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Federal Agencies Announce Two-Year HAMP Extension
On May 30, the FHFA announced that Fannie Mae and Freddie Mac will extend the Home Affordable Modification Program (HAMP) through December 31, 2015. Concurrently, the Treasury Department and HUD announced an extension of the HAMP deadline for non-Fannie Mae and Freddie Mac loans to harmonize with the FHFA extension. The programs were set to expire at the end of 2013. In addition, the FHFA extended from August 2015 through the end of 2015 its streamlined modification initiative.
New York Investigates Insurance Companies' Cyber Security
On May 28, New York Governor Andrew Cuomo announced an inquiry into the measures employed by insurance companies to protect their customers and companies from cyber threats. The state’s Department of Financial Services sent letters to 31 insurers seeking an array of information, including information about (i) any cyber attacks the company has been subject to in the past three years; (ii) the cyber security safeguards the company has put in place; (iii) the company’s information technology management policies; (iv) the amount of funds and other resources dedicated to cyber security at their company; and (v) the company’s governance and internal control policies related to cyber security. The governor explained that the state already is focused on ensuring that banks have appropriate protections in place, but that insurers also should be scrutinized because the “extraordinarily sensitive health, personal, and financial information that New Yorkers entrust to their insurance companies is a virtual treasure trove for hackers.”
Federal Authorities Announce Major FCPA Settlement
On May 29, the DOJ and the SEC announced that a French oil and gas company will pay nearly $400 million to resolve allegations that the company made illegal payments through third parties to an Iranian official in exchange for oil and gas concessions. The penalty is the third largest FCPA penalty ever obtained by federal authorities. The company entered a deferred prosecution agreement to resolve one count each of (i) conspiracy to violate the anti-bribery provisions of the FCPA, (ii) violating the internal controls provision of the FCPA, and (iii) violating the books and records provision of the FCPA, as detailed in a criminal information filed in the Eastern District of Virginia. Pursuant to the DPA, the firm will pay a $245.2 million penalty, cooperate with the DOJ and foreign law enforcement to retain an independent corporate compliance monitor for a period of three years, and continue to implement an enhanced compliance program and internal controls designed to prevent and detect FCPA violations. A separate SEC Order resolves parallel civil charges and requires, among other things, that the company to disgorge $153 million in illicit profits.
Second Circuit Holds Writing Requirement for Debt Challenge Violates FDCPA
On May 29, in a case of first impression for that circuit, the U.S. Court of Appeals for the Second Circuit held that a debt collector’s collection notice requiring a debtor to dispute a debt in writing violated the FDCPA’s debt notice provisions, provided for in Section 1692g. Hooks v. Forman, Holt, Eliades & Ravin, LLC, No. 12-3639, 2013 WL 2321409 (2nd Cir. May 29, 2012). In so holding, the Second Circuit joined the Ninth Circuit but split from the Third Circuit, which has held that a notice imposing a written requirement does not violate the FDCPA. Here, a district court dismissed a case brought by two debtors in a putative class action against a debt collector for allegedly violating the FDCPA by including in debt notices a requirement that debt disputes be submitted in writing. On appeal, the Second Circuit held that language of Section 1692g(a)(3), which provides the basic right to dispute the debt, does not incorporate the writing requirement included specifically in other sections of 1692g. The court held that the FDCPA intentionally established a bifurcated system that allows a debtor to protect that basic right through an oral dispute, while triggering a broader set of rights by disputing a debt in writing. The court vacated a judgment of the district court and remanded for further proceedings.
Fannie Mae Updates Selling Guide
On May 28, Fannie Mae issued Selling Guide Announcement SEL-2013-04 to identify numerous updates to the Selling Guide. With regard to income and documentation requirements, the announcement (i) extends the maximum age of credit documents; (ii) requires documentation of continuance for Social Security benefits other than those of the borrower (e.g., a dependent’s benefits); and (iii) clarifies documentation requirements for “other” income types. Fannie Mae also updated the Selling Guide with regard to, among other things, single-entity ownership in a project, calculation of real estate taxes for housing expense, and measurement of waiting periods.
