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FHFA Announces Multiple New Policy Initiatives
On June 15, the FHFA published a Notice of Proposed Rulemaking regarding state and local Property Assessed Clean Energy (PACE) programs, as required by a preliminary injunction issued by the Northern District of California in a lawsuit challenging the FHFA’s direction to Fannie Mae and Freddie Mac not to purchase mortgages subject to first-lien PACE obligations, and to the Federal Home Loan Banks to limit exposure to first-lien PACE programs. Under the PACE programs, local governments provide property-secured financing to property owners for the purchase of energy-related home improvement projects. The FHFA believes such financing arrangements present safety and soundness concerns. Several states challenged the FHFA actions in court. While most of the cases were dismissed, California succeeded in forcing the FHFA to conduct a formal rulemaking on the issue. Comments on the proposed rule are due by July 30, 2012.
On June 18, the FHFA announced an initiative to supplement fraud reporting by the entities it supervises. Under the Suspended Counterparty Program, Fannie Mae, Freddie Mac, and the Federal Home Loan Banks are required to notify the FHFA whenever an individual or company with whom they do business is adjudicated to have engaged in fraud or other financial misconduct. The FHFA also will consider information it receives from other government sources. Based on the reported information, the FHFA will make a determination as to whether the individual or business will be suspended from doing business with the supervised entities. The new program takes effect August 15, 2012.
On June 19, the FHFA published a Notice and Request for Comment regarding a proposed new rating system to be used in conducting safety and soundness examinations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The proposal seeks to implement a single risk-focused examination system for all three entities that would be similar to the “CAMELS” rating system used by federal prudential regulators for depository institutions. The FHFA is accepting comments on the proposed system through July 19, 2012.
State Law Update: North Carolina, Connecticut, Ohio Update Banking, Mortgage Laws
North Carolina Alters Mortgage Regulation Funding Mechanism. On June 20, North Carolina enacted Senate Bill 806, which creates a new funding mechanism for mortgage regulation. The new law replaces the current licensing fee, which offsets the state’s regulatory costs, with an assessment structure similar to the one currently applicable to banks. The change takes effect October 1, 2012.
Connecticut Enacts Bill to Update State Banking Laws. On June 8, Connecticut enacted Senate Bill 67, which makes numerous revisions to the state banking laws. Among the changes, the law (i) alters mortgage licensing requirements to exempt “housing finance agencies” and nonprofit groups, (ii) requires certain lender and broker employees to be licensed as mortgage loan originators, (iii) requires banks to review a mortgage loan before excusing the borrower from amortization of the principal, (iv) requires that banks consider an obligor’s credit exposure arising from a derivative transaction when determining the obligor’s liability limitations, (v) exempts from certain requirements “loan production offices.” The law also gives new investigatory powers to the state banking commissioner and allows the commissioner to require, without seeking a court order, restitution and disgorgement for banking law violations. Most of the law’s provisions take effect October 1, 2012.
Ohio Levels Playing Field for State Banks. Recently, Ohio Governor John Kasich signed House Bill 322, permits Ohio-chartered banks, savings banks, savings and loan associations, and credit unions to charge the same or lower rates or amounts of interest, fees, and other charges under a revolving credit agreement that their out-of-state counterparts may charge Ohio customers. The change does not apply to residential mortgages. It takes effect September 4, 2012.
CFPB Launches Consumer Complaint Database
On June 19, the CFPB released a beta version of its consumer complaint database. The database includes credit card complaints received on or after June 1, 2012. The CFPB plans to add credit card complaint data received prior to June 1, 2012 by the end of 2012. The database provides summary information related to (i) the issue identified in each complaint, (ii) the date of the complaint, (iii) the company named in the complaint, and (iv) the status and timeliness of the resolution. The credit card complaint database is governed by a CFPB Final Policy Statement, which addresses comments received in response to a 2011 version of the statement. Concurrent with the database launch, the CFPB released for public comment a Notice of Proposed Policy Statement that would extend the scope of the database to include all other financial services and products within the CFPB’s jurisdiction. The CFPB is accepting comments on the proposed expanded policy through July 19, 2012.
