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Financial Services Law Insights and Observations

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  • New York Issues Emergency Rules Regarding Mortgage Servicing

    Lending

    On February 1, the New York Department of Financial Services (Department) published in the state Register emergency rules regarding the conduct of mortgage loan servicers in the state. The rules are intended to provide clear guidance to servicers regarding the procedures and standards they should follow with respect to loan delinquencies. For example, the rules establish requirements for (i) handling consumer complaints, (ii) handling loss mitigation, (iii) payment of taxes and insurance, and (iv) crediting payments from borrowers and handling late payments. The rules also describe the recordkeeping requirements and specify certain prohibited practices and conduct, including placing homeowners' insurance on property when the servicer has reason to know that the homeowner has an effective policy. The emergency rules are effective as of January 17, 2012 and expire on April 11, 2012. The Department expects to issue a rulemaking to make these rules permanent.

    Mortgage Servicing Loss Mitigation

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  • NCUA Proposes Rule Regarding Loan Workouts and Nonaccrual Policies

    Consumer Finance

    On February 1, the National Credit Union Administration (NCUA) published a proposed rule related to the management of loan workouts and nonaccrual policies for loans. The rule as proposed would, for all federally insured credit unions, (i) establish standards for the management of loan workout arrangements and require written workout policies, (ii) revise requirements for reporting troubled debt restructured (TDR) loans, including the calculation and reporting of TDR loan delinquency based on restructured contract terms, (iii) prohibit accruing interest on loans at least ninety days past due (with some exceptions), and (iv) maintain member business workout loans in nonaccrual status until the credit union receives six consecutive payments under the modified loan terms. The NCUA is accepting comments on the proposed rule through March 2, 2012.

    NCUA

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  • Obama Administration Expands Housing Recovery Plans

    Lending

    On February 1, President Obama unveiled a plan to expand government support for the housing market, including a broad-based refinancing plan. The plan, announced during the President's State of the Union Address, combines changes to existing programs and creation of new initiatives, some of which will require congressional action. First, the President will ask Congress to enact legislation to allow the Federal Housing Administration (FHA) to provide government support for the refinancing of non-Fannie Mae and non-Freddie Mac mortgages. The $5 to $10 billion program would be funded by a fee imposed on the largest financial institutions. For borrowers with Fannie Mae or Freddie Mac loans, the legislation would further streamline existing refinance programs and create incentives for borrowers to accept shorter loan terms to build equity. Second, the administration will continue its work to create new mortgage origination and servicing standards in an effort to create a Homeowner Bill of Rights. Third, the Federal Housing Finance Agency (FHFA) will conduct a pilot program through which it will sell foreclosed properties to be transitioned into rental housing. Finally, the President's upcoming budget will include a national program to put unemployed construction workers back to work refurbishing vacant and foreclosed properties.

    The President also highlighted the work of the recently-formed Residential Mortgage-Backed Securities Working Group, and reviewed the success of existing government efforts (e.g., those related to unemployment forbearance). Further, the announcement incorporated a Treasury Department move last week to enhance the Home Affordable Modification Program (HAMP) by (i) extending HAMP's deadline through December 31, 2013, (ii) expanding borrower eligibility for HAMP, and (iii) encouraging use of principal reduction for loans insured or owned by Freddie Mac or Fannie Mae. In response, the FHFA reiterated its opposition to use of principal reduction by Fannie Mae and Freddie Mac.

    Freddie Mac Fannie Mae Mortgage Origination Mortgage Servicing HAMP / HARP

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  • Florida Appeals Court Denies Request to Certify Question Important to State Foreclosure Investigation

    Lending

    On February 1, the Florida Fourth District Court of Appeal denied Florida Attorney General Pam Bondi's request to certify to the Florida Supreme Court the question of whether the creation of invalid assignments of mortgages by a law firm and subsequent use of such documents to foreclose constitutes an unfair and deceptive practice under Florida law that may be investigated by the Attorney General. In April 2011, the Fourth District ruled that the Attorney General's office did not have authority to subpoena records from one of the law firms under investigation. Because the Attorney General cannot appeal that decision to the Florida Supreme Court, it sought certification of the issue as one of great public importance. With that request now denied, the Attorney General must reassess its pending investigations of law firms alleged to have engaged in foreclosure misconduct.

    Foreclosure State Attorney General

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  • FTC Settles Claims Against Negative-Option Sales Operators

    Fintech

    On February 1, the Federal Trade Commission (FTC) announced a settlement with two individuals alleged to have operated businesses that improperly collected consumer information and then used that data to enroll consumers in negative-option programs that promised to match consumers with payday lenders. The FTC claimed the operators enrolled consumers in the payday lender matching program without consumer consent and refused to provide promised refunds. Under the settlement agreement, the individuals must pay nearly $10 million and will be prohibited from marketing secured loan products. The agreement also bars the individuals from making certain misrepresentations and prohibits the conduct at issue.

