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Financial Services Law Insights and Observations


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  • Freddie Mac Issues Selling System Conversion Reminder


    On March 23, Freddie Mac issued a reminder that on April 23, 2012, the selling system will be updated to reflect Uniform Loan Delivery Dataset named fields and layout. To assist sellers and provide information as to what is changing in the system, Freddie Mac issued a job aid identifying, among other things, (i) what to do before the system conversion, (ii) changes to export functionality, and (iii) expectations for historical data conversion.

    Freddie Mac

  • Utah Enacts Multiple Bills Related to Mortgages and Default Servicing


    Recently, Utah enacted several bills to amend the state’s mortgage licensing and servicing requirements, and to support enforcement of mortgage fraud. On March 19, the state enacted House Bill 191, the majority of which takes effect May 8, 2012. The bill makes numerous adjustments to the state’s mortgage and real estate practices and licensing statutes, including revisions to certain definitions, licensing and renewal requirements, prohibited conduct, and record keeping and reporting requirements. House Bill 164, enacted on March 19, establishes new servicing requirements, including (i) requiring servicers to appoint a single contact person for residential properties in default and establishing responsibilities for the contact person, (ii) requiring notice to a default trustor before a notice of default is filed, and (iii) allowing a default trustor to seek foreclosure relief. Enacted on March 22, House Bill 280, extends for two years, through the end of 2014, an existing provision requiring a notice for residential rental property that is being foreclosed. Also enacted on March 22 was Senate Bill 281. That bill creates a mortgage and financial fraud unit within the state’s Attorney General’s office. Beginning July 1, 2012, the Attorney General’s office will have a $2 million appropriation to establish the new unit to work with other state and local agencies to prevent, investigate, and prosecute mortgage and other financial fraud.

    Mortgage Licensing Mortgage Servicing

  • FHFA IG Issues Report on Fannie and Freddie Conservatorship


    On March 28, the Inspector General (IG) for the Federal Housing Finance Agency (FHFA) published a white paper that provides a general assessment of the FHFA’s conservatorship of Fannie Mae and Freddie Mac (the enterprises). The report provides background on the FHFA's oversight regime noting that it has evolved from one that strictly supervised the enterprises’ activities, to one that allows more operational decision-making at the enterprise level. The IG argues that the FHFA should assume a more active role in managing the enterprises and specifically notes that the FHFA (i) does not independently test and validate enterprise decision-making and (ii) is not sufficiently proactive in its oversight and enforcement of enterprise activity. The white paper acknowledges the significant challenges that the FHFA faces in its mission and provides a discussion of the tensions presented by FHFA’s dual role as conservator and regulator.

    Freddie Mac Fannie Mae

  • Senate Confirms Multiple Nominees

    Federal Issues

    On March 29, the U.S. Senate confirmed President Obama’s three nominees for the FDIC Board of Directors: Martin Gruenberg, Thomas Hoenig, and Jeremiah Norton. However, the Senate did not confirm Mr. Gruenberg as Chair of the FDIC or Mr. Hoenig as the Vice Chair. Instead, Mr. Gruenberg will continue to serve as Vice Chair and will lead the board in an acting capacity. Thomas Curry was confirmed to serve as Comptroller of the Currency.  As such, he will also sit on the FDIC Board, as he has in an independent position since 2004. The Senate also confirmed (i) Maurice Jones to be the Deputy Secretary of the Department of Housing and Urban Development, (ii) Christy Romero as Special Inspector General for the Troubled Asset Relief Program, (iii) Mary John Miller to serve as the Under Secretary for Domestic Finance at the U.S. Treasury Department, and (iv) Jon Leibowitz to another seven year term as Federal Trade Commission Chairman. Two nominees to the Federal Reserve Board, Jerome Powell and Jeremy Stein, remain pending in the Senate.


  • DOJ Reaches FCPA Settlement With Medical Device Company

    Federal Issues

    On March 26, the U.S. Department of Justice (DOJ) announced it had reached a settlement with a medical device company to resolve allegations that the company and its subsidiaries made improper payments in violation of the Foreign Corrupt Practices Act (FCPA). DOJ alleges that Biomet, its subsidiaries, employees, and agents made illegal payments to publicly-employed health care providers in Argentina, Brazil, and China in exchange for business with certain hospitals in those countries and then falsely recorded the payments on its books to conceal the true nature of the payments. The deferred prosecution agreement requires Biomet (i) to pay a $17.28 million criminal penalty, (ii) to implement a robust compliance program and internal controls, and (iii) to retain an outside compliance monitor for 18 months. Separately, Biomet agreed to disgorge $5.4 million of profits and interest to resolve parallel civil charges brought by the SEC.

