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Financial Services Law Insights and Observations

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  • Freddie Mac, Fannie Mae Offer Guidance Regarding Government Shutdown

    Lending

    On October 8, Freddie Mac issued Bulletin 2013-19 to provide guidance related to the federal government shutdown that began on October 1. Fannie Mae recently issued similar guidance in Lender Letter LL-2013-08. The guidance addresses income verification for new loans to government employees and reminds servicers of forbearance options for borrowers impacted by the shutdown.

    Freddie Mac Fannie Mae Mortgage Origination Mortgage Servicing Shutdown Relief

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  • Freddie Mac Updates Tools and Policies Regarding Disclosure of Property Valuation

    Lending

    On October 8, Freddie Mac issued Bulletin 2013-20, which (i) announces tools and systems that provide estimates of property value generated by Freddie Mac’s proprietary automated property valuation model and (ii) updates requirements related to disclosure of property valuation information. Freddie Mac explains that its property value estimates can help sellers/servicers identify potentially inflated appraised values that may need additional review early in the origination process and also can be used to determine property values for Freddie Mac modifications or refinances, but that use of the valuation information may impact seller/servicers’ obligation to comply with the revised valuation disclosure requirements finalized by the CFPB earlier this year. For sellers, the Bulletin states that Freddie Mac will be adding disclaimers about the property value estimate, and provides additional options for system-to-system users. For servicers, Freddie Mac plans to provide supporting text for use in complying with the new disclosure requirements and to provide to borrowers. The Bulletin identifies certain other changes related to the use of property valuation data.

    Freddie Mac Appraisal

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  • FHFA Updates Status of Common Securitization Platform

    Lending

    On October 7, the FHFA announced steps to formally establish the common securitization platform for mortgages sold to Fannie Mae and Freddie Mac. The FHFA stated that it has filed a Certificate of Formation with the Delaware Secretary of State to establish Common Securitization Solutions, LLC (CSS)—a limited liability company and equally-owned subsidiary of Fannie Mae and Freddie Mac. The company will be based in Bethesda, MD, and the search for its CEO and Chairman has been initiated.

    RMBS FHFA

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  • NCUA Updates Examination Report

    Consumer Finance

    This week, the NCUA issued Letter No. 13-FCU-09 to advise federally insured credit unions of changes to its examination report. The NCUA made the changes to “streamline the examination report, better clarify the priority exam action items to be resolved, reduce redundancy, and ensure consistency.” In an effort to help credit union officials clearly differentiate between major and minor problems in order to prioritize corrective actions, and to enhance consistency in the examination process, the Document of Resolution (DOR) and Examiner’s Findings will now be stand-alone documents. For any material problems identified in an examination, the examiner’s concern and documented support for that concern will be included in the DOR, along with corrective action plans. The letter also provides a table that details, document-by-document, other changes to the examination report. Full implementation will begin with examinations starting on or after January 1, 2014.

    Examination NCUA

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  • President Obama Nominates Federal Reserve Chair

    Consumer Finance

    On October 9, President Obama nominated Janet Yellen, currently the Vice Chair of the Board of Governors of the Federal Reserve, to serve as Chairman of the Board. President Obama framed the nomination as “one of the most important appointments that any President can make.” He described Governor Yellen as committed to maintaining stable prices, promoting maximum employment, reforming consumer protection, and addressing the issue of “too big to fail.”  Ms. Yellen’s nomination is subject to Senate approval.

    Federal Reserve

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  • Florida Insurance Regulator Requires Lender-Placed Insurer to Alter Practices, Decrease Rates

    Consumer Finance

    On October 8, Florida’s Office of Insurance Regulation announced that it disapproved a lender-placed insurer’s 2013 rate filing and ordered the insurer to decrease its rate by 10%. The regulator also required the insurer to enter a consent order pursuant to which the insurer agreed to submit annual rate filings until further notice and to not engage in certain delineated business practices, including, for example, (i) paying commissions to a mortgage servicer on policies obtained by that servicer, (ii) paying contingent commissions based on underwriting profitability or loss ratios, (iii) issuing policies on mortgaged property serviced by an affiliate, and (iv) issuing reinsurance on policies with a captive insurer of any mortgage servicer.

    Force-placed Insurance

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  • California Approves Petition for Personal Privacy Ballot Initiative

    Privacy, Cyber Risk & Data Security

    Recently, the California Secretary of State announced that the proponents of a new initiative regarding personally identifying information (PII) may begin collecting petition signatures for their proposed ballot measure. The potential ballot measure would propose a constitutional amendment that would create a presumption that an individual's PII—including financial or health information—is confidential when collected for a commercial or governmental purpose, and would create a presumption of harm when PII is disclosed without the subject’s authorization. The measure also would require a collector of PII to use all reasonably available means to protect it from unauthorized disclosure. The ballot measure proponents have until February 14, 2014 to collect 807,615 registered voters’ signatures in order to qualify it for the ballot.

    Privacy/Cyber Risk & Data Security

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  • Thirty-Five State Agencies Now Using Uniform Mortgage Test

    Lending

    On October 1, the Conference of State Bank Supervisors announced that five additional state agencies have implemented the new national SAFE MLO test, bringing the total number of participating state agencies to 35. The new test, which was announced in January and launched in April, includes a uniform state component to replace the state-specific component in adopting states.

    Mortgage Licensing NMLS CSBS SAFE Act

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  • Oregon Updates Notary Regulations, Allows Electronic Notarization, Journals

    Fintech

    On October 1, the Oregon Secretary of State published a final rule to implement numerous changes to the state’s notaries public regulations, including providing for electronic notarizations and electronic journals. The Secretary also released a summary of the changes. Notaries may notarize documents electronically after informing the Secretary of State of the format the notary will use by submitting notice via email, using the Electronic Notarization Notice form, along with an example of an electronic notarization. Any change to the way a notary conducts electronic notarizations—e.g. new vendor, new technology, changed appearance—requires a notary to provide notice of the change to the Secretary of State. A notary also may document an electronic notarization in either a paper or electronic journal, or both. The new rules took effect on September 1, 2013.

    Electronic Signatures Electronic Records Notary

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  • First Circuit Holds Lender Can Require Increased Flood Insurance Coverage

    Lending

    Recently, the U.S. Court of Appeals for the First Circuit affirmed a district court’s dismissal of a putative class action alleging that a lender improperly required borrowers of FHA-insured mortgages to buy and maintain higher flood insurance coverage than that indicated in their mortgage contracts. Kolbe v. BAC Home Loans Servicing, LP, No. 11-2030, 2013 WL 5394192 (1st Cir. Sept. 27, 2013). The ruling, from an equally divided en banc court, allows mortgage lenders to require borrowers to maintain flood insurance equal to the replacement value of their homes. The named borrower claimed that he was forced to increase his flood insurance coverage in breach of his mortgage contract with his original lender that set the required flood amount coverage. In an amicus brief filed by DOJ on behalf of HUD, the government argued that the FHA’s model mortgage form gives lenders discretion to require coverage for the replacement cost of the property in the event of a flood. The Court of Appeals agreed with the government’s interpretation of the language in the model mortgage contract and reasoned that to interpret the form otherwise would hinder federal housing policy by discouraging banks from offering FHA-insured mortgages or forcing banks to charge higher rates. Dissenting judges argued that the ruling allowed a federal agency to intervene and rewrite a contract to serve its own purposes, and that the ruling’s prediction that banks would not offer FHA mortgages or charge higher rates was speculative.

    Mortgage Origination Mortgage Servicing Class Action Force-placed Insurance Flood Insurance

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