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Financial Services Law Insights and Observations

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  • CFPB Announces Suit Against Debt Settlement Firm

    Consumer Finance

    On August 20, the CFPB announced an enforcement action against a debt settlement company for violations of the Telemarketing Sales Rule and the Dodd-Frank Act. The complaint alleges that the company disguised illegal upfront fees charged for debt-relief services as bankruptcy-related charges and deceived consumers into believing they would become debt free when only “a tiny fraction” of its customers actually do. The enforcement action follows a lawsuit filed against the CFPB on July 22, in which the same debt settlement company and an attorney jointly accused the CFPB of “grossly overreaching its authority” in the investigation on which the enforcement action is based.

    CFPB Dodd-Frank Enforcement Telemarketing Sales Rule

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  • FHFA Plans Enhanced Oversight of Mortgage Servicing Transfers

    Lending

    On August 22, the FHFA Office of Inspector General (OIG) issued a report on its review of the FHFA’s oversight of Fannie Mae’s January 2013 representation and warranty settlement with a mortgage originator and the FHFA’s related approval of the sale of certain of the originator’s mortgage servicing rights (MSR) to specialty servicers. The OIG reviewed the process by which the FHFA assessed and approved the MSR transfer and concluded that the FHFA’s review of the MSR transfer did not reflect the “depth of analysis that likely would have been accorded had FHFA followed a process comparable to that used in its newly established process for reviewing mortgage repurchase . . . settlements.” As such, the OIG determined that the FHFA should establish a formal review process for “compensatory fee settlements and significant mortgage servicing rights transfers.” In a letter attached to the report, the FHFA concurred with the OIG’s recommendation, and committed to establish guidelines for compensatory fee settlements and significant MSR transfers by January 31, 2014.

    Fannie Mae Mortgage Servicing FHFA

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  • FDIC to Consider QRM Proposal Next Week

    Securities

    This week, the FDIC released the agenda for an August 28, 2013 Board Meeting at which the Board will consider the re-proposal of a rule to implement the credit risk retention requirements of the Dodd-Frank Act, including provisions regarding “qualified residential mortgages” or QRMs. The FDIC and other federal banking and housing agencies originally proposed a rule in April 2011 that would have required sponsors of asset-backed securities (ABS) to retain at least five percent of the credit risk of the assets underlying the securities. Exemptions to the proposed rule included U.S. government-guaranteed ABS and mortgage-backed securities that are collateralized exclusively by residential mortgages that qualify as QRMs. The proposed rule would have established a definition of QRMs incorporating criteria designed to ensure that such QRMs were of very high credit quality, including a 20% down payment requirement or a requirement that the borrower’s debt-to-income ratio not exceed 36%. It recently has been reported that, in response to overwhelming objections from industry participants, the re-proposed rule will loosen those standards and align the QRM definition with the CFPB’s qualified mortgage or QM definition.

    FDIC RMBS Qualified Residential Mortgage

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  • Senator Warren Presses DOJ on National Mortgage Servicing Settlement FHA-Related Releases

    Lending

    On August 21, Senator Elizabeth Warren (D-MA) sent a letter to Attorney General Eric Holder raising concerns about the provisions of the National Mortgage Settlement that relate to the government’s release of potential FHA-related False Claims Act-based claims against the settling servicers. Senator Warren’s letter questions the settlement amount that the government obtained for the release of such claims. The Senator calls for a “clearer and more public accounting of the [alleged] damages FHA incurred” as a result of the settling servicers’ conduct, and presses DOJ more broadly on its enforcement approach to large financial institutions. Senator Warren is seeking information and documents relating to the DOJ’s assessment of any potential FHA claims and the process by which it agreed to settle those claims.

    DOJ FHA U.S. Senate National Mortgage Servicing Settlement

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  • Fannie Mae, Freddie Mac Update Selling Policies Based on CFPB QM Rule

    Lending

    On August 20, Fannie Mae issued Announcement SEL-2013-06 and Freddie Mac published Bulletin 2013-16, both of which update numerous selling requirements in response to the CFPB’s final Ability-to-Repay/Qualified Mortgage (ATR/QM) rule. As promised in their July 2013 notices to sellers, the issuances (i) detail new mortgage eligibility requirements (e.g., retirement of mortgages with original maturities in excess of 30 years and making mortgages with prepayment penalties ineligible for sale) (ii) revise thresholds for points and fees, (iii) revise higher-priced mortgage loans eligibility requirements, and (iv) remind sellers of other policies, including those related to the representation and warranty framework announced in September 2012. The changes take effect when the ATR/QM rule goes into effect on January 10, 2014.

    CFPB Freddie Mac Fannie Mae Qualified Mortgage

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  • Freddie Mac Updates SCRA Servicing Requirements

    Lending

    On August 15, Freddie Mac issued Bulletin 2013-05, which, among other things, revises requirements relating to the SCRA and similar state laws and explains servicer responsibilities to effectively implement military relief legal protections. Specifically, Freddie Mac eliminated the requirement that servicers collect and report official documentation of a servicemember’s disability or death and available government benefits in the event a servicemember dies or becomes disabled while on active duty. In addition, Freddie Mac added a new guide section to include the additional foreclosure relief Freddie Mac provides to servicemembers and their dependents, and repurposed another guide section to remind servicers of their responsibilities to evaluate servicemembers and their dependents for the most appropriate relief or workout option from Freddie Mac’s existing options when a servicemember or dependent: (i) does not qualify for mortgage relief under the provisions of the SCRA or similar state laws; or (ii) qualifies for mortgage relief under the provisions of the SCRA or similar state law, but chooses to explore other relief options.

