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Fannie Mae Obtains Comprehensive Settlement of Repurchase Claims Against Major Lender
On January 7, Fannie Mae and a national bank announced a comprehensive settlement to resolve all outstanding and future repurchase requests on nearly all single-family loans originated by the bank (and other lenders it later acquired) over a nine-year period and subsequently delivered to Fannie Mae. The announcement states that the loans had an outstanding unpaid principal balance of $297 billion as of November 30, 2012. Fannie Mae alleges that the lenders breached representations and warranties on the loans. The bank agreed to pay $3.55 billion in cash to Fannie Mae and to repurchase roughly 30,000 loans with cumulative unpaid principal balances and interest of $6.75 billion. On the loans retained by Fannie Mae, the bank remains responsible for certain payment and other obligations with respect to mortgage insurance rescissions, cancellations and denials, as well as its servicing, third-party indemnification, and recourse obligations. Finally, Fannie Mae and FHFA approved the transfer of servicing rights for roughly one million loans from the bank to specialty servicers, which FHFA stated is designed to benefit borrowers and reduce future credit losses to Fannie Mae.
Fannie Mae Clarifies Foreclosure Sherriff's Costs Reimbursement Process
On January 9, Fannie Mae issued a Servicing Notice regarding claims for reimbursement of foreclosure sheriff’s costs. Noting that some states require that the sheriff’s office perform some or all of the tasks associated with completing a foreclosure sale, the notice clarifies that when a servicer files a claim for reimbursement of the sheriff’s costs associated with foreclosure activities, Fannie Mae may require that the servicer provide supporting documentation with its request. Fannie Mae prefers that such costs be documented in a cost sheet on the sheriff’s office letterhead, but the notice includes an attachment listing other acceptable forms of documentation. The notice provides other reminders regarding the sheriff’s costs claim reimbursement process and supporting documentation.
Massachusetts Division of Banks Proposes Foreclosure Regulation Amendments
On January 7, the Massachusetts Division of Banks announced a public hearing to review proposed amendments to the state’s foreclosure and mortgage modification regulations. The proposed amendments would implement a recently passed law that makes it harder to foreclose in that state, including by creating a pre-foreclosure modification notice requirement for creditors. The amended regulation would (i) establish the processes for a borrower and creditor with regard to the borrower’s right to request a loan modification, (ii) establish the actions that constitute a borrower's good faith response to a creditor's notice of the right to request a loan modification, (iii) define good faith efforts by creditors to avoid foreclosure, and (iv) establish safe harbors for creditors that comply with the loan modification process. The hearing is scheduled for February 6, 2013, and the Division of Banks is accepting public comments on the proposal through February 15, 2013.
D.C. Circuit Reinstates Challenge to HUD Reverse Mortgage Regulations
On January 4, the U.S. Court of Appeals for the District of Columbia held that two widowed spouses have standing to pursue allegations that a HUD regulation defining conditions under which it would insure a reverse mortgage agreement contradicted the governing statute, and in doing so made it easier for lenders to foreclose on homes occupied by surviving spouses. Bennett v. Donovan, No. 11-5288, 2013 WL 45879 (D.C. Cir. Jan. 4, 2012). The surviving spouses, neither of whom were legal borrowers under the reverse mortgages entered into by their spouses, sought declaratory relief that HUD’s regulations requiring that the mortgage be due and payable in full if a borrower dies and the property is not the principal residence of at least one surviving borrower violated the Administrative Procedure Act because the rule is inconsistent with the governing statute. The statute protects “homeowners,” as opposed to “borrowers,” from displacement and defines “homeowner” to include “spouse of the homeowner.” The district court held that the spouses lacked standing to sue HUD because relief for their injuries depended solely on the lenders’ decision whether to foreclose. The appellate court held, however, that in situations like those at issue here, it is within HUD’s power to provide complete relief to the lenders and borrowers, and therefore such relief is likely, as opposed to speculative, and as such is sufficient to establish standing. Though it limited its holding to the standing issue, the court added that it was “puzzled” by HUD’s attempt to justify a rule that appears to contradict the governing statute. Further, the court outlined potential relief that HUD could provide, explaining that HUD could accept assignment of the mortgage, pay off the balance of the loans to the lenders, and then decline to foreclose against the spouses. The court reinstated the case and remanded for further proceedings.
