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Federal Regulators Host Webinar on SCRA Compliance
On September 10, federal banking regulators, the CFPB, and the FHFA conducted a webinar on federal servicemember financial protections, recent changes to the Servicemembers' Civil Relief Act (SCRA), and recent changes to Fannie Mae and Freddie Mac short sale procedures for servicemembers and loan modification options for servicemembers. The event featured compliance and enforcement updates from the CFPB, the DOJ, and the OCC. Ann Thompson from the CFPB Office of Nonbank Supervision described recent joint agency guidance regarding servicemembers with Permanent Change of Station (PCS) Orders as an extension of the CFPB's mortgage servicing exam procedures. Ms. Thompson explained that the CFPB will look at bank and nonbank servicers' policies and procedures to determine their adequacy for handling servicemembers with PCS orders. If there are deficiencies, the CFPB may take supervisory or enforcement actions to support implementation of the guidance. Eric Halperin from the DOJ's fair lending unit provided an update on enforcement activity and described a recent SCRA enforcement action against a national bank that covered all aspects of SCRA, not just foreclosure protections, as the model for the DOJ moving forward. Finally, Kimberly Hebb from the OCC offered some considerations for institutions seeking to comply with SCRA. She explained that the SCRA compliance process need not stand alone. For example, with regard to the law's rate reduction requirements, compliance steps could be incorporated into existing processes for error resolution. Ms. Hebb also stressed documentation and record keeping, pointing out that while the law does not include a specific record retention requirement, examiners will want to see the full scope of compliance processes documented for use in determining compliance.
State Law Update: California Enacts Blight Bill As Part of Homeowner Bill of Rights, Broadens Servicemember Protections
On August 27, California enacted Assembly Bill 2314, another bill included as part of the state’s proposed Homeowner Bill of Rights. The bill extends indefinitely portions of existing state law that (i) require property owners maintain vacant property obtained in foreclosure, (ii) authorize local enforcement of vacant property maintenance requirements, and (iii) provide for notice and processes to correct or contests violations. The extended provisions were due to sunset on January 1, 2013. The bill also provides a sixty day period for purchasers of foreclosed properties to remedy any violations of state housing law or building codes. Current law only requires a thirty day period for all properties in violation. Finally, the bill requires that an entity that releases a lien on a property subject to corrective action for maintenance violations must provide notice to the enforcement agency within thirty days of releasing the lien. These changes take effect on January 1, 2013.
Also on August 27, California enacted Assembly Bill 2475, which extends from three to nine months the period following military service within which it is unlawful to sell, foreclose upon, or seize a servicemember’s mortgaged property. These changes also take effect on January 1, 2013.
State Law Update: Illinois Enacts Servicemember Protections
On August 9, Illinois enacted SB 3287, a bill to expand and create various new protections for servicemembers. The bill clarifies the scope of coverage of servicemember protections by amending the definition of “military service” to include any full-time training or duty, no matter how described and no matter which state, federal, or other authority ordered the service. The bill provides new relief for covered servicemembers with regard to (i) default judgments, (ii) mortgage foreclosures, and (iii) installment sales contracts. For example, the bill provides that any mortgagor who is a covered servicemember, or a family member who resides with a covered servicemember, may seek a stay of foreclosure proceedings and an adjustment of the monthly payment obligation for ninety days after the servicemember returns from service. Similarly, a covered servicemember may seek a stay of any repossession of goods subject to an installment sales contract and an adjustment of the obligation. Other protections added or expanded by the bill relate to (i) limitations on interest rates, (ii) termination of motor vehicle and property leases, (iii) cellular phone and long distance contracts, and (iv) utility services. These changes take effect on January 1, 2013.
President Obama Expands SCRA Protections for Servicemembers
On August 6, President Obama signed into law the Honoring America's Veterans and Caring for Camp Lejeune Families Act of 2012, H.R. 1627. Section 710 of this Act expands foreclosure protections for active duty servicemembers. Currently, under the Servicemembers Civil Relief Act, 50 U.S.C. app. § 533 (SCRA), an individual is entitled to foreclosure protection during the period of active duty and for nine months thereafter. This extended foreclosure protection was set to expire at the end of calendar year 2012, at which point the foreclosure protection would only last for ninety days after the end of active duty.
This bill signing makes three important changes to the SCRA that expand protections for servicemembers:
- The SCRA will continue to provide servicemembers with foreclosure protection during the period of active duty and for nine months thereafter past the end of the current calendar year into 2013;
- One-hundred-and-eighty days from the date of enactment (i.e., February 2, 2013), the mortgage foreclosure protection will extend to one full year after the period of active duty; and
- On January 1, 2015, the SCRA's expanded foreclosure protection will sunset, and the protection period will revert to its 2008 level: the period of active duty service plus ninety days.
Additionally, this Act requires the Comptroller General of the United States to report to Congress information related to the use of this expanded foreclosure protection. This report is due a year-and-a-half after enactment-giving Congress several months to review the report prior to the 2015 sunset.
