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Mortgage Servicers Partner With Obama Administration To Enhance SCRA Protections
On August 26, the Obama Administration announced a new partnership with residential mortgage servicers designed to enhance protections under the Servicemember Civil Relief Act (SCRA). Speaking to the American Legion convention in Charlotte, North Carolina, President Obama observed that under the SCRA, service members and veterans are entitled to certain protections and benefits “but the burden is on them to ask for it and prove they’re eligible.” Under the new partnership, mortgage servicers will proactively identify eligible consumers and inform them of their rights and benefits under the law. Participating servicers will identify eligible participants by regularly checking their servicing portfolios against the Defense Manpower Data Center searchable database of military personnel. The initiative also aims to simplify the process for enrolling and satisfying the SCRA written notice requirements. The announcement was made as part of a White House effort to bolster services for service members, veterans, and their families.
Department Of Education Encourages FFEL Lenders To Adopt New Procedures For Determining SCRA Eligibility
On August 25, the U.S. Department of Education (ED) released a “dear colleague” letter authorizing and encouraging Federal Family Education Loan (FFEL) lenders and lender-servicers to use the new procedures adopted by ED for determining which borrowers are eligible for benefits under the Servicemembers Civil Relief Act. The new ED procedures require ED loan servicers to use the Department of Defense’s website to access the Defense Manpower Data Center (DMDC) database. From there, the ED loan servicers compare their list of borrowers against the DMDC database to identify borrowers who are eligible for the SCRA interest rate limitation. Once the borrower’s status and service dates have been confirmed using the DMDC, the FFEL lenders and lender-servicers using this process may use the DMDC-generated certification information in lieu of having a servicemember submit a copy of his military orders and a written request to receive the SCRA benefits. When the FFEL lender or lender-servicer applies the SCRA interest rate limitation to the borrower’s account, it must notify the borrower of the interest rate change.
FHFA Announces Settlement Of Litigation With Investment Bank
On August 22, the Federal Housing Finance Agency (FHFA) announced that it settled litigation with a major investment bank, other related companies, and several individuals over alleged violations of federal and state securities laws in connection with private-label mortgage-backed securities purchased by Fannie Mae and Freddie Mac between 2005 and 2007. In 2011, FHFA, as conservator for the two GSEs brought suit in the U.S. District Court of the Southern District of New York seeking relief for damages that allegedly resulted from a failure to adequately disclose risks related to the subject MBS offerings. Under the terms of the settlement, the bank is required to pay $3.15 billion to repurchase securities that were the subject of the claims in FHFA’s lawsuit. The difference between that amount and the securities’ current value is approximately $1.2 billion. According to FHFA, that difference is sufficient to effectively make the two GSEs whole on their investments. With this settlement, FHFA has resolved sixteen of the eighteen RMBS suits it filed in 2011. For details on those settlements, please see FHFA’s update on private-label securities suits. For specifics relating to how the August 22 settlement will impact each of the GSEs, please see the purchase and settlement agreements with Fannie Mae and Freddie Mac.
Interagency Guidance Regarding Unfair Or Deceptive Credit Practices
On August 22, the CFPB and the federal banking agencies (Fed, OCC, FDIC and NCUA) issued interagency guidance regarding unfair or deceptive credit practices (UDAP). The guidance clarifies that “the repeal of the credit practices rules applicable to banks, savings associations, and federal credit unions is not a determination that the prohibited practices contained in those rules are permissible.” Notwithstanding the repeal of these rules, the agencies preserve supervisory and enforcement authority regarding UDAP. Consequently, the guidance cautions that “depending on the facts and circumstances, if banks, savings associations and Federal credit unions engage in the unfair or deceptive practices described in the former credit practices rules, such conduct may violate the prohibition against unfair or deceptive practices in Section 5 of the FTC Act and Sections 1031 and 1036 of the Dodd-Frank Act. The Agencies may determine that statutory violations exist even in the absence of a specific regulation governing the conduct.” The guidance also explains that the FTC Rule remains in effect for creditors within the FTC’s jurisdiction, and can be enforced by the CFPB against creditors that fall under the CFPB’s enforcement authority.
HUD Issues Final Rule To Eliminate Post-Payment Interest On FHA Loans
On August 26, HUD issued its final rule prohibiting mortgagees from charging post-payment interest under FHA’s single family mortgage insurance program. The final rule is responsive to the CFPB’s ATR/QM rule, under which post-payment interest charges will be considered a prepayment penalty in connection with FHA loans closed on or after January 21, 2015. Because prepayment penalties are prohibited on higher-priced FHA loans, the new definition of “prepayment penalty” under the ATR/QM rule would have effectively prohibited the making of higher-priced FHA mortgage loans. Also effective January 21, 2015, HUD’s final rule ensures consistency among FHA single-family mortgage products and provides the same protections for all borrowers. Under the final rule, monthly interest on the debt must be calculated on the actual unpaid principal balance as of the date prepayment is received.