NCUA Files Another Major MBS Suit
On January 4, the NCUA announced another major mortgage-backed securities lawsuit. Similar to prior suits, the NCUA alleges on behalf of three insolvent corporate credit unions that a mortgage securitizer violated federal and state securities laws in the sale of $2.2 billion in mortgage-backed securities to the credit unions. In this case, the NCUA is suing a securities firm for alleged wrongdoing by companies the defendant later acquired. The NCUA complaint alleges the acquired firms made numerous misrepresentations and omissions of material facts in the offering of the securities sold to the failed corporate credit unions, and that underwriting guidelines in the offering documents were “systematically abandoned.” The NCUA argues that these actions caused the credit unions to believe the risk of loss was low, when, in fact, the opposite was true. When the securities lost value, the NCUA claims, the credit unions were harmed and forced into insolvency.
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.
Ohio Creates Temporary Loan Originator License
Last month, Ohio enacted a bill, S.B. 333, to allow the Division of Financial Institutions to offer a transitional loan originator license to assist an originator licensed by another state to transition to employment with an Ohio-regulated firm. The new license allows a transitioning out-of-state originator to originate loans on a temporary basis—120 days—while the originator completes the requirements of obtaining a state-issued annual license. A transitioning originator must have a sponsor that meets certain criteria and must pay a fee as set by the state regulator. In addition, the law directs the state regulator to adopt regulations allowing an originator from a federally regulated institution to obtain a temporary state license after federal law is changed to allow such transitional licenses. The CFPB has interpreted current federal law to prohibit such transitional licenses.
Fourth Circuit Holds State Auto Debt Cancellation Requirements Not Preempted for Certain Assigned Loans
On December 26, the U.S. Court of Appeals for the Fourth Circuit held that federal law does not preempt Maryland’s debt cancellation requirements for an auto retail installment sales contract (RISC) when a national bank is the assignee, and not the originator, of the loan. Decohen v. Capital One, N.A., No. 11-2161, 2012 WL 6685767 (4th Cir. Dec. 26, 2012). In this case, a dealer sold and financed a used vehicle and subsequently assigned the loan to a national bank. The financing included a charge for a debt cancellation agreement in the RISC, which under the Maryland Credit Grantor Closed End Credit Provisions (CLEC) requires a lender to cancel any remaining loan balance when a car is totaled and insurance does not cover the full loss. After the buyer totaled his car and was left with a loan balance, he sought to enforce the debt cancellation agreement. In dismissing the case, the district court held, in relevant part, that the agreement at issue was a "debt cancellation contract" covered by the National Bank Act, and that because such contracts are governed by federal law and regulations, including regulations regarding debt cancellation agreements, state regulation of such contracts is preempted. The district court also found that the purchaser failed to state a claim for breach of contract because the bank did not agree to cancel the remaining debt. The appeals court disagreed and held that because the OCC regulations regarding debt cancellation agreements apply only to agreements entered into by national banks, “the CLEC provisions regarding debt cancellation agreements are not expressly preempted by federal law when the agreements are part of credit contracts originated by a local lender and assigned to a national bank.” The court also held that the purchaser stated a claim for breach of contract because the parties voluntarily elected to be governed by the CLEC in the RISC, which cannot be undone by assignment of the loan. The court vacated the district court’s judgment and remanded the case for further proceedings.
Eleventh Circuit Holds Management Company Collecting HOA Fees Exempt from FDCPA
Recently, the U.S. Court of Appeals for the Eleventh Circuit held that a management company collecting debts for a homeowners association was exempt from the FDCPA because collecting the unpaid assessments was incidental to the company’s bona fide fiduciary obligations. Harris v. Liberty Cmty. Mgmt., Inc., No. 11-14362, 2012 WL 6604518 (11th Cir. Dec. 19, 2012). In Harris, a homeowners association contracted with a management company to perform various tasks, including collecting past due assessments from homeowners. After warning the plaintiffs that their water service would be disconnected if they did not pay their outstanding association dues, the management company had their water service suspended. The plaintiffs asserted that the company was a debt collector under the FDCPA and violated the Act by terminating their water service. Under Section 1692a(6)(F)(i) of the FDCPA, an individual or entity is exempt from the Act when “collecting or attempting to collect any debt owed…another to the extent such activity is incidental to a bona fide fiduciary obligation.” The Eleventh Circuit held that the management company fell within this exemption. Because the company was the homeowners association’s agent, it owed a fiduciary duty to the association. The court also found that collecting the debts was “incidental” to the company’s fiduciary obligation, noting that the company did many other tasks for the association other than collect assessments, such as obtaining utilities, purchasing insurance, and assisting the association with its tax filings. In addition, the Eleventh Circuit affirmed the district court’s dismissal of the plaintiffs’ claims under the Georgia Fair Business Practices Act. The court explained that the management company’s decision to stop the water service after providing the plaintiff notice was not unfair or deceptive.