    FTC

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  • D.C. Federal Judge Declares Mistrial For Three Remaining Defendants In Second FCPA Sting Case Trial

    Financial Crimes

    On January 31, Judge Richard Leon of the U.S. District Court for the District of Columbia declared a mistrial after a federal jury failed to reach a unanimous verdict on foreign bribery charges against John Mushriqui, Jeana Mushriqui, and Marc Morales, in one of the highest profile Foreign Corrupt Practices Act (FCPA) cases ever brought by the DOJ. BuckleySandler represented John Mushriqui at the nearly four-month jury trial. One day prior to the court declaring a mistrial, the jury acquitted two other defendants of the same charges. At the end of 2011, following the close of the prosecution's evidence, Judge Leon acquitted all defendants of related conspiracy charges, sending one defendant home entirely, and acquitted the Mushriquis of two of the five substantive FCPA charges pending against them. The defendants were charged with paying bribes to a purported government official from the country of Gabon, in connection with contracts to supply Gabon with military and law enforcement products. The Federal Bureau of Investigation's sting operation resulted in the arrests of twenty-two individuals at an industry trade show in Las Vegas in 2010. The first trial of four other defendants also ended in a mistrial in July 2011. Between the two trials regarding the Gabon deal sting, three defendants have been acquitted and seven have proceeded to a hung jury.

    FCPA

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  • CFPB Releases First Semi-Annual Report, Director Testifies Before Senate Banking Committee

    Fintech

    On January 31, the Consumer Financial Protection Bureau (CFPB) released its first semi-annual report to Congress and CFPB Director Richard Cordray appeared before the Senate Banking Committee. The report reviews the CFPB's structure and purpose, and provides a general overview of the CFPB's activities to date. The report also identifies consumer "shopping challenges" by product category (i.e., challenges that consumers face when shopping for mortgages, credit cards, and student loans), and identifies the CFPB's planned activities for the next six months.

    Issues raised during the Senate hearing included: (i) prepaid card regulation, (ii) the definition of "abusive" as it is used in the Dodd-Frank Act, (iii) the "ability to pay" rule required by Dodd-Frank, and (iv) treatment of privileged information during the examination process. First, the Director acknowledged the importance of innovation in the card market, but also noted that regulation of credit and debit cards likely have pushed the market towards prepaid cards. He noted legislation sponsored by Senator Menendez to regulate the prepaid card market, and said the Bureau would welcome legislation addressing prepaid card issues. Second, consistent with his statements to the House Financial Services Committee, the Director reported that a rulemaking to further define the term "abusive" is not currently on the CFPB's agenda. Third, Director Cordray did not provide insight into the CFPB's view of the "ability to repay" rule, noting that at this time the Bureau has not prepared a draft rule. Finally, Director Cordray indicated support for a legislative fix to protect legal privileges applicable to documents and information that could be requested by the CFPB during the course of its examinations.

    CFPB Prepaid Cards

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  • Agencies Release Guidance on ALLL Estimation Practices for Junior Liens

    Lending

    On January 31, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency (collectively, the agencies), released joint guidance related to allowance for loan and lease losses (ALLL) estimation practices associated with loans and lines of credit secured by junior leans on one- to four-family residential properties. The guidance reiterates, specifically with regard to junior liens, key concepts included in generally accepted accounting principles and existing ALLL supervisory guidance related to the ALLL estimation practices. The agencies provided the guidance to remind regulated financial institutions to monitor all credit quality indicators relevant to credit portfolios and to follow appropriate risk-management principles in managing junior liens.

    FDIC Federal Reserve OCC NCUA

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  • Freddie Mac Issues Selling Bulletin Regarding ULDD Update

    Lending

    On January 31, Freddie Mac issued Bulletin 2012-3 to formally extend the Uniform Loan Delivery Dataset (ULDD) implementation schedule, consistent with an earlier announcement. ULDD mandatory compliance is now required for all loans submitted to Freddie Mac on or after July 23, 2012 (previously March 19, 2012). To provide a transition period, Freddie Mac will update its system for the ULDD data points on April 23, 2012 (previously January 23, 2012). The Bulletin also alerts sellers as to the Single-Family Seller/Servicer Guide updates requiring new ULDD data points for all mortgages with application received dates on or after August 1, 2012 that are delivered on or after November 26, 2012. Lastly, the Bulletin notifies sellers that Appendix A of the Implementation Guide for Loan Delivery Data has been updated to reflect these changes.

    Freddie Mac

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  • Fannie Mae Announces Multiple Selling Guide Updates

    Lending

    On January 31, Fannie Mae issued Selling Guide Announcement SEL-2012-01, which provides updates and changes regarding (i) Construction-to-Permanent Financing; (ii) effective quality control plans, and (iii) other miscellaneous Guide topics. The changes to the Construction-to-Permanent Financing provisions aim to more closely align the policies related to such financing with standard requirements for other refinance transactions. The updates to the requirements for the lender to have an effective quality control plan do not establish any new policies, but seek to clarify requirements for lenders' post-closing quality control process. These and most of the other updates provided in the Announcement are effective immediately.

    Fannie Mae Mortgage Origination

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