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  • International bank must maintain $500 million bond securing $806 million RMBS judgment

    Courts

    On July 5, the U.S. District Court for the Southern District of New York issued a memorandum opinion and order stating that an international bank must maintain the $500 million bond it had filed in 2015 to secure $806 million in damages owed to the Federal Housing Finance Agency for selling allegedly faulty residential mortgage-backed securities to Fannie Mae and Freddie Mac. The court had stayed execution of the judgment pending appeal, and the stay expired on July 5, following the Supreme Court’s denial without comment of the bank’s petition for writ of certiorari. (See previous InfoBytes coverage here.) According to the district court opinion and order, the bank maintained that the stay order required the bond to remain in effect only through July 5, even though the bank was not required to pay the final judgment until July 20. The court disagreed, explaining that a “more natural reading of the [s]tay [o]rder and the [b]ond together is that the [b]ond must remain in place until two conditions are met: (1) the stay of execution ends and (2) the [f]inal [j]udgment is satisfied. Condition 1 has now been met, but not condition 2.” The court added that the bank is free to satisfy the final judgment prior to its July 20 due date, at which point the bond could be dissolved prematurely.

    Courts FHFA RMBS Bond U.S. Supreme Court Fannie Mae Freddie Mac

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  • Court preliminarily approves $11.2 million settlement for post-payment interest charges on FHA mortgages

    Courts

    On July 5, the U.S. District Court for the Southern District of Iowa preliminarily approved a $11.2 million settlement in a proposed class action against a national bank for allegedly improperly charging interest on pre-paid FHA-insured mortgages. According to the complaint filed in 2016, the bank charged post-payment interest on FHA-insured mortgages without providing the proper disclosures required by FHA. Specifically, the complaint alleges that the bank did not use the FHA-approved form to provide the disclosures to consumers. The settlement requires the bank to place $11.2 million in an escrow account for class distributions; settlement expenses; and attorneys’ fees, which, according to settlement documents, will not exceed 28 percent. The court found that the settlement fell “within the range of reasonableness” and met the requirements for preliminary approval.

    Courts Class Action Settlement FHA Prepayment Mortgages

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  • Agencies issue statement on the impact of the Economic Growth, Regulatory Relief, and Consumer Protection Act

    Federal Issues

    On July 6, the Federal Reserve Board, FDIC, and OCC issued an interagency statement regarding the impact of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), S.2155/P.L. 115-174, which was signed into law by President Trump on May 24. The joint statement describes the interim positions the federal agencies will take with regard to amendments within the Act, including, among other things, (i) extending the deadline to November 25 for all regulatory requirements related to company-run stress testing for depository institutions with less than $100 billion in total consolidated assets; (ii) enforcing the Volcker Rule consistently with the Act’s narrowed definition of banking entity; and (iii) increasing the total asset threshold for well-capitalized insured depository institutions to be eligible for an 18-month examination cycle. The agencies intend to engage in rulemakings to implement certain provisions at a later date. The accompanying OCC and the FDIC releases are available here and here.

    The Federal Reserve Board also issued a separate statement describing how, in accordance with the Act, the Board will no longer subject certain smaller, less complex banking organizations to specified regulations, including stress test and liquidity coverage ratio rules. The Act raised the threshold from $50 billion to $100 billion in total consolidated assets for bank holding companies to be subject to Dodd-Frank enhanced prudential standards. The Board intends to collect assessments from all assessed companies for 2017 but will not collect assessments from newly exempt companies for 2018 and going forward. Additionally, the statement provides guidance on implementation of certain other changes in the Act, including reporting high volatility commercial real estate exposures.

    Federal Issues Federal Reserve FDIC OCC S. 2155 Volcker Rule Stress Test Trump

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  • Freddie Mac delays implementation of automated subsequent transfers of servicing

    Federal Issues

    On July 6, Freddie Mac released Guide Bulletin 2018-11, which announces a delay in the implementation of the automated Requests for Subsequent Transfers of Servicing (STOS) and intra-servicer portfolio moves. As previously covered by InfoBytes, Freddie Mac Guide Bulletin 2018-6 announced the automation of STOS and intra-servicer portfolio moves, which were originally scheduled to be effective on July 23. Freddie Mac has delayed the implementation date until August 13 and pushed the temporary STOS moratorium period from mid-July to July 30 through August 12.

    Federal Issues Freddie Mac Mortgage Servicing Servicing Transfers

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  • Global bank pays $76.7 million to settle hiring practices case

    Financial Crimes

    A global bank and its Hong Kong subsidiary reached a settlement with the DOJ and the SEC related to its alleged practice of “awarding employment to friends and family of Chinese officials” to win business. The subsidiary agreed to pay a $47 million criminal penalty as part of a non-prosecution agreement with the DOJ. It also agreed to continue to cooperate in any ongoing investigations. The DOJ noted that the subsidiary had not self-reported the conduct or properly disciplined the employees involved, although it did receive partial credit for cooperating with the investigation once it began. 

    The parent bank agreed to disgorge nearly $30 million in profits and prejudgment interest in an SEC administrative proceeding. The SEC noted the criminal fine imposed by the DOJ in deciding not to impose a civil penalty. 

