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FHA Publishes Consolidated Multifamily Handbook
Recently, the FHA published a new Multifamily Accelerated Processing Guide (MAP Guide) that consolidates underwriting and program requirements in one document. The revised MAP Guide is intended to “cut the time required to approve loan applications and to assure consistent application of program requirements and credit standards across all HUD processing offices.” The revised MAP Guide comes after the FHA’s February 2015 release of a draft version of the guide and incorporates revisions into four main areas: (i) technical corrections and edits based on operational guidance; (ii) incorporation of previously published policy issued since 2011, including Mortgagee Letters, Housing Notices, and Memos; (iii) inclusion of significant organizational and operational business model changes related to the Multifamily for Tomorrow transformation initiative; and (iv) revisions to policy. The new MAP Guide will become effective for all applications for FHA multifamily mortgage insurance received after May 28, 2016.
OFAC Announces Settlement with London-Based Financial Institution for Alleged Violations of the Zimbabwe Sanctions Regulations
On February 8, OFAC settled with a London-based financial institution for alleged violations of the Zimbabwe Sanctions Regulations, 31 C.F.R. part 541 (ZSR). The financial institution agreed to pay $2,485,890 for processing 159 transactions to or through financial institutions located in the United States for or on behalf of corporate customers of the financial institution’s Zimbabwean subsidiary that were owned, directly or indirectly, 50% or more by a customer identified on OFAC’s SDN List. According to OFAC, the financial institution relied on the subsidiary’s electronic customer records and documentation to perform cross-border transactions screenings and sanctions-related customer screening. Due to deficiencies in the subsidiary’s electronic customer system and its “Know Your Customer” procedures, neither the financial institution nor its subsidiary detected certain customers as blocked persons – under Executive Order 13469 of July 25, 2008 – on the SDN List and “continued to process [U.S. Dollar] transactions for or on their behalf to or through the United States in apparent violation of the ZSR.” OFAC determined that the company did not voluntarily self-disclose the apparent violations, and that the apparent violations constitute a non-egregious case. In determining the settlement amount, OFAC found the following to be mitigating factors: (i) the financial institution had not received a penalty notice or Finding of Violation in five years preceding the earliest date of the transactions giving rise to the apparent violations; (ii) the financial institution took remedial action in response to the apparent violations; and (iii) the financial institution substantially cooperated with OFAC’s investigation. In addition, OFAC “considered the fact that the prohibited entities were not publicly identified or designated and included on the SDN List at the time that Barclays processed transactions for or on their behalf.”
OCC Removes Mortgage Servicing-Related Restrictions on Delaware and Ohio-Incorporated Banks
On February 9, the OCC terminated mortgage servicing-related consent orders against Delaware and Ohio-incorporated banks. The OCC determined that the two banks now comply with the original April 2011 consent orders and lifted business restrictions placed on the banks last year, having amended the orders in February 2013 and June 2015. The OCC simultaneously announced $3.4 million and $10 million civil money penalties, to be paid to the U.S. Treasury, against the Delaware and Ohio-incorporated banks, respectively, for their failure to correct deficiencies in the 2011 consent orders in a “timely fashion.”
Obama Administration Announces Executive Orders: Commission on Enhancing National Cybersecurity; Establishment of the Federal Privacy Council
On February 9, President Obama issued two Executive Orders (EO) titled, Commission on Enhancing National Cybersecurity and Establishment of the Federal Privacy Council. The first EO creates a Commission on Enhancing National Cybersecurity (Commission), which will be comprised of top industry thinkers outside of the government. The President will appoint the Commission’s members, with the Speaker of the House of Representatives, the Minority Leader of the House of Representatives, the Majority Leader of the Senate, and the Minority Leader of the Senate each being invited to recommend one individual for membership. As outlined in the White House’s Fact Sheet on the EO, the Commission will, among other things, (i) assist in diagnosing and addressing the causes of cyber-vulnerabilities; (ii) “make detailed recommendations on actions that can be taken over the next decade to enhance cybersecurity awareness and protections throughout the private sector and at all levels of Government”; and (iii) report specific findings and recommendations to the President before the end of 2016.
With the creation of the Federal Privacy Council, senior privacy officials from various Government agencies will come together to (i) develop recommendations on government privacy policies and requirements; (ii) collaborate on ideas, best practices, and approaches for protecting privacy and implementing appropriate safeguards; (iii) evaluate how best to address the hiring, training, and professional development needs of the Federal Government with respect to privacy matters, making the appropriate recommendations; and (iv) perform other privacy-related functions, consistent with law, that the Chair designates. Ultimately, this “interagency support structure” will be the principal “forum to improve the Government privacy practices of agencies and entities acting on their behalf.”
