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FDIC Promises Guidance on Bank Payment Processing
On September 17, FDIC Chairman Martin Gruenberg responded to a letter sent recently by Republican members of the House of Representatives, in which the members objected to the agency’s approach toward online lending and the banks that process payments on behalf of online lenders. In his response letter, Chairman Gruenberg explains the FDIC’s approach to the issue, describes the challenges for banks who do business with online lenders and third party payment processors, and promises “ a Financial Institution Letter . . . to make it clear that the FDIC's focus is the proper management of the banks' relationships with their customers, particularly those engaged in higher risk activities, and not underlying activities that are permissible under state and federal law.”
Federal Reserve Board Issues Rules on Incorporating Basel III Into Stress Tests
On September 24, the Federal Reserve Board issued two interim final rules that clarify how companies should incorporate the Basel III regulatory capital reforms into their capital and business projections during the next cycle of capital plan submissions and stress tests. The first interim final rule clarifies that in the next capital planning and stress testing cycle, bank holding companies with $50 billion or more in total consolidated assets must incorporate the revised capital framework into their capital planning projections and into the stress tests using the transition paths established in the Basel III final rule. This rule also clarifies that for the upcoming cycle, capital adequacy at these companies will continue to be assessed against a minimum 5% tier 1 common ratio calculated in the same manner as under previous stress tests and capital plan submissions. For most banking organizations with between $10 billion and $50 billion in total consolidated assets, the second interim final rule provides a one-year transition period. During their first stress test cycle (scheduled to begin October 1), these companies will be required to calculate their projections using the current regulatory capital rules in order to allow time to adjust their internal systems to the revised capital framework. Both rules clarify that covered companies will not be required to use the advanced approaches in the Basel III capital rules to calculate their projected risk-weighted assets in a given capital planning and stress testing cycle unless the companies have been notified by September 30 of that year.
NCUA Files Additional RMBS Actions
On September 23, the NCUA announced that it filed separate lawsuits against nine financial institutions on behalf of five insolvent credit unions for alleged violations of federal and state securities laws in the sale of $2.4 billion in mortgage-backed securities. The complaints, which the NCUA filed in the U.S. District Court for the District of Kansas, claim that the securitizer made numerous misrepresentations and omissions in the offering documents regarding adherence to the originators’ underwriting guidelines, which concealed the true risk associated with the securities and routinely overvalued them. The NCUA claims that when the allegedly risky securities lost value, the credit unions were forced into conservatorship and liquidated as a result of the losses sustained. The NCUA has filed numerous similar suits, and it has previously settled similar claims for more than $335 million with four financial institutions.
NCUA Files LIBOR Action
On September 23, the NCUA announced a lawsuit against 13 international banks alleging violations of federal and state antitrust laws by artificially manipulating the London Interbank Offered Rate (LIBOR) system. The NCUA filed the complaint in the U.S. District Court for the District of Kansas on behalf of five failed credit unions. The NCUA claims the institutions individually and collectively gave false interest rate information through the LIBOR rate-setting process to benefit their own LIBOR-related investments, to reduce their borrowing costs, to deceive the marketplace as to the true state of their creditworthiness and to deprive investors of interest rate payments. According to the NCUA, the now defunct credit unions held tens of billions of dollars in investments and other assets that paid interest streams tied to LIBOR, and that the alleged conspiracy to artificially depress LIBOR caused the failed credit unions to receive less in interest income than they otherwise were entitled to receive.
Senator Expands Data Broker Investigation
On September 25, Senator Jay Rockefeller (D-WV) released letters he recently sent to 12 popular “personal finance, health, and family-focused websites” for assistance in an ongoing Senate Commerce Committee investigation into the way data brokers collect and share personal information. According to Senator Rockefeller, the letters were sent in part because “several data brokers have refused to disclose to the Committee specific sources of consumer data, preventing the Committee from fully understanding how the industry operates.” Senator Rockefeller began this investigation in October 2012 with letters to a number of data brokers. In connection with this latest round of letters, the Senator states that “hundreds of thousands of websites that gather information directly from consumers may be a source of consumer information for data brokers,” and that he believes some websites’ privacy policies “leave room for sharing a consumer’s information with data brokers or other third parties.” The Senate investigation parallels an investigation by members of the House of Representatives and the FTC’s ongoing activity with regard to data brokers.
FTC Files Amicus Brief in Tribal Payday Lending Case
On September 26, the FTC announced that it had filed an amicus brief in the U.S. Court of Appeals for the Seventh Circuit in a class action suit against a Native American payday lender. In that case, the putative class is challenging a payday lender’s practice of requiring borrowers to submit to arbitration at a Native American reservation in South Dakota. The FTC notes that it is pursuing its own action against the same lender, challenging its jurisdiction over borrowers who do not belong to the tribe and who do not reside on the reservation or in South Dakota. In its Seventh Circuit filing, the FTC argues that Native American tribes and tribal courts have legal authority over their own members and not over non-members, unless non-members conduct activities inside the reservation or enter into a commercial relationship with the tribe or a member of the tribe. The FTC claims that borrowers who take out payday loans from these companies via the Internet do not conduct business on the reservation and should not be subject to arbitration there.
