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Housing Groups Plan Multiple Fair Housing Act Complaints, Release Report on REO Property Maintenance
According to reports, the National Fair Housing Alliance and several of its member organizations (collectively NFHA) indicated this week that they plan to take legal action against multiple financial institutions for alleged discriminatory practices with regard to real estate owned (REO) properties in violation of the Fair Housing Act. The NFHA promised that it will file administrative complaints with the U.S. Department of Housing and Urban Development and/or legal complaints in federal courts. The first such complaint could be filed as early as next week. The anticipated complaints will be based on the results of an investigation conducted by the NFHA concerning the practices of several lenders and investors responsible for maintaining and marketing REO properties in African-American and Latino neighborhoods.
According to a report that was released on April 4, the investigation covered more than 1,000 REO properties in nine metropolitan areas including Atlanta, Baltimore, Dallas, Dayton, Miami/Fort Lauderdale, Oakland, Philadelphia, Phoenix and Washington, DC. The investigation claims to have revealed that, among other things, REO properties in predominantly minority neighborhoods are 42 percent more likely to have maintenance problems and are 33 percent less likely to have a “For Sale” sign than properties in predominantly White neighborhoods. The report suggests that the poor maintenance practices and other alleged neglect can result in properties being vacant for longer periods and can increase the likelihood that a property eventually will be purchased by an investor at a discounted price, as opposed to an owner-occupier. NFHA maintains that these alleged practices violate the Fair Housing Act and HUD’s implementing regulations and leave those neighborhoods in “crisis.” The NFHA report also makes several policy recommendations. The report offers recommendations for financial institutions to (i) enhance their vendor selection and oversight, (ii) better market and sell properties, and (iii) make REO data more transparent. The NFHA also (i) urges federal regulators, including the CFPB, to conduct a major nationwide investigation into REO practices, (ii) proposes a policy to make REO properties available exclusively to owner-occupants and non-profit organizations prior to offering them more broadly, and (iii) suggests further development of lease-purchase programs for REO properties.
FinCEN Issues Guidance on New E-Filing System, Tax Refund Fraud
On March 29, the Financial Crimes Enforcement Network (FinCEN) announced that it is accepting the new Currency Transaction Report (CTR) and Suspicious Activity Report (SAR) into FinCEN’s BSA E-Filing System. FinCEN issued guidance to assist institutions in filing the new reports and indicated that the new forms will replace the existing forms (legacy reports), but do not create any new obligations or otherwise change existing statutory and regulatory expectations for financial institutions. The new forms are now accepted for electronic filing and their use becomes mandatory on March 31, 2013. Until that date institutions may electronically file either the new reports or the legacy reports. In a separate action FinCEN had already mandated the electronic filing of most reports through the BSA E-Filing System beginning on July 1, 2012. FinCEN has recommended that institutions file electronically before that date, but until then they may continue to file via paper or by use of the legacy report form. The new CTR and SAR report forms may only be submitted electronically.
On March 30, FinCEN issued advisory FIN-2012-A005 to assist financial institutions with identifying tax refund fraud and filing SARs. The Advisory lists multiple “red flag” activities that could indicate tax refund fraud. When completing SARs on suspected tax refund fraud, financial institutions should use the term “tax refund fraud” in the narrative section of the SAR and provide a detailed description of the activity.
CFPB Issues Guidance On Loan Originator Compensation
In response to questions it has received from loan originators and their firms seeking to comply with compensation rules issued under TILA Regulation Z, the CFPB today issued Bulletin 2012-02. The Bulletin states that employers of loan originators may make contributions to employees’ qualified profit sharing, 401(k), and stock ownership plans (qualified plans) out of a profit pool derived from loan originations. The Federal Reserve Board previously had indicated that any compensation—even contributions to a qualified retirement plan—to a loan originator that derived from the profits of mortgage loan originations was “problematic” and likely prohibited by Regulation Z.
While the Bulletin expands the ability of lenders to contribute to their employees’ qualified plans, the Bulletin does not provide guidance about other types of profit-sharing arrangements, noting that such issues are “fact-specific.” According to the Bulletin, the CFPB will address these and other loan originator compensation issues in more detail in a proposed rule, which it plans to release in the “near future.” Under the Dodd-Frank Act, the CFPB is required to finalize loan originator compensation rules by January 21, 2013, and these rules must take effect by January 21, 2014.
Pursuant to rules issued by the Federal Reserve Board in September 2010 that became effective April 6, 2011, loan originators may not receive, either directly or indirectly, compensation that is based on any terms or conditions of a mortgage transaction, subject to certain limited exceptions. Commentary issued as part of that rulemaking describes compensation to include salaries, commissions, and annual or periodic bonuses, while covered transaction terms and conditions include the interest rate, loan-to-value ratio, or prepayment penalty. Moreover, compensation may not be tied to proxies for such transaction terms, such as credit scores.
In July 2011, administration of TILA Regulation Z was transferred to the CFPB, and employers have since been expressing their concern to the CFPB and asking for clarification. This CFPB guidance, issued almost exactly one year after the loan originator compensation rules became effective, signals a shift from the Federal Reserve's guidance, and employers should now be able to make contributions to qualified plans, even if the contributions derive from mortgage-origination profits. Originators and their employers also should look for the CFPB’s planned loan origination compensation rule, which may provide further clarification and guidance on these issues, but likely also will provide new general requirements for originator compensation.
