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  • HUD Announces Two Maternity Leave Fair Housing Agreements

    Lending

    On July 1, HUD announced a conciliation agreement with a California mortgage lender, pursuant to which the lender will pay $48,000 to resolve allegations that it violated the Fair Housing Act when it denied or delayed mortgage loans to women because they were on maternity leave. Under the Fair Housing Act, it is unlawful to discriminate in the terms, conditions, or privileges associated with the sale of a dwelling on the basis of sex, including denying a mortgage loan or mortgage insurance because a woman is pregnant or on family leave. After a married couple complained to HUD that the lender denied their refinancing application because the wife was on maternity leave, HUD commenced an investigation that revealed the lender also allegedly denied four other applicants who were on maternity leave, or delayed their applications until after the women returned to work. The agreement requires the company to pay $20,000 to the couple that filed the complaint, and $7,000 to each of the other four applicants identified by HUD. The company no longer originates mortgages, but agreed to provide annual fair lending training to employees and management staff should it resume its mortgage operation. In a similar action last month, HUD required a Utah credit union to pay $25,000 to resolve allegations that the credit union discriminated against prospective borrowers on maternity leave. The HUD investigation was initiated after a married couple claimed their mortgage loan application was wrongly denied because the wife was on maternity leave. The credit union asserted that its mortgage insurer’s guidelines for calculating income for women on maternity leave allowed regular pay to be considered only if the women returned to work before the loan closed. Although the complainants previously resolved their claims, the credit union agreed to pay $10,000 to an allegedly affected borrower identified during HUD’s investigation, and $15,000 to a qualified organization to help educate the public about fair lending requirements and obligations, including the rights of borrowers on maternity, paternity, pregnancy, or parental leave at the time of an application for a home mortgage loan. The credit union also agreed to adopt an FHA-compliant policy with regard to calculation and treatment of maternity, paternity, and pregnancy leave income, and to identify when employment income may be used based upon the timing of a scheduled return to work date.

    HUD Fair Housing Enforcement

  • FHFA OIG Concerned About Specialty Servicers, Highlights FHFA Servicing Transfer Guidance

    Lending

    On July 1, the FHFA Office of Inspector General (OIG) issued a report containing its assessment of FHFA controls to ensure that Fannie Mae and Freddie Mac monitor nonbank special servicer performance and mitigate related risks. The report concluded that the FHFA has not established a risk management process to handle risks resulting from specialty servicers’ (i) use of short-term financing to buy servicing rights for troubled mortgage loans that may only begin to pay out after long-term work to resolve their difficulties; and (ii) obtaining large volumes of mortgage loans that may be beyond what their infrastructures can handle. The OIG asserted that such risks “are amplified by nonbank special servicers operating without the same standards and regulation as banks that service mortgage loans,” including capital requirements, which the OIG believes makes nonbank servicers “more susceptible to economic downturns” that could “substantially increase nonperforming loans that require servicer loss mitigation while at the same time impact[ing] the ability of the servicer to perform.” The OIG recommended that the FHFA (i) issue guidance on a risk management process for nonbank special servicers and (ii) develop a comprehensive, formal oversight framework to examine and mitigate the risks these nonbank special servicers pose. The report highlighted recent FHFA guidance that the OIG believes is sufficient to resolve the second recommendation—a June 11, 2014 FHFA Advisory Bulletin outlining supervisory expectations for risk management practices in conjunction with the sale and transfer of mortgage servicing rights or the transfer of the operational responsibilities of servicing mortgage loans owned or guaranteed by Fannie Mae and Freddie Mac. The Bulletin requires Fannie Mae and Freddie Mac to consider servicer capacity, including staffing, facilities, information technology systems, and any sub-servicing arrangements, as part of the analysis of mortgage servicing transfers. The FHFA agreed to also develop supervisory guidance on how Fannie Mae and Freddie Mac manage risks associated with servicing troubled loans.