SEC Announces Regional Directors for Enforcement in Los Angeles Office
On February 9, the SEC named C. Dabney O’Riordan and Alka Patel Associate Directors for Enforcement in the Los Angeles Regional Office. O’Riordan began her SEC career as a staff attorney in the Los Angeles office, has been a member of the agency’s Division of Enforcement’s Asset Management Unit since its 2010 inception, and in 2012 was named Assistant Director of the Division of Enforcement. Similarly, Patel began her career in the Los Angeles office as a staff attorney in 2001, became Assistant Director in 2009, and has served as a member of the Division of Enforcement’s Foreign Corrupt Practices Act since its 2010 inception. During their tenure at the SEC, both O’Riordan and Patel investigated and litigated a number of significant securities law matters. In their new roles, O'Riordan and Patel will oversee enforcement efforts in southern California, Arizona, Nevada, and Hawaii.
SEC Adopts Cross-Border Security-Based Swap Rules
On February 10, the SEC released a fact sheet on rules that would require non-U.S. companies using personnel located in a U.S. branch or office “to arrange, negotiate, or execute a security-based swap transaction in connection with its dealing activity to include that transaction in determining whether it is required to register a security-based swap dealer.” The rules, which the SEC voted to adopt in its February 10 open meeting, are intended to ensure that U.S. and foreign dealers engaging in security-based swap dealing activity in the United States are subject to Title VII of the Dodd Frank Act. In addition, the final rules would exempt certain international organizations – those excluded from the definition of U.S. person in Exchange Act rule 3a71-3(a)(4)(iii) – from the requirement that non-U.S. persons include transactions they arranged, negotiated, or executed using personnel located in a U.S. branch or office in their dealer de minimis threshold calculations. Effective 60 days after publication in the Federal Register, but with a later compliance date, the rules should, according to SEC Chair Mary Jo White, “improve transparency and enhance stability and oversight in the security-based swap market, while reducing potential competitive disparities, lessening the likelihood of market fragmentation, and mitigating the risk that may flow into U.S. financial markets.”
FTC Announces Settlement Over Alleged Telemarketing Sales Rule Violations
On February 11, the FTC announced that an Atlanta-based Independent Sales Organization (ISO) agreed to settle charges that it violated the Telemarketing Sales Rule (TSR) by assisting and facilitating deceptive telemarketing acts. According to the FTC, from 2010 through January 2013, the ISO knowingly, or with deliberate ignorance, enabled a deceptive telemarketing operation to obtain and maintain merchant accounts so that it could process consumers’ credit card payments through certain payment networks. The FTC alleged that the ISO ignored a series of red flags concerning the operation’s deceptive telemarketing scheme, such as (i) a high volume of returns and chargebacks; (ii) numerous chargeback complaints from consumers claiming to be victims of fraud; and (iii) alerts from other financial institutions that the operation engaged in fraudulent or deceptive activities. The FTC and the states of New York and Florida sued the operation in 2013, and only then did the ISO terminate its relationship with the operation. In addition to imposing a $2.6 million monetary judgment, which the FTC partially suspended due to financial constraints, the February 3 settlement order requires the ISO to (i) screen prospective clients that meet certain criteria; (ii) monitor sales activity to identify signs of deceptive conduct; and (iii) terminate contracts with persons engaged in deceptive conduct. Finally, the ISO is “banned from payment processing or acting as an ISO for several categories of clients and prohibited from assisting or facilitating any merchant it knows, or should know, is violating the FTC Act or the TSR.”
New York AG Schneiderman Announces Settlement with New York-Based Financial Institution Regarding RMBS Practices
On February 11, New York AG Schneiderman announced a $3.2 billion settlement that includes $550 million for New York with a New York-based financial institution over its alleged deceptive practices involving the sales and issuance of Residential Mortgage-Backed Securities (RMBS) leading up to the financial crisis. According to the settlement agreement, the financial institution (i) increased the acceptable risk levels for loans held in its securitized pools; (ii) securitized certain loans that did not comply with underwriting guidelines and did not have adequate compensating factors; (iii) purchased and securitized loans which its credit and compliance team advised it not to purchase; and (iv) allowed for the purchase of loans it knew to be risky without a loan file review for credit and compliance. The settlement requires the financial institution to (i) provide at least $400 million in consumer relief directly to struggling families and communities across the state; and (ii) pay $150 million “in consideration for the settlement of potential legal claims by the NYAG as compensation for harms to the State of New York allegedly resulting from [its] creation, packaging, marketing, underwriting, sale, structuring, arrangement, and issuance of RMBS in 2006 and 2007.”
