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National Mortgage Settlement Monitor Seeks Servicemember Complaints
On November 12, National Mortgage Settlement Monitor Joseph Smith, Jr. launched a military-specific outreach program to encourage servicemembers to report mortgage servicing complaints using an online form. The Monitor released a separate form for complaints by attorneys, caseworkers, counselors or other professionals assisting servicemembers with their mortgages, as well as a servicemember-specific fact sheet. The national settlement does not require that the Monitor collect or address individual borrower complaints. The Monitor intends to use the complaint process to identify and investigate any trends in servicing complaints.
Fannie Mae and Freddie Mac Announce New Guidelines for Management of Law Firms
On November 9, Fannie Mae and Freddie Mac announced new, coordinated requirements with respect to the management of law firms for default servicing, bankruptcies, and related litigation. As described in Freddie Mac Bulletin 2012-25, effective June 1, 2013, servicers (i) will be permitted to choose their own attorneys, create their own processes for managing foreclosure processing, and maintain direct relationships with their law firms, (ii) will be required to establish procedures to manage and monitor all aspects of the law firm's performance and compliance with applicable requirements, and (iii) upon request, will be required to perform a due diligence review and provide Freddie Mac with the results. Fannie Mae Servicing Guide Announcement SVC-2012-22 similarly details new servicer requirements with regard to the use of outside law firms. Both Fannie Mae and Freddie Mac will accept and respond to servicer recommendations of law firms beginning March 1, 2013, and will begin conducting new firm training in April 2013. Law firms that are currently in the retained attorney network are not exempt from the new selection and retention processes.
Federal Reserve Board and OCC Renew Efforts to Market Independent Foreclosure Reviews
On November 13, the Federal Reserve Board and the OCC announced renewed efforts to remind eligible borrowers to participate in the Independent Foreclosure Review Program by December 31, 2012. Under the program, an eligible borrower can have his or her foreclosure reviewed for free by independent consultants to determine whether the borrower was financially injured due to errors, misrepresentations, or other deficiencies in the foreclosure process. An injured borrower may be eligible for compensation or other remedies. The program originally was scheduled to close April 30, 2012, but has been extended numerous times over the past year. The renewed marketing effort includes targeted print, radio, and online advertising, as well as direct coordinated outreach by community, housing, and faith-based groups.
Federal Banking Regulators Issue Supplemental Statement Regarding Borrower and Institution Relief Following Hurricane Sandy
On November 14, the Federal Reserve Board, the OCC, the National Credit Union Administration, and the FDIC supplemented a prior statement on the impact of Hurricane Sandy on customers and the operations of financial institutions. The supplemental guidance identifies activities that could be considered “reasonable and prudent” steps to assist affected customers, including, for example (i) waiving certain fees and penalties, including ATM and overdraft fees, (ii) easing credit limits and terms for new loans, and (iii) offering payment accommodations. The regulators also provide post-storm guidance regarding loan modifications, the Community Reinvestment Act, and customer identification. The guidance largely mirrors guidance issued by the FDIC on November 9, 2012 in Financial Institution Letter FIL-47-2012.
DOJ Obtains $100 Million Money Laundering Settlement from Money Services Business
On November 9, the DOJ announced that a money services business (MSB) agreed to enter into a deferred prosecution agreement (DPA) and pay $100 million for failing to maintain an effective anti-money laundering program and for aiding and abetting wire fraud. The DOJ alleged that over a roughly five year period (2004-2009) the MSB profited on thousands of transactions processed on behalf of agents known to be involved in an international fraud scheme. The MSB’s senior management deferred to sales department executives and ignored recommendations from the MSB’s fraud department that certain agents known to be engaged in fraud be terminated, according to the DOJ. Moreover, the DOJ states that the MSB systematically and willfully failed to meet AML obligations under the Bank Secrecy Act, including by failing to (i) implement policies or procedures to file the required Suspicious Activity Reports (SARs) when victims reported fraud on transactions over $2,000, (ii) file SARs on agents known to be involved in the fraud, (iii) conduct effective AML audits of its agents and outlets, (iv) conduct adequate due diligence on prospective and existing agents by verifying that a legitimate business existed, and (v) sufficiently resource and staff its AML program.
Pursuant to the DPA, the MSB must (i) create an independent compliance and ethics committee of the board of directors with direct oversight of the chief compliance officer and the compliance program, (ii) adopt a global anti-fraud and anti-money laundering standard to ensure that their agents throughout the world will, at a minimum, be required to adhere to U.S. anti-fraud and anti-money laundering standards, (iii) adopt a bonus system that rates all executives on success in meeting compliance obligations, with failure making the executive ineligible for any bonus for that year, and (iv) adopt enhanced due diligence for agents deemed to be high risk or operating in a high-risk area. The MSB also agreed to retain an independent monitor that will oversee implementation and maintenance of these enhanced compliance obligations, evaluate the overall effectiveness of its anti-fraud and anti-money laundering programs, and report regularly to the DOJ.