Fannie Mae Announces Private Transfer Fee Covenant Policy, Revises Loan Modification Agreement
On June 19, Fannie Mae issued the Selling Guide Announcement SEL-2012-05, which states that effective July 12, 2012, Fannie Mae will not purchase or securitize mortgages on properties encumbered by private transfer fee covenants that were created on or after February 8, 2011, with some exceptions. The policy follows a rule finalized by FHFA on March 16, 2012 that prohibits Fannie Mae and Freddie Mac from purchasing or investing in any properties or securities backed by such mortgages. In light of the new policy, mortgages on affected properties must be purchased by Fannie Mae as whole loans no later than July 13, 2012, or must be delivered no later than July 13, 2012 into MBS pools with issue dates of July 1, 2012 or later. The policy requires lenders to establish their own policies and procedures to ensure compliance. On June 20, Fannie Mae published a Servicing Notice to advise servicers to begin using a new Loan Modification Agreement that was updated to include a line for the date of the lenders signature. The new form must be used for all Trial Period Plans beginning on or after September 1, 2012.
OCC Adopts Interim Final Lending Limit Rule
On June 20, the OCC adopted an Interim Final Rule that applies the OCCs existing lending limit rule to certain credit exposures arising from derivative transactions and securities financing transactions. The Dodd-Frank Act added credit exposures arising from a derivative transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction to the definition of loans and extensions of credit for purposes of the lending limit. The interim final rule implements the new definition, effective July 21, 2012, but gives national banks and savings association until January 1, 2013 to comply. The interim final rule permits use in certain circumstances of look-up tables for measuring the exposures for each transaction type, a change that is expected to reduce the burden on smaller institutions. The OCC is accepting comments on the interim final rule through August 6, 2012.
CFPB Announces Senior Staff Changes
On June 19, the CFPB announced a series of senior leadership changes and additions. Meredith Fuchs will now serve as General Counsel. She replaces Leonard Kennedy, who will now serve as Senior Advisor and Counselor to Director Richard Cordray. Ms. Fuchs had been serving as CFPB Chief of Staff and, prior to that, served as Principal Deputy General Counsel. Garry Reeder, who had been Senior Advisor to the Deputy Director, will now serve as Acting Chief of Staff. Steven Antonakes has been promoted to Associate Director for Supervision, Enforcement, and Fair Lending. The Assistant Director of Large Bank Supervision position that he leaves behind will be filled on an “acting” basis by Paul Sanford, who has been serving as Chief of Staff for Large Bank Supervision. In addition, Wendy Kamenshine has transitioned from Acting Ombudsman to Ombudsman, Clifford Rosenthal joined the CFPB as Assistant Director of Financial Empowerment, and Camille Busette was hired as Assistant Director of the Office of Financial Education.
FDIC Supplements Proposed Orderly Liquidation Authority Rule
On June 18, the FDIC published a Supplemental Notice of Proposed Rulemaking to amend the definition of “financial activities” included in a March 2011 Notice of Proposed Rulemaking regarding the Orderly Liquidation Authority (OLA). The March 2011 proposal sought to establish a comprehensive framework for the priority payment of creditors and procedures for filing and pursuing claims under the OLA created by the Dodd-Frank Act. Among other things, the proposal defined “financial companies” that may be subject to resolution under the OLA as those that are "predominantly engaged" in financial activities. To be "predominately engaged" in financial activities, the company must have derived at least 85 percent of its total consolidated revenue from financial activities over the two most recent fiscal years. In this supplemental notice, the FDIC delineates the categories of “financial activities” for purposes of the March 2011 proposal.
CFPB Seeks Information on Compliance Costs
On June 14, the CFPB published a Notice and Request for Comment on its proposal to collect qualitative information from industry participants regarding the compliance costs and other effects of CFPB rules on providers and consumers. The CFPB plans to use structured interviews, focus groups, conference calls, and written questionnaires to obtain supplemental information about industry compliance burdens. The CFPB frames the proposal as part of its ongoing effort to streamline inherited regulations, and has asked that comments on the proposed information collection be submitted by August 13, 2012.
NTIA Announces First Privacy Stakeholder Meeting
On June 15, the National Telecommunications and Information Administration (NTIA) announced that the first meeting of a privacy multistakeholder process will be held on July 12, 2012. The meeting is the first in a series intended to produce a code of conduct that will provide transparency in the handling of personal data by mobile application and services companies. The multistakeholder process derives from the White House’s Privacy Blueprint released in February 2012, which set forth a Consumer Privacy Bill of Rights and designed the multistakeholder process to develop legally enforceable codes of conduct across diverse business contexts.
HUD Rescinds Disputed Accounts and Collection Accounts Guidance
On June 15, HUD issued Mortgagee Letter 2012-10, which immediately rescinds prior guidance regarding the handling of disputed accounts and collection accounts. Under the prior guidance, Mortgagee Letter 2012-3, which was issued on February 28, 2012 and was to become effective on July 1, 2012, potential homebuyers with disputed credit accounts or collections with singular or cumulative balances equal to or greater than $1,000 would have been required to resolve those accounts prior to closing.