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Federal Reserve Board and OCC Release Amended Foreclosure Consent Orders
On February 28, the Federal Reserve Board and the OCC jointly released amendments to their enforcement actions against multiple mortgage servicers to resolve allegations that the servicers engaged in improper mortgage servicing and foreclosure processing practices. The amendments resolve consent orders issued in April 2011 by memorializing several recent agreements in principle that provide for $3.6 billion in cash payments and $5.7 billion in other assistance, such as loan modifications and forgiveness of deficiency judgments, to 4.2 million borrowers whose homes were in foreclosure in 2009 or 2010. For the participating servicers, the amendments also replace the requirements related to the Independent Foreclosure Review process set out under the original consent orders. The servicers are also required to undertake loss mitigation efforts focused on foreclosure prevention, and will continue to be monitored by examiners for implementation of corrective actions to address alleged deficient servicing and foreclosure practices.
Ramirez Expected to Chair FTC
On February 28, the FTC announced that President Obama will designate Edith Ramirez as Chairman of the FTC, effective March 4, 2013. Ms. Ramirez became an FTC commissioner on April 5, 2010, and has focused on promoting competition and innovation in the technology and healthcare sectors, protecting vulnerable consumers from deceptive and unfair practices, and safeguarding consumer privacy. Prior to joining the FTC, Ms. Ramirez was a lawyer in private practice, and before that served as the Vice President on the Board of Commissioners for the Los Angeles Department of Water and Power.
European Lawmakers Agree to New Capital Rules and Caps on Bank Executive Pay
On February 28, the European Parliament announced that negotiators from the Parliament and the European Council agreed to alter bank capital rules and limit executive pay. The capital requirements, developed to implement aspects of Basel III, would raise to eight percent the minimum thresholds of high quality capital that banks must retain. The announcement does not specify what types of capital would satisfy the requirement, but does indicate that good quality capital would be mostly Tier 1 capital. With regard to executive pay, the base salary-to-bonus ratio would be 1:1, but the ratio could increase to a maximum of 1:2 with the approval of at least 65 percent of shareholders owning half the shares represented, or of 75 percent of votes if there is no quorum. Further, if a bonus is increased above 1:1, then a quarter of the whole bonus would be deferred for at least five years. Finally, the legislation would require banks to disclose to the European Commission certain information that subsequently would be made public, including profits, taxes paid, and subsidies received country by country. The European Parliament is expected to vote on the legislation in mid-April, and each member state also must approve the legislation. Once approved, member states must implement the rules through their national laws by January 2014.
HUD Launches Fair Housing Complaint Mobile Application
On February 28, HUD launched a mobile application for iPhone and iPad that will allow the public to learn about their housing rights and file housing discrimination complaints. The application will also inform the housing industry of its responsibilities under the FHA. HUD expects the application to assist fair housing groups and other civil rights advocacy organizations seeking to enforce fair housing rights. Adaptive mobile pages will also allow web content to display properly on all smartphone and tablet brands, and for fair housing complaints to be completed and submitted in Spanish.
U.S. Supreme Court Rejects SEC's Bid for More Time to Bring Civil Fraud Enforcement Action
On February 27, the U.S. Supreme Court held that the clock on the five-year statute of limitations for the SEC to pursue civil fraud claims under the Investment Advisers Act begins to run when the fraud occurs, and not when it is discovered, because the “discovery rule” does not apply to government enforcement actions for civil penalties. Gabelli v. SEC, No. 11-1274, 2013 WL 691002 (Feb. 27, 2013). The Court’s holding followed an investment adviser’s appeal from a Second Circuit decision that, under the discovery rule, the statute of limitations had not accrued until the fraud was discovered or could have been discovered with reasonable diligence because the claims sounded in fraud. The Court reversed the Second Circuit’s decision and remanded for further proceedings on the basis that extending the fraud discovery rule to government civil penalty enforcement actions would improperly leave defendants exposed to government action for an uncertain period beyond the five years after their alleged misdeeds. The Court explained that the discovery rule is meant to preserve the claims of parties who have no reason to suspect fraud, but that the government, here the SEC, is different insofar as it is specifically tasked with rooting out fraud and possesses several legal tools to that end. The Court also observed that, unlike a standard victim of fraud seeking only recompense, the government also seeks remedies intended to punish.
Senate Confirms Jack Lew as Treasury Secretary
On February 27, the U.S. Senate confirmed President Obama’s nominee for Treasury Secretary, Jack Lew, by a vote of 71-26. Mr. Lew most recently served as President Obama’s Chief of Staff, but also twice served as Director of the OMB, and held executive positions at Citigroup and New York University.