New York AG Schneiderman’s settlement is in conjunction with other settlements with members, including the DOJ, of the RMBS Working Group, which was formed in 2012 as a joint federal and state enforcement effort for investigating the RMBS market for fraud and abuse. Finally, in a similar effort last week, the FDIC, as the receiver of affected banks, announced an RMBS-related settlement with the same New York-based financial institution.
Connecticut Supreme Court Affirms Judgment of Trial Court; Rules in Favor of Legislature's Right to Triple Mortgage Recording Fees for MERS
Recently, the Connecticut Supreme Court affirmed a trial courts judgment upholding the Connecticut legislatures right to impose increased mortgage recording fees on the Mortgage Electronic Registration Systems (MERS). Merscorp Holdings, Inc. v. Malloy No. 19376 (Conn. Dec. 2015). In June 2013, the states legislature amended the statute governing the states public land records system by creating a two tiered fee structure for a mortgage nominee operating a national electronic database to track residential mortgage loans. The states amendment ultimately demanded a $159 fee for the first page of a document MERS files and a $5 fee for each additional page filed; in contrast, the recording fee for transactions not involving MERS is $53 for the first page and $5 for each additional page. In 2013, MERS sued Connecticut on the grounds that the amendment violated the due process and equal protection provisions of the state and federal constitutions. As a registry conducting business nationwide, MERS further contended that the state violated the dormant commerce clause of the federal constitution by discriminating against interstate commerce. The trial court ruled in favor of the state, and MERS appealed the case. The Connecticut Supreme Court conducted a rational basis review test and determined that the states distinctions in fees are rationally related to legitimate public interests and, therefore, do not offend the equal protection provisions of the state or federal constitution. The court further concluded that the state did not violate the dormant commerce clause of the federal constitution: [W]e cannot say that imposing higher front-end and back-end fees on MERS transactions in order to compensate for the reduced number of recorded mortgage assignments imposes an undue burden on MERS or, by extension, interstate commerce. For reasons similar to its dismissal of MERS appeal under equal protection and commerce provisions, the Court also rejected the challenge that the state violated their substantive due process rights.
Pennsylvania Court Upholds Department of Banking's Cease and Desist Order Against an Unlicensed Internet Lender
Recently, the Commonwealth Court of Pennsylvania upheld the Pennsylvania Department of Banking and Securities (Department) enforcement action against an unlicensed internet lender and loan purchaser for alleged violations of Pennsylvania law. PA Dept. of Banking and Sec. v. Autoloans, LLC (Pa. Commw. Ct. Jan. 2016). The Department conducted an investigation of consumer complaints and found that in order to secure a loan with the respondents, consumers were required to (i) complete an online loan application, providing highly detailed personal information; (ii) electronically sign the loan documents and a power of attorney, which made the lienholder the attorney-in-fact for purposes related to the motor vehicle to secure the loan; and (iii) install a GPS tracker on the motor vehicle, as required by the contract. On June 24, 2015, the Department issued an Order to Cease and Desist, Prohibit, Pay a Fine and Provide Restitution (Order) against the respondents for alleged violations of the Loan Interest and Protection Law (LIPL), the Consumer Discount Company Act (CDCA), and the Pawnbrokers License Act (PLA): [T]he Department alleged that Respondents violated the LIPL because they are not licensed in Pennsylvania or any other jurisdiction of the United States to provide loans to consumers, to engage in pawn brokering or to collect interest in excess of 6%. It further alleged that Respondents violated the CDCA and the PLA by providing loans to consumers using their motor vehicles as security without a license. The Court granted the Departments petition to enforce the Order, citing a 2009 case in which the Court ruled in favor of the Departments right to enforce the LIPL and the CDCA. Following the Courts decision, the Department announced that, under the Order, the respondents must (i) stop making loans to Pennsylvania residents; (ii) stop collecting payments of principal or interest from Pennsylvania residents on existing loans; (iii) stop repossessing cars from Pennsylvania residents; (iv) release all liens on file at the Pennsylvania Department of Transportation; and (v) return all titles to Pennsylvania residents. In addition, the order requires that the respondents pay a fine of $412,500 representing $2,500 for each known Pennsylvania resident.