    Freddie Mac Fannie Mae Mortgage Servicing FHFA Loss Mitigation

  • Federal, State Prudential Regulators Issue HELOC Guidance

    Lending

    On July 1, the OCC, the Federal Reserve Board, the FDIC, the NCUA, and the Conference of State Bank Supervisors issued interagency guidance on home equity lines of credit (HELOCs) nearing their end-of-draw periods. The guidance states that as HELOCs transition from their draw periods to full repayment, some borrowers may have difficulty meeting higher payments resulting from principal amortization or interest rate reset, or renewing existing loans due to changes in their financial circumstances or declines in property values. As such, the guidance describes the following “core operating principles” that the regulators believe should govern oversight of HELOCs nearing their end-of-draw periods: (i) prudent underwriting for renewals, extensions, and rewrites; (ii) compliance with existing guidance, including but not limited to the Credit Risk Management Guidance for Home Equity Lending and the Interagency Guidelines for Real Estate Lending Policies; (iii) use of well-structured and sustainable modification terms; (iv) appropriate accounting, reporting, and disclosure of troubled debt restructurings; and (v) appropriate segmentation and analysis of end-of-draw exposure in allowance for loan and lease losses estimation processes. The guidance also outlines numerous risk management expectations, and states that institutions with a significant volume of HELOCs, portfolio acquisitions, or exposures with higher-risk characteristics should have comprehensive systems and procedures to monitor and assess their portfolios, while less-sophisticated processes may be sufficient for community banks and credit unions with small portfolios, few acquisitions, or exposures with lower-risk characteristics.

    FDIC Federal Reserve OCC NCUA CSBS HELOC Agency Rule-Making & Guidance

  • Pennsylvania Federal Court Holds Promissory Note Transfer Equivalent To A Mortgage Assignment And Must Be Recorded

    Lending

    On July 1, the U.S. District Court for the Eastern District of Pennsylvania held that in Pennsylvania the assignment or transfer of a promissory note secured by a mortgage on real estate is equivalent to a mortgage assignment and, as such, must be recorded. Montgomery County, Penn. Recorder of Deeds v. Merscorp, Inc., No. 11-6968, 2014 WL 2957494 (E.D. Pa. July 1, 2014). A Pennsylvania county recorder of deeds filed a putative class action against an electronic mortgage registry claiming the registry violated state law and unjustly enriched itself by failing to record conveyances of interests in real property. The recorder challenged the registry’s practice of serving as the mortgagee of record and as the nominee for a lender, which obviates the need to record the transfer of a note each time it is sold. The court held that although state law recognizes a clear distinction between a promissory note and a mortgage and that a promissory note generally may be transferred without recording, a promissory note still falls within the meaning of a “conveyance” under state law, and therefore must be recorded. The court further explained that notes and mortgages are legally inter-woven, and “whether effectuated via a writing or a mere ‘transfer of possession’ of a note, the result is the same by operation of law”—an interest in the property has been assigned and conveyed and therefore must be recorded. The court acknowledged evidence that the registry may have been unjustly enriched by avoiding recording fees on transfers the court now determined were required to be recorded, but declined to make that determination as a matter of law, let alone a determination as to the amount of damages. The court left those issues to be determined at trial. The decision is likely to be appealed to the Third Circuit.

    Mortgage Servicing Electronic Records

  • California Removes Statutory Restrictions On Virtual Currency

    Fintech

    On June 28, California Governor Jerry Brown signed AB 129, which repeals a state ban on the issuance or circulation of anything but lawful money of the United States. As described in a legislative staff analysis of the bill, the repeal is designed to ensure that forms of alternative currency such as digital currency, points, coupons, or other objects of monetary value do not violate the law when those methods are used for the purchase of goods and services or the transmission of payments in California.

    Virtual Currency

  • Senate Confirms HUD Secretary

    Lending

    On July 9, the Senate voted 71-26 to confirm Julian Castro to serve as HUD Secretary. The former San Antonio, Texas mayor will replace Shaun Donovan, who the Senate subsequently confirmed to lead the Office of Management and Budget.