Banking Regulators Provide Guidance on Basel III Implementation Timeline, Congress Offers Additional Responses to Basel III Proposals
On November 9, the Federal Reserve Board, the OCC, and the FDIC announced that proposed rules to implement the Basel III regulatory capital accords will not take effect on January 1, 2013. The agencies cite the large volume of comments received in response to the proposed rules as the reason for the delay. Recently, members of three states’ congressional delegations joined others in submitting letters to the federal banking regulators in response to the proposed Basel III regulations. The letters all raise concerns about the potential disproportionate impact of the proposed rules on smaller, community and regional institutions, and challenge the attempt by regulators to apply international accords to all U.S. institutions regardless of size. Members of the Texas delegation focused on provisions that would require all unrealized gains and losses on available-for-sale securities to flow through to common Tier-1 equity, which the lawmakers believe will require community banks to divert capital resources from customer services and bank growth. Indiana Members added concerns about the effect of proposed excessive risk weighting and restrictions on dividends and discretionary bonuses, while Members from South Carolina echoed general concerns about the impact of the proposals on community banks. These legislators join other federal and state policymakers who have submitted similar comments in recent weeks. Scrutiny of the proposals will continue next week with a Senate Banking Committee hearing planned for November 14, 2012 to review the pending rules with representatives from the Federal Reserve Board, the OCC, and the FDIC.
Fannie Mae, Freddie Mac Announce Additional Storm Relief Measures
On November 9, Fannie Mae and Freddie Mac announced that effective immediately servicers can suspend for 90 days evictions and foreclosures involving borrowers affected by Hurricane Sandy in order to assess the borrowers’ situations. In addition, next week Fannie Mae and Freddie Mac will issue guidance to servicers to expand the options they can offer to homeowners impacted by the hurricane. Under the new Fannie Mae guidance, servicers will be authorized to (i) extend forbearance for up to 12 months, where appropriate, (ii) provide loan modifications, once the homeowner is able to resume monthly mortgage payments, (iii) waive any late payment charges, (iv) suspend credit reporting for any homeowner for whom relief is granted, and (v) delay the initiation of any foreclosure action to determine the condition of the property and the borrower’s employment and income status. Freddie Mac’s policy changes will authorize servicers to (i) automatically suspend for 90 days evictions and foreclosure sales for borrowers with homes secured by Freddie Mac owned-or guaranteed mortgages and located in eligible disaster areas, (ii) verbally grant 90-day forbearances to all borrowers in eligible disaster areas, including borrowers with mortgages modified under HAMP or who are currently in a HAMP or Standard Modification Trial Period Plan, and (iii) expedite the distribution of insurance proceeds on storm damage claims. Additionally, Freddie Mac will maintain pricing that was in place at the time of the storm for mortgages that are secured by homes in eligible disaster areas and delivered through Freddie Mac's bulk guarantor channel.
FTC Loses Motion in Unfair Billing Case Against Online Payday Loan Referral Service
On November 7, the U.S. District Court for the Middle District of Florida held that numerous factual issues prevented the court from granting summary judgment on the FTC’s claims that an online payday loan referral business engaged in unfair and deceptive billing practices and failed to provide adequate disclosures. FTC v. Direct Benefits Group, LLC, No 11-1186, 2012 WL 5430989 (M.D. Fla. Nov. 7, 2012). The FTC alleges that the defendants violated the FTC Act by obtaining consumers’ bank account information through payday loan referral websites and debiting their accounts without their consent. The FTC also alleges that the defendants failed to adequately disclose that, in addition to using consumers’ financial information for a payday loan application, they would use it to charge them for enrollments in unrelated programs and services. Although it acknowledged that the FTC had presented substantial evidence regarding consumer complaints about the defendants’ activities, the court held that because the defendants maintain that no consumer could be enrolled in the programs without at least clicking an “okay” button on the defendants’ websites, the FTC was not entitled to summary judgment. A bench trial is scheduled for November 27, 2012, during which the parties will present additional evidence and arguments regarding the content and operation of the websites and whether consumers could enroll in the referral programs without taking affirmative steps to do so.
House Members Release Data Brokers' Responses to Congressional Inquiry
On November 8, a bipartisan group of lawmakers released the responses of nine firms the lawmakers targeted in July 2012 as “major data brokerage companies” and from which the members sought information about how each firm collects, uses, and protects consumer data. Representative Markey (D-MA) who is leading the inquiry of these firms characterized the responses as incomplete, particularly with regard to how the firms analyze personal information to categorize and rate consumers. Last month, Senator Rockefeller (D-WV) initiated a similar review of data broker practices.
State Banks and Servicers Provide Post-Hurricane Mortgage Relief in New York
On November 7, New York Governor Andrew Cuomo announced that several major state-chartered banks and mortgage servicers are offering a range of relief for borrowers impacted by Hurricane Sandy. While the particular relief may vary by institution and borrower circumstances, the following types of relief generally are being offered: (i) 90-day postponement of foreclosures and evictions, (ii) 90-day waiver of late fees on mortgage payments, including online payments, (iii) 90-day or more forbearance on mortgage payments where the borrower has been impacted by the storm and is seeking relief, (iv) waiver of interest where a refinancing transaction has been closed, but not funded, (v) late payment relief for borrowers in a trial modification, and (vi) suspension of notification to credit bureaus if borrowers make late payments. Additionally, a state order prohibiting the termination, cancellation, or non-renewal of homeowners’ insurance policies for 30 days started October 26, which means servicers cannot force place insurance on any homeowner who had insurance in effect as of that date.