OCC and DOJ Announce SCRA Enforcement Action Against a National Bank
On July 26, the OCC and the DOJ announced resolution of actions brought against a national bank for alleged violations of the Servicemembers Civil Relief Act (SCRA). The DOJ filed a complaint and consent order in the U.S. District Court for the Eastern District of Virginia, simultaneously bringing and resolving allegations that over a roughly five year period the bank failed to provide sufficient protections to servicemembers (i) denying valid requests for interest rate reductions because the servicemembers’ military orders did not include specific end dates for the period of military service, (ii) foreclosing without a court order, (iii) repossessing motor vehicles without a court order, and (iv) obtaining default judgments without first filing accurate affidavits. Under the DOJ settlement, the bank must pay $12 million in damages to servicemembers. Concurrently, the OCC released consent orders resolving similar allegations. Under both the DOJ and OCC orders, the bank must take specific actions to enhance compliance with SCRA, including with regard to vendor management, training, and internal reporting. The OCC also is requiring that the bank report periodically to the OCC, and conduct a look-back review of its servicemember accounts. The DOJ notes that the bank already has adopted enhanced SCRA policies on its own initiative, including extending a four percent interest rate to qualifying servicemembers and giving an additional one-year grace period before de-enrolling servicemembers from the reduced interest rate program.
State Law Update: Hawaii and California Take Actions on Mortgages and Privacy
California AG Announces Privacy Enforcement Unit. On July 19, California Attorney General Kamala Harris announced the creation of the Privacy Enforcement and Protection Unit. The unit will combine the various existing privacy functions of the California Department of Justice to centrally enforce and protect consumer privacy. The unit will pursue civil prosecution of state and federal privacy laws regulating the collection, retention, disclosure, and destruction of private or sensitive information by individuals, organizations, and the government. These include laws relating to cyber privacy, financial privacy, identity theft, and data breaches, among others. The new unit will reside within the eCrime Unit, which was created in December 2011 to identify and prosecute identity theft crimes, cyber-crimes and other crimes involving the use of technology.
California Expands Servicemember Protections. On July 13, California enacted AB 2476, which expands the period of time during which servicemembers are protected from high interest rates. Under current law, a creditor cannot charge, during a servicemember’s period of military service, an interest rate in excess of 6% on any obligation or liability incurred by a servicemember before that person’s entry into service. The bill expands the interest rate protections to prevent an increase in any such rate on a mortgage, trust deed, or other security in the nature of a mortgage for one year after the period of military service.
Hawaii Enacts Multiple Mortgage-Related Bills and Legislation to Protect Personal Information. Recently, Hawaii enacted a set of bills related to mortgage origination and servicing. With regard to mortgage origination, S.B. 2763 amends the state SAFE Act to reflect changes to the federal law and to adjust originator registration fees. With regard to mortgage servicers, H.B. 2502 allows the Commissioner of Financial Institutions to require registration with the NMLS and makes it unlawful for a servicer to provide loan modifications without first complying with certain licensing requirements. Another bill, H.B. 1875 makes numerous changes to the state’s foreclosure laws, largely implementing recommendations from the Mortgage Foreclosure Task Force created by the state legislature in 2010. Finally, with regard to mortgages, H.B. 2375 establishes criminal penalties for certain violations of the state’s Mortgage Rescue Fraud Prevention Act. Hawaii also recently enacted S.B. 2419, which prohibits businesses from scanning a customer’s identification card or driver’s license with an electronic device capable of obtaining information electronically encoded on that identification card, except for specific purposes.
Washington Expands Servicemember Protections
On March 7, Washington Governor Christine Gregoire signed Senate Bill 5627 which expands protection for members of the state National Guard. The law expands the definition of “military service” to include servicemembers called to service by the governor for more than thirty consecutive days. This change is designed to provide National Guard members activated by the governor the same protections already provided under state law to servicemembers called to federal service by the President or the Secretary of Defense. This law becomes effective June 7, 2012.
White House Announces More Housing Initiatives
On March 6, President Obama presented additional programs designed to provide relief to homeowners. In advance of the announcement, the White House released a fact sheet outlining the programs, which attempt to reach FHA borrowers and servicemembers and veterans. With regard to FHA borrowers, the Administration is reducing up-front and annual mortgage insurance premiums for borrowers that want to refinance loans originated prior to June 1, 2009 through FHA’s streamline refinance program. For servicemembers and veterans, the announcement did not include any new relief, but rather recited the relevant terms of the multi-party settlement with five major mortgage servicers announced last month. Those terms are further described in an executive summary of the settlement.
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.
CFPB, DOD, FTC, and State AGs Partner to Develop Enforcement Action Database
On January 25, the CFPB, the Department of Defense, the FTC, and the New York Attorney General announced a partnership to develop the Repeat Offenders Against Military (ROAM) Database to track enforcement actions against entities or individuals engaged in consumer financial frauds against military personnel, veterans, and their families. The database, which should be available by mid-February, will compile publicly available information about completed civil and criminal legal actions and will be accessible and searchable by state attorneys general, U.S. Attorneys, and Judge Advocates from all branches of the armed services. The Consumer Protection Committee of the National Association of Attorneys General already has sent a letter to state attorneys general asking them to populate the new database with their enforcement action information. The FTC noted that the ROAM database will complement its Consumer Sentinel Network, which collects and provides wide access to consumer complaints, including those related to the frauds against servicemembers and their families.