeowners. In addition, the servicers will pay $5 billion in cash to the state and federal governments, including $1.5 billion to establish a Borrower Payment Fund that will provide payments to qualifying borrowers whose homes were sold or foreclosed on between January 1, 2008 and December 31, 2011. The $25 billion agreement includes more than $766.5 million in monetary sanctions assessed by the Federal Reserve Board. An additional $394 million of penalties from the Office of Comptroller of the Currency are held in abeyance provided four of the servicers make payments and take other actions under the settlement with a value equal to at least the penalty amounts assessed for each servicer by the OCC. In addition to the financial compensation offered in the settlement, the servicers will conduct future business under new servicing standards, which include (i) restrictions on the default management process known as "dual tracking", (ii) a requirement for the institutions to provide a single point of contact for borrowers, (iii) specific protections for military service members beyond those provided by the federal Servicemembers Civil Relief Act, (iv) obligations concerning disclosures and practices related to force-placed insurance, and (v) limitations on servicing fees. The standards also require the servicers to establish (i) updated foreclosure and bankruptcy documentation processes, (ii) enhanced servicer oversight of third party vendors, and (iii) adherence to a new set of loan modification timelines. The terms of the agreement will be filed as a consent judgment in the U.S. District Court for the District of Columbia. Their fulfillment, over the three-year term of the settlement, will be overseen by an independent monitor, North Carolina Commissioner of Banks Joseph A. Smith. In order to ensure timely dissemination of the settlement's terms to those who may be eligible for financial relief, the parties have established a "National Mortgage Settlement" web site, which provides "Servicing Standards Highlights" and outlines key aspects of the servicing settlement. The materials provided by the federal and state officials in announcing the settlement agreement note that the agreement left numerous issues unresolved and does not preclude (i) criminal claims, (ii) securities claims and claims related to the use of an electronic mortgage registry, (iii) loan origination claims in connection with FHA-insured loans, except those covered specifically by this settlement, and (iv) borrower claims. For additional information concerning some of the state-level recoveries and issues the state attorneys general have reserved for potential future action please see California's announcement here and New York's announcement here. Buckley LLP advises clients regarding mortgage servicing issues and conducted a webinar on servicing developments, including a review of the OCC's April, 2011 Consent Orders and related servicing guidance. If you have any questions about the settlement or servicing issues in general please contact a member of our Mortgage Servicing Team.
Agencies Release Guidance on ALLL Estimation Practices for Junior Liens
On January 31, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency (collectively, the agencies), released joint guidance related to allowance for loan and lease losses (ALLL) estimation practices associated with loans and lines of credit secured by junior leans on one- to four-family residential properties. The guidance reiterates, specifically with regard to junior liens, key concepts included in generally accepted accounting principles and existing ALLL supervisory guidance related to the ALLL estimation practices. The agencies provided the guidance to remind regulated financial institutions to monitor all credit quality indicators relevant to credit portfolios and to follow appropriate risk-management principles in managing junior liens.
OCC Publishes Proposed Stress Test Rule
On January 24, the OCC published a proposed rule to implement annual capital-adequacy stress tests for national banks and federal savings associations with total consolidated assets of more than $10 billion. The rule is substantially similar to a recent FDIC stress test proposal for FDIC-insured state nonmember banks and state-chartered savings associations. (See InfoBytes, January 20, 2012). The Dodd-Frank Act requires these stress tests to aid regulators in assessing risk presented by an institution's capitalization and help ensure the institution’s financial stability. Under the proposal, the OCC would annually provide covered institutions with at least three sets of conditions - baseline, adverse, and severely adverse - that must be used in conducting an annual stress test. The tests would include calculations showing, for each quarter-end within a defined planning horizon, (i) estimates of revenues, (ii) potential losses, (iii) loan loss provisions, and (iv) potential impact on regulatory capital levels and ratios. Covered institutions also would be required to establish an oversight and documentation system to ensure that stress testing procedures are effective. Stress test results would have to be submitted to the OCC and the Federal Reserve Board by January 5 of each year, and a summary would have to be released to the public within ninety days thereafter. The OCC would plan to provide covered institutions with the scenarios at least two months before the January 5 deadline. The OCC is accepting public comment on the rule through March 26, 2012.