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  • Agencies issue disaster relief guidance for volcanic activity in Hawaii and severe storm in Maine

    Federal Issues

    On June 19, the FDIC issued Financial Institution Letter FIL-33-2018 to provide regulatory relief to financial institutions and facilitate recovery in areas of Hawaii affected by volcanic eruption and earthquakes. The FDIC is encouraging institutions to consider, among other things, extending repayment terms and restructuring existing loans that may be affected by the natural disasters. Additionally, the FDIC notes that institutions may receive favorable Community Reinvestment Act (CRA) consideration for certain development loans, investments, and services in support of disaster recovery.

    On June 14, the Department of Veterans Affairs issued Circular 26-18-16, requesting relief for veterans impacted by Maine’s severe storm and flooding. Among other things, the Circular (i) encourages loan holders to extend forbearance to borrowers in distress because of the storms; (ii) requests that loan holders establish a 90-day moratorium on initiating new foreclosures on loans affected by the major disaster; and (iii) waives late charges on affected loans. The Circular is effective until July 1, 2019.

    Find more InfoBytes disaster relief coverage here.

    Federal Issues Department of Veterans Affairs Disaster Relief Mortgages FDIC

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  • Court allows certain City of Oakland claims to proceed against national bank

    Courts

    On June 15, the U.S. District Court for the Northern District of California granted in part and denied in part a national bank’s motion to dismiss an action brought by the City of Oakland, alleging violations of the Fair Housing Act (FHA) and California Fair Employment and Housing Act. In its September 2015 complaint, Oakland alleged that the bank violated the FHA and the California Fair Employment and Housing Act by providing minority borrowers mortgage loans with less favorable terms than similarly situated non-minority borrowers, leading to disproportionate defaults and foreclosures causing reduced property tax revenue for the city. After the 2017 Supreme Court decision in Bank of America v. City of Miami (previously covered by a Buckley Sandler Special Alert), which held that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the FHA against lenders for injuries allegedly flowing from discriminatory lending practices, Oakland filed an amended complaint. The amended complaint expanded Oakland’s alleged injuries to include (i) decreased property tax revenue; (ii) increases in the city’s expenditures; and (iii) neutralized spending in Oakland’s fair-housing programs. The bank moved to dismiss all of Oakland’s claims on the basis that the city had failed to sufficiently allege proximate cause. The court granted the bank’s motion without prejudice as to claims based on the second alleged injury to the extent it sought monetary relief and claims based on the third alleged injury entirely. The court allowed the matter to proceed with respect to claims based on the first injury and, to the extent it seeks injunctive and declaratory relief, the second injury.

    Courts Fair Housing FHA Lending Consumer Finance Mortgages

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  • New York Fed report finds CFPB oversight does not significantly reduce volume of mortgage lending

    Lending

    The Federal Reserve Bank of New York (New York Fed) released a June 2018 Staff Report titled “Does CFPB Oversight Crimp Credit?” which concludes that there is little evidence that CFPB oversight significantly reduces the overall volume of mortgage lending. The report compared the lending outcomes of companies subject to CFPB oversight with smaller institutions below $10 billion in total assets that are exempt from CFPB supervision and enforcement activities, as well as lending outcomes before and after the CFPB’s creation in July 2011. Using HMDA data, bank balance sheets, and bank noninterest expenses, the report concluded, among other things, that (i) CFPB oversight may have changed the composition of lending—supervised banks originated fewer loans to lower-income, lower-credit score borrowers; (ii) there has been a drop in lending to borrowers with no co-applicant by CFPB supervised banks; and (iii) there has been an increase in origination of  “jumbo” mortgage loans by CFPB supervised banks. The report noted that its results do not speak to the effect of the CFPB’s rulemaking, such as the TILA-RESPA integrated disclosure rule. 

