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OCC Notifies Banks of Civil Money Penalty Inflation Adjustments and New Flood Insurance Penalties
On November 20, the OCC issued Bulletin 2012-38 to advise national banks and federal savings associations about a recent OCC rule that adjusted the maximum civil money penalties (CMPs) for inflation and implemented higher flood insurance CMPs. The OCC rule revises the penalty tables that identify the statutes that provide the OCC with CMP authority, describe the different tiers of penalties provided in each statute, and set out the maximum penalty the OCC may impose pursuant to each statutory provision. The rule also implements the Biggert-Waters Flood Insurance Reform Act, which was signed into law on July 6, 2012 as part of a broad transportation bill. That Act increased the maximum CMP per flood insurance violation and removed the annual cap on flood insurance penalties assessed against a single lender in a calendar year. Effective December 6, 2012, any regulated lending institution that is found to have a pattern or practice of committing flood insurance violations will be assessed a civil penalty not to exceed $2,000 per violation, with no calendar year limit on such penalties.
National Mortgage Settlement Monitor Issues Progress Report
On November 19, Joseph Smith, Jr., the Monitor of the national mortgage settlement, released a report on the consumer relief activities of the five banks that are parties to the settlement. Between March 1, 2012 and September 30, 2012, those banks extended more than $26 billion in relief to more than 300,000 borrowers. The relief provided by the banks, discussed in detail in the report includes (i) first and second lien modifications, (ii) enhanced borrower transitional funds, (iii) facilitation of short sales, (iv) deficiency waivers, (v) forbearance for unemployed borrowers, (vi) anti-blight activities, (vii) benefits for members of the armed services and (viii) refinancing programs. The report also provides an update regarding the status of implementation of the mortgage servicing standards required by the settlement, noting that as of September 25, 2012, the Monitor and the banks had agreed to a series of work plans that will guide reviews of each banks’ compliance with the new standards.
OCC Issues Bulletin Regarding Extended SCRA Protections
On November 19, the OCC issued Bulletin 2012-37, which advises all national banks and federal savings associations of the extension of certain servicemember protections afforded by the Servicemembers Civil Relief Act (SCRA). Currently, SCRA grants an individual protection from foreclosure during the period of active duty and for nine months thereafter, a benefit that was due to expire at the end of 2012. The Bulletin notes that the Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012, which was enacted in August 2012, provides that (i) 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, (ii) beginning February 2, 2013, the mortgage foreclosure protection will extend to one full year after the period of active duty, and (iii) on January 1, 2015, SCRA's expanded foreclosure protection will sunset, and the protection period will revert to the period of active duty service plus 90 days.
Iowa Supreme Court Opens Door to Potential Servicer Liability for Flood Hazard Disclosure Failures
On November 16, the Iowa Supreme Court held that a mortgage servicer may be liable to borrowers for failing to disclose information it acquired about the borrowers’ flood hazard risks. Bagelmann v. First Nat’l Bank, No. 11-1484, 2012 WL 5642039 (Iowa Nov. 16, 2012). After their home flooded, the borrowers sued their mortgage lender and servicer and alleged that at the time of origination and two years later during a refinance transaction, the lender incorrectly informed them that the property was not in a special flood hazard area and that no flood insurance was required. According to the borrowers, several years later the servicer was advised that the property was in a special flood hazard area and failed to inform the borrowers prior to their property flooding. The Iowa Supreme Court affirmed the district court’s holdings that (i) the borrowers cannot use the requirements of the National Flood Insurance Act as a basis for a state-law claim, (ii) the lender and servicer did not breach a contract with the borrowers, and (iii) the borrowers do not have a viable negligent misrepresentation claim. However, the Supreme Court determined that the borrowers provided evidence from which a fact finder could infer that the servicer knew prior to the flood that the property was in a flood zone and that prior representations to the contrary were incorrect. Therefore, the court reversed the grant of summary judgment to the servicer and remanded the case for further consideration of a possible claim based on Restatement (Second) of Torts section 551(2) against their servicer. The court also affirmed the lower court’s grant of summary judgment to the lender on the grounds that the lender no longer had a banking relationship with the borrowers.
FinCEN, FDIC, and DOJ Announce Coordinated Anti-Money Laundering Enforcement Action and Settlement
On November 19, FinCEN and the FDIC announced that a state bank agreed to pay a $15 million civil money penalty to resolve the bank’s “history of noncompliance” with Bank Secrecy Act (BSA) and anti-money laundering (AML) requirements, including recent allegations that the bank failed to implement an effective BSA/AML Compliance Program with reasonable internal controls. Specifically, the federal agencies alleged that the bank failed to adequately oversee third-party payment processor relationships and related products and services. The payment also resolves parallel civil claims by the DOJ that the bank violated the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) by originating withdrawal transactions on behalf of fraudulent merchants and causing money to be taken from the bank accounts of consumer victims. Concurrent with the federal action, the Delaware Office of State Bank Commissioner terminated the bank’s state charter.