    FCPA China

  • Federal Banking Regulators Propose Joint Revisions to Leveraged Finance Guidance

    Consumer Finance

    On March 26, the Federal Reserve Board, the FDIC, and the OCC proposed revisions to the interagency leveraged finance guidance issued in 2001. Leveraged finance transactions are characterized by a borrower with a degree of financial or cash flow leverage that significantly exceeds industry norms as measured by various debt, cash flow, or other ratios. According to the agencies, the guidance needs to be revised given increasing leveraged lending volumes, deteriorating underwriting practices, limited protection of debt agreements, aggressive capital structures and repayment prospects, and less than satisfactory management information systems. Specifically, the agencies believe that the guidance should be updated to refocus attention on the following five key areas: (i) establishing a sound risk-management framework, (ii) underwriting standards, (iii) valuation standards, (iv) pipeline management, and (v) reporting and analytics. The agencies are accepting comments on the proposed guidance through June 8, 2012.

    FDIC Federal Reserve OCC

  • FTC Finalizes Consumer Privacy Recommendations, Notes Mobile Issues

    Federal Issues

    On March 26, the FTC released an anticipated report on consumer privacy, calling on all companies to adopt certain practices to protect consumers’ private information. The final report outlines three basic principles: (i) “privacy by design”, (ii) simplified choice, and (iii) increased transparency. Though the report and recommended practices do not carry the force of law, the FTC encourages adoption of the recommendations to support innovation and commerce while improving consumer protection. The report also serves as a blueprint for what the FTC is seeking in federal privacy legislation. Pending congressional action, the FTC will continue to employ its existing enforcement authority to address unfair or deceptive practices, including practices that violate self-regulatory programs. Further, the FTC intends to support implementation of the framework by focusing on several substantive topics and stakeholder groups, including (i) do not track, (ii) mobile services, (iii) data brokers, (iv) large platform providers, and (v) industry codes of conduct. For example, the FTC will focus on mobile services by updating guidance about online advertising disclosures, including holding a workshop on model mobile disclosures on May 30, 2012. It also calls on mobile service providers to establish industry standards that address data collection, transfer, use, and disposal, particularly for location data.

    FTC Privacy/Cyber Risk & Data Security

  • CFPB Files Amicus in TILA Rescission Case

    Consumer Finance

    On March 27, the CFPB announced that it recently filed an amicus brief in the U.S. Court of Appeals for the Tenth Circuit in a case involving the Truth in Lending Act (TILA) right to rescind a transaction, Rosenfield v. HSBC Bank, No. 10-1442 (10th Cir.). The CFPB argued that borrowers who do not receive the material disclosures required by TILA can rescind the transaction as long as they notify the lender of the cancellation within three years of consummation, even if they do not file suit within the three-year period. The CFPB urged the Tenth Circuit to reject the view of the majority of courts that the borrower must both notify the lender and file suit within three years.  Citing both the statute and the CFPB’s implementing Regulation Z, the CFPB argued that the holding in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), that the right to rescind expires completely after three years, simply means that “consumers [must] exercise their rescission right by providing notice to their lender within three years of obtaining the loan,” and that consumers could file suit after three years if the lender failed to honor the rescission notice. As an indication of the Bureau’s intense interest in this issue, it noted that it plans to file amicus briefs on the same question in at least three other circuits in which briefing is still pending.


  • Fannie Mae Reminds Servicers About Documentation Request Limits


    On March 21, Fannie Mae issued a notice reminding servicers that in processing a borrower request for a foreclosure prevention alternative evaluation, servicers may only request limited documentation from a borrower. Specifically, a servicer may only request (i) a completed Uniform Borrower Assistance Form (Form 710), (ii) income documentation as outlined in Form 710 based on income type, (iii) hardship documentation as outlined in Form 710 based on hardship type, and (iv) a Short Form Request for Individual Tax Return Transcript (IRS Form 4506T-EZ) or a Request for Transcript of Tax Return (IRS Form 4506-T) signed by the borrower. Servicer requests for additional documentation are limited only to instances in which the servicer must reconcile inconsistencies in the documentation provided by the borrower, but such instances should be rare. Further, servicers may not request federal income tax returns unless the borrower is self-employed or the borrower has rental income, as outlined in Form 710.

    Fannie Mae

  • FHFA IG Releases Results of Three Reviews


    On March 22, the Office of Inspector General for the Federal Housing Finance Agency (FHFA IG) released the results of the following audit and surveys: (i) an audit of Fannie Mae’s single-family underwriting standards, (ii) a survey of FHFA’s oversight of the charitable activities of Fannie Mae and Freddie Mac, and (iii) a survey of FHFA’s oversight of Fannie Mae’s and Freddie Mac’s expenses related to the 2011 Mortgage Bankers Association Convention. The FHFA IG found that FHFA’s oversight of Fannie Mae’s underwriting is limited, so FHFA should strengthen and formalize its processes for reviewing underwriting standards and variances. With regard to charitable contributions, the FHFA IG found that there is no need to conduct further evaluations because these contributions are scheduled to end by 2015. Similarly, the FHFA IG concluded that FHFA’s new directive on conference sponsorships and expenditures for food will be sufficient if properly implemented.

    Freddie Mac Fannie Mae


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