    Lending CFPB Bank Supervision Mortgages Enforcement Mortgage Lenders

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  • Freddie Mac and Fannie Mae release updates to servicing guides

    Federal Issues

    On June 13, Freddie Mac released Guide Bulletin 2018-9, which among other things, updates servicer requirements for short-term, long-term, and unemployment forbearance plans and consolidates the offerings into a single plan. Effective December 1, the streamlined plan will allow servicers to approve forbearance plans lasting up to six months without requiring eligible borrowers to submit a Borrower Response Package. Servicers may also offer consecutive forbearance plans that do not exceed 12 months in total to qualifying borrowers. Separately, the Bulletin includes the introduction of Freddie Mac’s NextJob re-employment services company designed to serve high-needs areas and provide job search skills and training for unemployed or underemployed borrowers who have requested loss mitigation assistance.

    On the same day, Fannie Mae updated its Servicing Guide to consolidate and simplify its forbearance policies into a single plan, and encouraged servicers to implement the changes immediately, but no later than December 1. Fannie Mae clarified, however, that forbearance plans “entered into prior to the servicer’s implementation would adhere to existing policy until the expiration of such forbearance plan.” Additional changes to the Servicing Guide include: (i) clarifications to the escrow advances reimbursement policy for real estate taxes and flood/property insurance premiums; and (ii) updates to be implemented by August 1 for when servicers are required to notify Fannie Mae that a mortgage loan has been placed under military indulgence.

     

    Federal Issues Freddie Mac Fannie Mae Servicing Guide Mortgages Loss Mitigation Flood Insurance Escrow

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  • New York Court of Appeals rules claims under Martin Act governed by three-year statute of limitations

    Courts

    On June 12, the New York Court of Appeals issued a 4 to 1 ruling that claims brought under the state’s Martin Act are governed by a statute of limitations of three years, not six. Former New York Attorney General Eric Schneiderman filed a suit against a bank alleging that in 2006 and 2007, the bank misrepresented the quality of residential mortgage-backed securities it created and sold, bringing its claims under the state’s Martin Act, which grants the Attorney General of New York expanded liability for investigating and enjoining fraudulent practices in the marketing of stocks, bonds and other securities beyond what can be recognized under the common law fraud statute. The bank argued that the action was time-barred because too much time had elapsed to bring claims under the Martin Act, and an argument ensued as to whether the three-year statute of limitations that applies to actions to recover upon a liability or penalty imposed by a statute, or the six-year statute of limitations that applies to an action based upon fraud, applied. In its decision, the majority wrote that the three-year period applied because the Martin Act “expands upon, rather than codifies, the common law of fraud” and “imposes numerous obligations—or ‘liabilities’—that did not exist at common law, justifying the imposition of a three-year statute of limitations.” The court concluded that the broad definition of “fraudulent practices” encompasses wrongs that are not otherwise cognizable under the common law and “dispenses, among other things, with any requirement that the Attorney General prove scienter or justifiable reliance on the part of investors.” The court remanded the case to the New York State Supreme Court for further proceedings concerning the state’s claim against the bank for alleged violations of Executive Law Section 63(12).

    Courts Mortgages RMBS State Issues State Attorney General

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  • FTC bans mortgage relief defendant from future debt relief activities

    Federal Issues

    On June 7, the FTC announced a settlement with an individual who allegedly operated a mortgage relief scheme, which charged distressed homeowners thousands in upfront fees while falsely promising foreclosure prevention or payment modifications. According to the FTC, the defendant, operating through multiple company names, falsely suggested the businesses were endorsed by the federal government and encouraged consumers not to communicate with their mortgage company and to stop making monthly mortgage payments. The settlement order imposes a judgment of more than $15.5 million but suspends the judgment due to the individual’s inability to pay. The settlement prohibits the individual from, among other things, (i) advertising, marketing, promoting, offering, or selling debt relief services or products; and (ii) misrepresenting, or assisting others in misrepresenting information relating to the offering of financial products and services. Additionally, the settlement bars the individual from disclosing or benefitting from the information collected from the consumers through the business operations.