    Freddie Mac Mortgage Servicing Servicemembers SCRA

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  • HUD Issues Three Mortgagee Letters

    Lending

    On August 15, HUD issued three mortgagee letters to announce various changes related to the origination of FHA-insured mortgage loans. Effective for case numbers assigned on or after October 15, 2013, Mortgagee Letter 2013-24 (i) sets forth documentation requirements for conducting credit analysis of collections and judgments, (ii) requires a specified capacity analysis of collection accounts with an aggregate balance equal to or greater than $2,000, (iii) details the required treatment of judgments, and (iv) revises the FHA’s policy on manual downgrades for applications with disputed accounts to reflect the risk associated with derogatory and non-derogatory disputed accounts for factors such as age and size of outstanding balance. In Mortgagee Letter 2013-25, HUD updates FHA’s TOTAL Mortgage Scorecard User Guide to reflect the changes announced in Mortgagee Letter 2013-24. Finally, Mortgagee Letter 2013-26 loosens eligibility requirements for certain borrowers adversely impacted by the recession. Specifically, the letter allows for the consideration of borrowers who have experienced a loss of employment or income, or a combination of both, and can document that: (i) certain credit impairments were the result of a loss of employment or a significant loss of household income beyond the borrower’s control, (ii) the borrower has demonstrated full recovery from the event, and (iii) the borrower has completed housing counseling.

    Mortgage Origination HUD FHA Mortgagee Letters

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  • Federal Reserve Board Paper Reviews Large Bank Capital Planning

    Consumer Finance

    On August 19, the Federal Reserve Board released a paper that details its expectations for internal capital planning at large bank holding companies and describes the range of practices the Board has observed during the stress test exercises conducted to date. The Federal Reserve conducts the stress tests annually to assess companies’ capital planning processes and ensure that the processes account for unique risks and result in sufficient capital to enable the institutions to continue lending to households and businesses during times of economic and financial stress. The Board stated that the paper is intended to promote better capital planning at bank holding companies generally, and to provide greater clarity on the standards against which those practices are evaluated as part of the stress test exercise. The Board found that firms needed to improve a number of aspects of their capital planning processes, including their accounting for risks most relevant to the specific business activities, their methods of projecting the effect of certain stresses on their capital needs, and their governance of the capital planning processes, and emphasized that bank holding companies, when considering their capital needs, should focus on the specific risks they could face under potentially stressful conditions.

    Federal Reserve Capital Requirements

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  • Federal Reserve Board Issues Final Large Bank Assessment Rule

    Consumer Finance

    On August 16, the Federal Reserve Board issued a final rule establishing the process by which it will assess annual fees for its supervision and regulation of large financial companies. The Dodd-Frank Act directed the Board to collect assessment fees equal to the expenses it estimates are necessary or appropriate to supervise and regulate bank holding companies and savings and loan holding companies with $50 billion or more in total consolidated assets and nonbank financial companies designated by the Financial Stability Oversight Council. The final rule outlines how the Board will (i) determine which companies are assessed, (ii) estimate the total anticipated expenses, (iii) determine the assessment for each of the covered companies, and (iv) bill for and collect the assessment from the companies. For the 2012 assessment period, the first year for which assessment fees will be collected, the Board will notify each company of the amount of its assessment when the rule becomes effective in late October.  Payments for the 2012 assessment period will be due no later than December 15, 2013. The Board estimates it will collect about $440 million for the 2012 assessment period. Beginning with the 2013 assessment period, the Federal Reserve will notify each company of the amount of its assessment fee no later than June 30 of the year following the assessment period.  Payments will be due by September 15.

    Dodd-Frank Federal Reserve FSOC Bank Supervision

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  • Prudential Regulators Propose Leverage Ratio Rule

    Consumer Finance

    On August 20, the Federal Reserve Board, the OCC, and the FDIC proposed a rule to strengthen the leverage ratio standards for the largest U.S. banking organizations. The proposed rule is the same as that approved last month by the FDIC and the OCC. The rule would require bank holding companies with more than $700 billion in consolidated total assets or $10 trillion in assets under custody to maintain a tier 1 capital leverage buffer of at least 2% above the minimum supplementary leverage ratio requirement of 3%, for a total of 5%. Failure to exceed the 5% ratio would subject covered companies to restrictions on discretionary bonus payments and capital distributions. The proposed rule also would require insured depository institutions of covered holding companies to meet a 6% supplementary leverage ratio to be considered “well capitalized” for prompt corrective action purposes. The proposal suggests a phase-in period for the rule with an effective date of January 1, 2018. Comments on the proposal are due by October 21, 2013.

    FDIC Federal Reserve OCC Capital Requirements

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