Join Us! 2012 Fair Lending Today Conference
Join Us! 2012 Fair Lending Today Conference on Compliance, Regulatory and Litigation Issues and the CFPB in Today's Changing Enforcement Environment, hosted by BuckleySandler LLP. 2012 Panel Topics Include:
- Overview: A New Agency Emerges
- The Justice Department and Fair Lending: Disparate Impact Escapes Potential Elimination in Magner
- Mortgage Servicing Developments: The AG/DOJ Settlement, the CFPB, and Ongoing Enforcement
- Anatomy of a CFPB Enforcement Action
- The CFPB's Fair Lending Agenda for Auto, Private Student Lenders, and Non-Secured Lending
- New CFPB Enforcement Priorities for Credit Cards
- Fair and Responsible Banking Risk Management Update
When: Monday, April 30, 2012 Where: The Fairmont Hotel inWashington, DC Registration required. This conference is open to all financial services companies and others subject to CFPB oversight. Please no outside law firms, government agency personnel, consultant firms or media. For more information visit http://www.fairlendingtoday.com/ or contact fairlending@buckleysandler.com.
UK Financial Regulator Issues Report on Bribery and Anti-Corruption Controls, Proposes New Guidance
On March 29, the United Kingdoms Financial Services Authority (FSA) published the findings of its thematic review into anti-bribery and corruption systems and controls in U.K.-based investment banks. The FSA review also looked at related topics including (i) gift-giving practices and controls, (ii) staff recruitment and vetting, (iii) training, and (iv) incident reporting. The FSA report concludes that the U.K. investment banking sector has been too slow and reactive in managing bribery and corruption risk, and that substantial work remains. In response, the FSA published proposed revisions to its regulatory guide, Financial crime: a guide for firms. The FSA proposes to update Chapters 2 and 6 of Part 1 of the guide, with new guidance and examples of good and poor practice drawn from the report findings. The FSA also proposes to include a new Chapter 13 in Part 2 of the guide, which will consolidate all examples of good and poor practice highlighted in the thematic review. Stakeholders can submit comments on the proposed revisions through April 29, 2012.
Supreme Court Holds Only Pecuniary Damages Available Under Federal Privacy Act
On March 28, the U.S. Supreme Court ruled 5-3 that the Privacy Act of 1974, which regulates how federal agencies handle personal information, does not unequivocally authorize damages for mental or emotional distress. Cooper v. FAA, No. 10-1024, 2012 WL 1019969 (U.S. Mar. 28, 2012). In this case, an airline pilot sued the Federal Aviation Administration (FAA) and other federal agencies for impermissibly exchanging information about his HIV status in connection with a criminal investigation. The pilot claimed to suffer emotional and mental distress due to the disclosure. The U.S. Court of Appeals for the Ninth Circuit held that the term actual damages in the Privacy Act is not ambiguous and includes damages for mental and emotional distress. The Supreme Court reversed, holding, as the district court originally held, that the term is ambiguous and therefore does not waive the governments sovereign immunity from liability for nonpecuniary damages. The narrow ruling only directly impacts actions under the Privacy Act, and the court notes that actual damages can mean different things in different contexts. As such, the holding does not invalidate prior lower court rulings that actual damages under other statutes, including the Fair Credit Reporting Act and the Fair Housing Act, can include damages for emotional or mental distress.
Indiana Enacts Foreclosure and Loan Administration Bills
On March 16, Indiana Governor Mitch Daniels signed House Bill 1238, which includes provisions allowing a mortgage creditor to file a petition to have a state court determine whether a property is abandoned. The bill also sets forth criteria and procedures for use by the court in making its determination. A finding from the court that a property is abandoned allows for an expedited foreclosure process.
Recently, Indiana enacted Senate Bill 298. The new law provides that if a mortgage or vendor's lien does not show the due date of the last installment, the mortgage or lien expires 10 years after the date of execution of the mortgage or lien instead of 20 years under the current law. The bill makes exceptions to the expiration period if a foreclosure action is brought prior to the expiration. It also provides for civil actions concerning an omitted party's interest in a property and sets forth factors that the court must consider in determining any rights of redemption. Lastly, the bill provides that: (i) the senior lien on which the foreclosure action was based is not extinguished by merger with the title to the property conveyed to a purchaser at the judicial sale until the interest of any omitted party has been terminated; and (ii) until an omitted party's interest is terminated, the purchaser at the judicial sale is the equitable owner of the senior lien.
West Virginia Establishes Rights for Tenants in Foreclosed Properties
On March 15, West Virginia enacted House Bill 3177, which will permit the owner of a residential rental property purchased at foreclosure to terminate an existing tenancy after giving the tenant 90 days notice, or not less than 30 days notice before the expiration of the lease, whichever is shorter. Tenants with month-to-month leases need only be provided with 30 days notice. The law details the content and method of delivery for the notices. The new provisions take effect January 1, 2013.
Wisconsin Streamlines Foreclosures on Abandoned Properties
On March 21, Wisconsin enacted Senate Bill 307 relating to foreclosures on abandoned properties. Under the new law, the redemption period for abandoned property is reduced from two months to five weeks from the date a judgment of foreclosure is entered. The length of time that a sheriff must publish the notice of a sale in a newspaper is reduced from six successive weeks to three successive weeks before the sale. The law also (i) adds a new provision that provides that in addition to the parties to an action to enforce a mortgage lien, a representative of the municipality where the property is located may also provide evidence or testimony to the court as to whether the property has been abandoned and (ii) delineates the specific factors a court must consider in determining whether a property is abandoned. The changes take effect April 5, 2012.
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.