FTC Announces Settlement of First Text Message Debt Collection Action
On September 25, the FTC announced the settlement of its first case against a debt collector for using text messaging to attempt to collect debts in an allegedly unlawful manner. The complaint, filed on August 23, alleged that an individual and the two debt collection companies he controlled violated the FDCPA and FTC Act when the companies failed to disclose in English- and Spanish-language text messages and phone calls that the companies were debt collectors and that they falsely portrayed themselves as law firms. The FTC also alleged that the defendants illegally revealed debts to the consumers’ family members, friends, and co-workers. To resolve the FTC’s claims, the companies agreed to pay a $1 million civil penalty, agreed not to send text messages omitting the disclosures required by law and agreed to obtain a consumer’s express consent before contacting them by text message. The defendants are also barred from falsely claiming to be law firms and from falsely threatening to sue or take any action – such as seizure of property or garnishment – that they do not actually intend to take.
HUD Clarifies Changes to HECM Program, Updates FHA Loss Mitigation Home Retention Options
On September 25, HUD issued Mortgagee Letter 2013-33, which clarifies the recent changes HUD made to its HECM program earlier this month through Mortgagee Letter 2013-27. The new letter (i) defines mandatory obligation, (ii) adds additional mandatory obligations for traditional and refinance transactions, and for purchase transactions, (iii) identifies items that must be included in the first twelve-month disbursement limit and initial MIP calculation, (iv) states that the monthly increase to the principal limit must include the annual mortgage insurance rate as well as the mortgage note interest rate, (v) corrects the calculation of the life-expectancy set-aside, (vi) makes accommodations for mortgagors who entered into a bona fide sales contract and made an earnest money deposit on a property before the issuance of Mortgagee Letter 2013-27, and (vii) clarifies an exception to the general policy that a mortgagee increase the available principal limit if the mortgagor makes a partial payment. On September 20, HUD issued Mortgagee Letter 2013-32 to supersede its prior guidance regarding loss mitigation in Mortgagee Letter 2012-22. The letter, among other things, (i) defines “continuous income,” other than wages, for loss mitigation evaluations, and other terms, (ii) establishes the conditions required for a “special forbearance” to be used as a loss mitigation tool, (iii) provides guidance on capitalization of arrearages for modifications and partial claims, and (iv) discusses working with mortgagors in bankruptcy and those failing to complete trial payment plans. Mortgagees are required to implement the policies in Mortgagee Letter 2013-32 by December 1, 2013.
Fannie Mae Announces Numerous Selling Policy Changes
On September 24, Fannie Mae issued Selling Guide Announcement SEL-2013-07, which includes changes to various selling policies. The announcement states that the flood insurance coverage requirements have been updated to clarify existing policy, address common lender questions and align with prevalent industry practices, as well as to alter the requirements for flood insurance on attached condominium projects (requiring a master policy in effect at least equal to 80% of replacement cost or the maximum insurance available from the National Flood Insurance Program per unit, whichever is lower). Fannie Mae updated its maintenance fee (formerly known as inactivity fee) requirements, including, among other things, lowering the loan delivery threshold from $2 million in mortgage loans to one mortgage loan. The announcement also (i) revises the instructions for Form 360 (“Certificate of Authority, Incumbency, and Specimen Signatures”) to clarify that the form must be completed and signed by an officer of the lender or, if the lender is not a corporation, a member of senior management, (ii) enhances guidance on the allowable age of federal income tax returns and the tax-related documentation required by adding disbursement dates, and (iii) revises the temporary leave income policy to clearly state that documentation concerning the timing of the borrower’s return to work can be provided directly to the lender by the borrower or the employer. The announcement also includes several other selling policy changes, and describes selling guide updates based on previously announced policy changes related to ability to repay and qualified mortgages.
Freddie Mac Revises Numerous Selling, Servicing Requirements
On September 24, Freddie Mac issued Bulletin 2013-18, which updates and revises certain selling and servicing requirements. Effective October 1, 2013, Freddie Mac will require that seller/servicers (i) provide third-party vendors retained to perform functions relating to origination and servicing of mortgages with training on fraud prevention, detection, and reporting as outlined in the Seller/Servicer Guide, (ii) maintain written procedures for reporting fraud or possible fraud in connection with a mortgage sold to or serviced for Freddie Mac, and (iii) report to Freddie Mac when they first know or suspect an incident of fraud may have occurred in connection with a mortgage sold to or serviced for Freddie Mac, rather than when they have a reasonable belief of such an incident. With regard to selling requirements, the bulletin, among other things, (i) updates asset documentation requirements, including the requirements for verification of large deposits, (ii) updates requirements for underwriting borrowers on temporary leave, (iii) updates certain relief refinance requirements, and (iv) retires Investor Feature Identifiers for temporary subsidy buydown mortgages with special characteristics.