    HUD U.S. Senate

  • FHFA Proposes Mortgage Insurer Eligibility Requirements

    Lending

    On July 10, the FHFA sought input on a proposal to establish new eligibility requirements for private mortgage insurers seeking to insure Fannie Mae and Freddie Mac (the Enterprises) mortgages. As described in an overview document, the FHFA proposes to revise business requirements to identify, measure, and manage exposure to counterparty risk. The FHFA also proposes new financial requirements and minimum quality control program requirements, which it states are intended to (i) facilitate an insurer’s monitoring of adherence to its underwriting and eligibility guidelines; (ii) ensure data accuracy; and (iii) prevent the insuring of fraudulent mortgages or mortgages with other defects. An insurer would be required to submit to each Enterprise a copy of its quality control program annually, with changes noted from the prior year’s version. The proposal also describes numerous potential remedies available to the Enterprises should an insurer fail to meet its requirements, ranging from more frequent dialogue or visits with an insurer to suspension or termination. All components of the requirements would become effective 180 days after the publication date of the finalized requirements. During the input period, and until the requirements are finalized, any insurer already approved to do business with the Enterprises that does not fully meet each Enterprise’s existing eligibility requirements would continue to operate in its current status and would be given a transition period of up to two years from the publication date to fully comply. Comments on the proposal are due by September 8, 2014.

    Freddie Mac Fannie Mae Mortgage Insurance FHFA

  • FHA Releases New Draft Handbook Sections

    Lending

    Recently, the FHA released for comment two additional draft sections of its new Single Family Policy Handbook. The first, Doing Business with FHA, outlines the requirements associated with FHA mortgagee approval, including eligibility requirements, application processes, operating requirements, post-approval changes, the recertification process, and processes for applying for supplemental mortgagee authorities. The second, Quality Control, Oversight and Compliance, outlines the ongoing lender and mortgagee responsibility to perform institution and loan-level quality control, and details the repercussions for failing to act in accordance with FHA requirements, including explanations of possible administrative actions and sanctions. Comments on both sections are due by July 29, 2014.

    Mortgage Origination HUD FHA

  • HUD Seeks Comments On Limits Of Insurability Of Fixed Interest HECM Products, Announces Other HECM Program Changes

    Lending

    On July 10, HUD published a request for comment on its recent amendments to the Home Equity Conversion Mortgage (HECM) reverse mortgage program to limit the insurability of fixed interest rate reverse mortgages. Although those changes already took effect under the emergency action taken by HUD, it now seeks public comment on those changes. HUD also recently took two other actions related to the HECM program. In Mortgagee Letter 2014-10, HUD reminded mortgagees of the FHA’s requirements prohibiting misleading or deceptive advertising, described those prohibitions, and clarified that they extend to misleading or deceptive descriptions of the HECM program. On June 27, HUD issued Mortgagee Letter 2014-12, which announced new HECM principal limit factors. HUD’s new principal limit factor tables now include principal limit factors where the borrower has a non-borrowing spouse younger than 62.

    HUD Reverse Mortgages Mortgagee Letters

  • HUD Adds Requirement For Voluntary Termination Of FHA Mortgage Insurance

    Lending

    On July 3, HUD issued Mortgagee Letter 2014-13, which requires mortgagees seeking voluntary termination of FHA mortgage insurance to obtain a signed borrower consent form from each borrower on the mortgage. HUD states that in order to ensure that voluntary terminations of mortgage insurance are processed in accordance with the National Housing Act and HUD regulations, HUD now requires mortgagees requesting such termination to inform borrowers in writing that electing to terminate the mortgage insurance means that the mortgage will no longer be governed by FHA insurance program rules and regulations, including FHA’s loss mitigation requirements. Effective October 1, 2014, mortgagees must obtain a signed Borrower’s Consent to Voluntary Termination of FHA Mortgage Insurance, which must be on the mortgagee’s letterhead and must include the language in the sample form provided by HUD. HUD will require each borrower on the mortgage to sign the consent form in order for the request for voluntary termination to be considered valid by FHA. Mortgagees must retain copies of the consent form(s) in the servicing file in accordance with HUD’s record retention policies.

    HUD Mortgage Insurance FHA Mortgagee Letters Loss Mitigation

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