HUD Issues Final Rule To FHA ARM Rate Adjustment Regulations
On August 26, HUD issued its final rule to amend FHA’s single family adjustable rate mortgage (ARM) program regulations to align with the interest rate adjustment and notification periods required for ARMs under the CFPB’s new TILA mortgage servicing rules. The final rule is effective January 10, 2015 and adopted the proposed rule issued on May 8 without change. Under the final rule, interest rate adjustments resulting in a corresponding change to the mortgagor’s monthly payment for an ARM must be based on the most recent index value available 45 days before the date of the rate adjustment. FHA’s previous regulations provided for a 30-day look-back period. Further, the final rule mandates that mortgagees of FHA-insured ARMs comply with the disclosure and notification requirements of the CFPB’s TILA servicing rules, which require at least 60-days, but no more than 120-days advance notice of an adjustment to a mortgagor’s monthly payment. Previously, the regulations provided for only 25 days advance notice.
SEC Approves Final ABS And NRSRO Rules
On August 27, the SEC adopted revisions to rules governing the disclosure, reporting and offering process for asset-backed securities (ABS) and adopted new requirements for credit rating agencies registered with the SEC to increase governance controls, enhance transparency, and increase credit rating agency accountability. The adopted ABS reforms will make it easier for investors to review and analyze the credit risk of ABS. The revised ABS rules will (i) require issuers to provide standardized asset-level disclosures for ABS backed by residential mortgages, commercial mortgages, auto loans, auto leases, and debt securities; (ii) provide investors with an additional three days to analyze a preliminary prospectus prior to the first sale of securities in the offering; (iii) revise the eligibility requirements for ABS shelf offerings and require additional changes to the procedures and forms related to shelf offerings; and (iv) revise reporting requirements to include expanded and additional information in the prospectus disclosure for ABS. The new rules adopted for credit rating agencies registered with the SEC require these agencies to (i) consider certain identified factors with respect to establishing, maintaining, and enforcing an internal control structure and file an annual report to the SEC regarding the agency’s internal control structure; (ii) implement conflict of interest controls to prevent inappropriate considerations from affecting a credit agency’s production of credit ratings; (iii) require public disclosure of credit rating performance statistics and histories; (iv) implement procedures to protect the credibility and transparency of rating methodologies, including disclosure requirements regarding the same; and (v) establish standards to ensure that credit analysts meet certain training, experience, and competence thresholds.
Fannie Mae Issues Lender Letter On Mortgage Loan Requirements
On August 25, Fannie Mae issued Lender Letter LL-2014-04, which reminds lenders that when a mortgage loan is selected by Fannie Mae for an anti-predatory and HOEPA compliance review, the lender must provide requested loan information to Fannie Mae. Further, the letter reminds sellers that mortgage loans with either an annual percentage rate or total points and fees payable by the borrower that exceed the applicable HOEPA thresholds are not eligible for delivery to Fannie Mae. Additionally, Fannie Mae released an optional worksheet, available on the Fannie Mae website, designed to assist lenders in responding to any information requests from Fannie Mae. This letter highlights the continued focus of Fannie Mae regarding its anti-predatory lending quality control process.
D.C. Transitions Money Transmitter And Other Licenses To NMLS
On August 20, the District of Columbia Department of Insurance, Securities and Banking (DISB) announced that, as of September 3, 2014, it will begin using the NMLS to manage money transmitter, check casher, money lender, retail seller, sales finance company and non-bank ATM licenses and registrations. Beginning on that date, new applicants for such licenses and registrations must apply via the NMLS. Entities currently holding such licenses and registrations must create a complete record in NMLS and submit it to DISB for approval by December 31, 2014.
Delaware Enacts Law Governing Access To Digital Records After Death
On August 12, Delaware Governor Jack A. Markell signed the Digital Access and Digital Accounts Act, the first law in the nation to comprehensively govern access to a person’s digital assets, including social media and email accounts, after the person dies or becomes incapacitated. Under the new law, a Delaware resident’s digital assets will become part of his or her estate after death, and these assets will be accessible to heirs to the same extent as the deceased person’s physical, tangible assets. Digital assets are defined broadly to include data, texts, email, audio, video, images, sounds, social media and social networking content, health care and insurance records, computer codes and programs, software and software licenses, and databases, along with usernames and passwords. The law expressly does not apply to digital accounts of an employer regularly used by an employee in the usual course of business. The law requires any company that controls a person’s digital assets to give the legal fiduciary for the deceased’s estate the usernames, passwords, and any other information needed to gain access to the digital assets upon a valid written request. Any contrary provisions in service agreements or privacy policies that limit a fiduciary's access to digital accounts are void, although the account owner can specify that the account should remain private after death. The law also grants the company controlling the digit assets immunity for complying with valid requests for account access. The new law takes effect January 1, 2015.