Fannie Mae Updates Property Transfer Policies for Exempt Transactions
On February 27, Fannie Mae issued Lender Letter LL-2013-04, clarifying servicers’ obligations in connection with the transfer of ownership of a property securing a mortgage loan when the due-on-sale or due-on-transfer provision is not enforceable because the transfer is considered an exempt transaction. For such exempt transactions, servicers must implement policies and procedures to promptly identify and communicate with the new owner, and must allow the new owner to continue making mortgage payments and pursue an assumption of the mortgage loan as well as a foreclosure prevention alternative, if applicable. In addition, for delinquent mortgage loans that are exempt transactions, if the new owner is unable to bring the mortgage loan current but may be able to resolve the delinquency with a foreclosure prevention alternative and assume the mortgage loan, the servicer must collect a Borrower Response Package from the new owner, evaluate the request as if it were a borrower, and submit a recommendation to Fannie Mae if the servicer determines a foreclosure prevention alternative is appropriate. Finally, servicers are reminded that, in the case of an exempt transaction, before finalizing any permanent modification entered into in conjunction with an assumption for an MBS Pool mortgage loan, the mortgage loan must be (i) in a continuous state of delinquency for at least four consecutive monthly payment dates (or at least eight consecutive payment dates in the case of a biweekly mortgage loan) without a full cure of the delinquency, and (ii) removed from the MBS pool.
Cordray and Curry Address AGs Regarding Enforcement Initiatives
On February 26, CFPB Director Richard Cordray and Comptroller of the Currency Tom Curry addressed the National Association of Attorneys General. Mr. Cordray’s remarks were largely duplicative of those given a week earlier to the CFPB Consumer Advisory Board, and again identified several “problems” observed by the CFPB. Those problems were (i) deceptive and misleading marketing of consumer financial products and services, (ii) “debt traps” that trigger a cycle of debt, such as short-term credit products, (iii) “dead ends” in markets such as debt collection, loan servicing, and credit reporting where consumers cannot choose their provider and lack typical market influences, and (iv) discrimination. With regard to short-term loans, Mr. Cordray identified as an enforcement challenge lenders that lack a physical presence, and acknowledged ongoing efforts by the CFPB to address “loans that involve off-shore or other jurisdictional issues.” In his remarks, Mr. Curry first stressed the similar objectives of, and close working relationship among, the OCC, the CFPB, and the attorneys general. He then spent the majority of his remarks explaining why most OCC enforcement actions are resolved by settlement, adding that the first enforcement goal of the OCC as a “prudential bank supervisor” is remediation. Mr. Curry also responded to criticisms that OCC enforcement actions are “insufficiently severe,” and noted that the OCC is prepared to litigate if an institution refuses to consent.
Servicers Granted Broad Discretion in Effort to Accelerate Release of Sandy Insurance Funds
On February 26, New York Governor Andrew Cuomo announced that Fannie Mae, through Lender Letter LL-2013-03, and Freddie Mac, through Bulletin 2013-4, implemented new rules to accelerate the release of insurance proceeds to homeowners affected by Hurricane Sandy by reducing restrictions on how banks and mortgage servicers may release insurance money. Effective immediately, for borrowers who were current on their payments before Sandy and have less than 80 percent damage to their homes, Fannie Mae and Freddie Mac servicers have broad discretion to disburse insurance proceeds. The New York Department of Financial Services urged banks and mortgage servicers to immediately adjust their policies and begin using the new discretion to release insurance funds to covered borrowers.
FinCEN Reminds Institutions about Tax Refund Fraud and SAR Filing
On February 26, FinCEN issued Advisory FIN-2013-A001 to remind financial institutions of their important role in identifying tax refund fraud and provide a list of red flags to aid in such identification. The Advisory also reminds institutions that they may be required to filed a SAR if they know, suspect or have reason to suspect that a transaction conducted or attempted by, at, or through the financial institution (i) involves funds derived from illegal activity or an attempt to disguise funds derived from illegal activity, (ii) is designed to evade regulations promulgated under the Bank Secrecy Act, or (iii) lacks a business or apparent lawful purpose. Institutions completing a tax refund fraud SAR should use the term “tax refund fraud” in the narrative section of the SAR and provide a detailed description of the activity, and are encouraged to notify their local IRS Criminal Investigation Field Office of the filed SAR.