    Federal Issues FTC Debt Relief Mortgages Mortgage Modification Foreclosure

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  • Fannie Mae issues Selling Guide updates, announces MH Advantage program

    Federal Issues

    On June 5, Fannie Mae issued Selling Guide update SEL-2018-05, which announces, among other things, the MH Advantage initiative. MH Advantage is a manufactured home that meets specific construction, design, and efficiency standards. Fannie Mae offers a number of flexibilities on loans secured by these properties, including higher loan-to-value ratios and standard mortgage insurance. The Selling Guide is updated to include the requirements for loans secured by MH Advantage homes, such as property eligibility, appraisal, and underwriting requirements. The requirements for MH Advantage loans are effective immediately. Additionally, the Selling Guide includes updates to (i) HomeStyle Energy loans in Desktop Underwriter; (ii) HomeStyle Renovation loan forms; and (iii) project standards updates to condo, co-op, and PUD project policies.

    Federal Issues Fannie Mae Selling Guide Manufactured Housing Mortgage Insurance Mortgages

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  • Maryland alters certain mortgage broker finder’s fee restrictions

    State Issues

    On May 16, the Maryland legislature enacted, without the governor’s signature, HB 1511, which will alter Maryland’s mortgage broker “finder’s fee” law to place a limit on the amount a broker may charge on the same property more than once within a 24-month period. Effective October 1, the law will only allow a mortgage broker to charge a finder’s fee with respect to the same property within a 24-month period if the fee is equal to or less than eight percent of the initial loan amount, combined with (i) the finder’s fee charged on the initial loan; and (ii) any other finder’s fee collected during the 24-month period.

    State Issues State Legislation Mortgage Broker Mortgages Finder's Fee

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  • Fannie Mae issues industry alert concerning borrower employment scheme in Southern California

    Federal Issues

    On May 24, Fannie Mae’s Mortgage Fraud Program issued an industry alert to mortgage lenders in Los Angeles County identifying 34 entities and businesses listed as employers on loan applications, the existence of which could not be confirmed by Fannie Mae. In the event one of the identified companies is provided as a borrower’s place of employment, Fannie Mae warns lenders to exercise caution when reviewing the entire loan file and “take appropriate steps to prevent the institution from being the victim of fraud.” The alert provides additional fraud detection and prevention steps, including encouraging awareness of third-party originators/brokers, educating staff, and reporting suspicious activity.

    Federal Issues Fannie Mae Mortgages Fraud State Issues

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  • District court sanctions banker for violating consent order issued by CFPB and Maryland Attorney General

    Courts

    On May 21, the U.S. District Court for the District of Maryland granted in part and denied in part a motion for sanctions brought by the CFPB and the Consumer Protection Division of the Maryland Attorney General’s Office (plaintiffs) against a banker (defendant) previously held in civil contempt for violating a final judgment order prohibiting him from participating in the mortgage industry. As previously covered in InfoBytes, in April 2015, a joint enforcement action alleging participation in a mortgage-kickback scheme in violation of RESPA and state law was bought against the defendant, five other individuals, and a Maryland title company. According to the 2018 sanctions order, a stipulated final judgment and order between the parties was approved in November 2015, which, among other things, limited the defendant—who neither admitted nor denied the allegations—from participating in the mortgage industry for two years but did not prohibit him “from acting solely as a personnel or human-resources manager for a mortgage business operated by a FDIC insured banking institution. . . .”

    However, in August 2017, the court held the defendant in civil contempt for failing to comply with the order when it was discovered that the defendant (i) owned and operated mortgage businesses in violation of the order, while claiming to be employed as a human resources professional at one of the businesses; (ii) operated bank branches in Maryland and California; (iii) failed to upload the final judgment and order into the Nationwide Mortgage Licensing System and Registry (NMLSR); and (iv) failed to comply with stipulated reporting requirements. The plaintiffs’ proposed sanctions sought to disgorge all of the defendant’s income from 2015 until the date of compliance and impose a lifetime ban from the industry. In issuing the sanctions, the court ordered that all contemptuous income since the final judgment should be disgorged and extended the original two-year ban another two years—minus the exemption for employment as an HR professional. The defendant is further required to post the sanctions order on the NMLSR within 60 days.

    Courts CFPB State Attorney General Mortgages RESPA Enforcement

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