Freddie Mac Extends Deadline for Servicer Law Firm Selection, Retention Requirements
On May 28, Freddie Mac issued Bulletin 2013-9, which extends for two months the date by which servicers must adhere to certain new requirements related to the management of law firms for default servicing, bankruptcies, and related litigation. Servicers now have until August 1, 2013 to comply with the changes related to selection and retention of firms, firm minimum requirements, training and contracting, referral of default-related legal matters, prohibitions, and use of connectivity and invoice-processing systems.
FHFA Proposes Rule to Replace Federal Home Loan Banks' Use of Credit Ratings
On May 23, the FHFA proposed a rule to require the Federal Home Loan Banks (FHLBs) to base determinations about the appropriateness of specific investments or activities on their own internal documented analyses of credit and other risks. Currently the FHLBs use credit ratings provided by certain national credit rating organizations. Dodd-Frank Act section 939A requires the FHFA and other federal regulators to review regulations that require use of such credit rating firms. The FHFA proposal seeks comment on alternative analyses for use by the FHLBs in assessing investments, standby letters of credit, and liabilities. Comments on the proposal are due by July 22, 2013.
President Obama Nominates Two Senate Staff Members as SEC Commissioners
On May 23, President Obama nominated Michael Piwowar and Kara Stein to be members of the Securities and Exchange Commission. Both nominees currently serve as staff members in the U.S. Senate. Mr. Piwowar is a chief economist for the Senate Banking Committee’s Republicans. He would replace Troy Paredes, whose term is expiring, for a full five-year term set to end on June 5, 2018. Ms. Stein is senior aide to Senator Jack Reed (D-RI) and would replace Elisse Walter, whose term has already expired, for a term that would expire on June 5, 2017.
Minnesota Adds Loss Mitigation Requirements, Prohibits Dual Tracking
On May 24, Minnesota enacted SF 1276, which adds pre-foreclosure requirements for most mortgage servicers. Effective August 1, 2013, servicers must notify a borrower in writing of available loss mitigation options before referring the loan for foreclosure. Servicers also must, after receiving a modification or loss mitigation request, exercise reasonable diligence in obtaining documents and information from the mortgagor to complete a loss mitigation application, facilitate the submission and review of loss mitigation applications, and give the mortgagor a reasonable amount of time to provide the required documents. The law further requires servicers to timely review and offer a modification to eligible mortgagors, or timely offer other loss mitigation options for which the mortgagor is eligible. Effective October 31, 2013, except under certain circumstances, servicers generally are prohibited from (i) referring a loan to foreclosure while a loss mitigation or modification request is pending, and (ii) moving for a foreclosure order on loans that already have been referred if the servicer subsequently receives a loss mitigation application. The law also requires servicers to halt foreclosure sales in some instances and prohibits a servicer from moving for a foreclosure order if a mortgagor is in compliance with the terms of a modification or if a short sale has been approved.
Federal District Court Denies OCC's Motion Seeking Reconsideration of Order Compelling Production of Materials Subject to Bank Exam Privilege
On May 23, the U.S. District Court for the Southern District of New York denied the OCC’s motion for reconsideration of an April 2013 order in which the court compelled a bank and the OCC to produce various investigative files and regulatory communications over the OCC’s objection that the bank examination privilege protected such production. Wultz v. Bank of China, No. 11-1266, 2013 WL 2284881 (S.D.N.Y. May 23, 2013). In support of its motion to reconsider, the OCC argued that (i) the court failed to properly weigh long-standing principles; (ii) the decision “will be construed as an erosion of the bank examination privilege that ultimately will undermine the bank supervisory process;” and (iii) the OCC never waived the privilege and appropriately and in good faith relied upon the procedures set forth under its Touhy regulation. The court disagreed and explained that, although the OCC argued that it did not waive its right to assert privilege over the documents, the OCC never affirmatively asserted privilege over any of the specific materials at issue, or even over clearly specified categories of documents. The court also reasoned that the OCC failed to support its positions that the Second Circuit’s approach to Touhy regulations should not apply in this case and that the court failed to properly weigh the risk of a chilling effect in overriding the bank examination privilege, stating that it is “not necessary for every judicial consideration of the chilling effect to be accompanied by a lengthy paean to the virtues of candor in regulatory communications.”