    For prior coverage of the sons and daughters investigations into hiring practices in Asia, please see here

    Financial Crimes DOJ FCPA Sons and Daughters

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  • SEC settles with alcoholic beverage company for $8.2 million regarding India payments

    Financial Crimes

    On July 2, the SEC settled FCPA allegations with an alcoholic beverage company in an administrative proceeding stemming from alleged FCPA violations from 2006 through 2012. The company neither admitted nor denied any wrongdoing. The SEC alleged that the company’s subsidiary in India made illegal payments to Indian government officials through third-party sales promoters and distributers. The third parties then presented fabricated or inflated invoices to the subsidiary. These invoices and accounting entries were ultimately incorporated into the parent company’s books and records. The SEC also alleged that the company failed to maintain adequate internal controls.

    This is the third case the SEC has pursued related to conduct in India by alcoholic beverage companies, following a British alcoholic beverage company in 2011 and a Belgian alcoholic beverage in 2016.

    Financial Crimes SEC FCPA

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  • 11th Circuit: No FCRA violation for reporting as delinquent during forbearance plan

    Courts

    On June 27, the U.S. Court of Appeals for the 11th Circuit affirmed summary judgment for a mortgage servicer, concluding that reporting the consumer as delinquent to credit bureaus during a forbearance plan is neither inaccurate nor materially misleading under the Fair Credit Reporting Act (FCRA). According to the opinion, a borrower enrolled in a forbearance plan with her mortgage servicer, which allowed for a “monthly forbearance plan payment” of $25 while the remaining payment balance accrued and became due at the end of the plan. Before the borrower agreed to the plan, a representative for the servicer explained to the borrower that because she was not paying the actual contractual payment under the note, the monthly payments would still be considered late. The mortgage servicer reported the borrower past due for the duration of the plan, and the borrower subsequently filed suit alleging violations of the FCRA. In affirming the lower court’s decision, the appeals court found that while the borrower made timely payments under the forbearance plan, the payments were not the ones she was contractually bound to make under the mortgage note. Additionally, the appeals court found that the borrower did not establish that the forbearance plan legally modified the original note and, therefore, the information the servicer reported to the credit bureaus was not inaccurate and was also not materially misleading “particularly in light of [the servicer’s] additional affirmative statement that [the borrower] was paying under a partial payment agreement.”

    Courts Appellate Eleventh Circuit Mortgage Servicing Credit Reporting Agency

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  • District Court rules city failed to prove bank engaged in discriminatory lending practices

    Courts

    On June 29, the U.S. District Court for the Southern District of Florida granted a national bank’s Motion for Summary Judgment against the City of Miami Gardens (City) on the City’s claims that the bank allegedly made loans to minority borrowers that were more expensive than those given to non-minority borrowers, resulting in greater rates of default and foreclosure, which led to reduced property values in the City and decreased the City’s property tax revenue. (See previous Buckley Sandler Special Alert on a 2017 Supreme Court ruling addressing whether cities have standing to bring discriminatory lending claims under the FHA to recover lost tax revenue and upkeep costs). The court, siding with the bank, found the City had failed to present sufficient evidence to support a claim of discriminatory lending. According to the order, the parties agreed that the bank had not made any predatory loans during the limitations period. Because the City only identified two types of loans from a total of 153 loans issued by the bank during the limitations period as having been made at a higher cost to minorities, the record was insufficient to show the bank’s policies produced “statistically imbalanced lending patterns” and failed to support a claim for disparate impact. The judge further determined that the bank established that there were “legitimate nondiscriminatory reasons that motivated the different pricing,” and that “the City ultimately cannot carry its burden to show by a preponderance of the evidence that [the bank’s] reasons for the price differentials were a mere pretext for discrimination.” On these bases, the court granted the motion.

    Courts Fair Lending Disparate Impact

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  • HUD publishes interpretive rule on Ginnie Mae loan-seasoning requirement

    Federal Issues

    On July 3, the Department of Housing and Urban Development (HUD) published in the Federal Register an interpretive rule regarding the loan-seasoning requirement for Ginnie Mae mortgage-backed securities from the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), S.2155/ P.L. 115-174. The interpretive rule establishes that (i) any VA refinance mortgage that does not meet the requirements of the Act is not eligible to serve as collateral for Ginnie Mae mortgage-backed securities; (ii) any VA refinance mortgage that does not meet the Act’s requirements, but was guaranteed before the Act’s enactment are unaffected; and (iii) the Act does not prohibit Ginnie Mae from guaranteeing Multiclass Securities where the trust assets consist of certificates previously lawfully guaranteed with underlying VA refinance loans that may not meet the requirements of the Act. Comments on the interpretive rule must be submitted by August 2.

    As previously covered by InfoBytes, Ginnie Mae issued All Participants Memorandum APM 18-04, which establishes (in accordance with the Act) that in order to be eligible for Ginnie Mae securities, the date of the VA refinance loan must be on or after the later of (i) 210 days after the date of the first payment made on the loan being refinanced; and (ii) the date of the sixth monthly payment made on the loan being refinanced. 

    Federal Issues Ginnie Mae MBS Department of Veterans Affairs IRRRL S. 2155 HUD

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  • FDIC issues disaster relief guidance for storm affected areas of Hawaii

    Federal Issues

    On July 3, the FDIC issued Financial Institution Letter FIL-35-2018 to provide regulatory relief to financial institutions and facilitate recovery in areas of Hawaii affected by severe storms, flooding, landslides, and mudslides from April 13 through April 16. 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. 

    Federal Issues FDIC Disaster Relief Mortgages

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