Freddie Mac Announces Standard Deed-in-Lieu of Foreclosure
On November 15, Freddie Mac announced the new Freddie Mac Standard Deed-in-Lieu of Foreclosure (DIL), which is designed to serve as a workout option for borrowers for whom neither a home retention alternative to foreclosure nor a Freddie Mac Standard Short Sale is a workable solution. As described in Freddie Mac Bulletin 2012-27, effective for new DIL evaluations conducted on or after March 1, 2013, mortgage servicers will have delegated authority to approve a DIL that meets all Freddie Mac requirements for eligible borrowers who: (i) are 90 or more days delinquent, (ii) are current or less than 90 days delinquent but meet certain hardship criteria, or (iii) do not have an eligible hardship but were previously discharged from the debt obligations in a Chapter 7 bankruptcy. Also effective for new DIL evaluations conducted on or after March 1, 2013, Freddie Mac will offer mortgage servicers a $1,500 incentive for each DIL completed in accordance with Freddie Mac requirements, an increase from the current $275 incentive. Further, effective immediately, mortgage servicers have the authority to postpone any foreclosure sale for mortgages that are more than 12 months delinquent without obtaining Freddie Mac’s prior approval, provided the servicers have determined that doing so will protect Freddie Mac’s interests. The new Standard DIL was developed as part of the Servicing Alignment Initiative and completed under the direction of the Federal Housing Finance Agency.
Fannie Mae Announces Numerous Selling Policy Changes
Recently, Fannie Mae issued Selling Guide Announcement SEL-2012-13, which updates numerous selling requirements, all of which took effect immediately. The changes clarify (i) the rights of mortgage sellers during the loan pooling, certification, and acquisition processes, (ii) that acceptance of a redelivered mortgage loan is at the sole and absolute discretion of Fannie Mae, (iii) that a lender seeking to obtain a pool purchase contract must first be evaluated by Fannie Mae, and (iv) several Guide topics regarding Fannie Mae’s delayed financing policy. Other announced changes relate to, among other things (i) premium recapture, (ii) refinances that include the financing of real estate taxes, (iii) depository accounts, (iv) reserves, and (v) HUD-1 signature requirements.
OCC Extends Compliance Date for Lending Limits Rule
On November 14, the OCC issued Bulletin 2012-36 to extend until April 1, 2013 the deadline for covered institutions to comply with the OCC’s lending limit rule. In June 2012 the OCC implemented a Dodd-Frank Act requirement that the OCC’s existing lending limit rule apply to certain credit exposures arising from derivative transactions and securities financing transactions, and originally allowed national banks and savings association until January 1, 2013 to comply.
State Law Update: Massachusetts Proposes Loan Servicing and Debt Collection Rules, Announces Public Hearing
Recently, the Massachusetts Division of Banks issued proposed amendments to the state’s rules governing the conduct of debt collectors and loan servicers. The proposed rule would (i) prohibit third-party mortgage servicers from initiating a foreclosure when an application for a loan modification is in process, (ii) require that servicers ensure that a creditor has the right to foreclose and that any foreclosure-related documents are properly prepared and executed based on personal knowledge, and (iii) mandate that third-party servicers provide a single point of contact for a borrower, follow detailed loan modification procedures, and communicate with borrowers in a timely manner under the new regulations. The amendments also would, amongst other changes, (i) amend the definition of "debt collector" to include active debt buyers, (ii) clarify the definition of net worth for debt collectors, (iii) expand the limitations on contact with a consumer by a debt collector to include cellular telephone and text messaging and (iv) expand the number of significant events of a debt collector and third party loan servicer which must be reported. The Division will host a public meeting about the proposed amendments on November 29, 2012, and will accept written comments through December 6, 2012.
CFPB Delays Implementation of Certain Mortgage Disclosure Requirements
On November 16, the CFPB announced that it is providing a temporary exemption from the mortgage disclosure requirements in title XIV of the Dodd-Frank Act, including new disclosures regarding (i) cancellation of escrow accounts, (ii) a consumer’s liability for debt payment after foreclosure, and (iii) the creditor’s policy for accepting partial payment. The Federal Reserve Board proposed a rule in March 2011 to implement these requirements, but did not finalize the rule prior to July 21, 2011, when authority transferred to the CFPB. Subsequently, the CFPB issued a proposal to integrate the TILA and RESPA disclosures and create new disclosure forms, which, as proposed, include many of the additional disclosures required by title XIV. In light of the overlap in the two rulemakings, and given that the title XIV requirements are required by statute to take effect on January 21, 2013, the CFPB effectively agreed to delay the compliance date pending completion of the TILA/RESPA disclosures proposal.