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  • Fannie Mae Updates Servicing Guide to Implement Harmonized Contracts Directive

    Lending

    On December 5, Fannie Mae issued Servicing Guide Announcement SVC-2012-21, which provides numerous Servicing Guide updates to further conform to the FHFA’s directive that Fannie Mae and Freddie Mac align their servicing contracts and policies. The announcement provides new and revised policies regarding (i) metrics for performing and non-performing loans, (ii) servicer violations and remedies, (iii) compensatory fees, (iv) default events constituting a breach of a servicer’s contractual obligations, (v) servicing terminations and transfer of servicing remedies, (vi) response time frames and appeal process for remedies, and (vii) miscellaneous contractual changes.

    Fannie Mae Mortgage Servicing

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  • CFPB Ombudsman Issues First Annual Report, Makes Recommendation Regarding CFPB Supervisory Examination Process

    Consumer Finance

    On November 30, the CFPB Ombudsman’s Office submitted its first annual report to the Director of the CFPB. It describes the establishment of the office and highlights the office’s activities from July 2011 through September 30, 2012. The report also identifies two “systemic issues” that the Ombudsman reviewed: (i) consumer understanding of the CFPB complaint process and (ii) the presence of enforcement attorneys at supervisory examinations. Almost 40 percent of the questions the Ombudsman received from consumers related to the CFPB complaint process, so the Ombudsman recommended that the CFPB provide more information to the public about the complaint process using multiple methods to communicate that information. The Ombudsman also heard concerns regarding the CFPB’s policy that enforcement attorneys participate in supervisory examinations. After conducting her own review, the Ombudsman recommended that the CFPB review its implementation of the policy, and until that review is complete, establish ways to clarify the enforcement attorney role at the supervisory examination.

    CFPB Examination Nonbank Supervision Consumer Complaints

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  • New York DFS Requires Mortgage Servicer to Retain an Independent Monitor

    Lending

    On December 5, the New York Department of Financial Services (DFS) announced that it is requiring a major mortgage servicer to retain, within 20 days, an independent monitor to conduct a comprehensive review of the firm’s servicing operations and make recommendations for improvements. The servicer is required to develop written action plans to address the monitor’s findings, subject to approval by the DFS. The DFS claims that the monitor is needed to address “preliminary evidence of non-compliance” with state regulations and an earlier agreement from the servicer to alter certain servicing practices. The prior agreement generally required the servicer to: (i) establish and maintain sufficient capacity to properly board and manage its significant portfolio of distressed loans, (ii) engage in sound document execution and retention practices to ensure that mortgage files were accurate, complete, and reliable, and (iii) implement a system of robust internal controls and oversight with respect to mortgage servicing practices performed by its staff and third-party vendors. The DFS obtained that prior agreement as a condition to approving the servicer’s acquisition of another mortgage servicing entity, due to the DFS’s “concerns regarding [the servicers’] rapid growth.”

    Mortgage Servicing

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  • OCC Releases 2013 Fee Structure

    Consumer Finance

    On November 30, the OCC published Bulletin 2012-40, which informs all national banks, federal savings associations, and federal branches and agencies of foreign banks of fees charged by the OCC for calendar year 2013. The Bulletin explains that the marginal rates of the OCC’s general assessment schedule continue to be indexed based on changes in the Gross Domestic Product Implicit Price Deflator for the previous June-to-June period, and that the 2013 adjustment of 1.7 percent will apply to the first $20 billion in assets of a covered institution. The Bulletin further explains that the assessment schedule continues to include a surcharge for institutions that require increased supervisory resources, and that the OCC will continue to provide a 12 percent reduction on the assessment for nonlead national banks, federal savings associations, or federal branches or agencies of a foreign bank. The new assessments are effective January 1, 2013 and are due March 29, 2013 and September 30, 2013, based on call report information as of December 31, 2012 and June 30, 2013, respectively.

    OCC

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  • FinCEN Issues Advisories Regarding Anti-Money Laundering and Counter-Terrorist Financing Risks Identified by FATF

    Financial Crimes

    Recently, FinCEN published Advisory FIN-2012-A012, which informs financial institutions operating in the United States about certain money laundering and terrorist financing risks identified by the intergovernmental Financial Action Task Force (FATF). On October 19, 2012, the FATF called on its members to apply counter-measures to protect the international financial system from the on-going and substantial money laundering and terrorist financing risks emanating from Iran and the Democratic People’s Republic of Korea. The FATF announcement also detailed anti-money laundering and counter-terrorist financing deficiencies in 17 jurisdictions that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan to address the deficiencies. The FATF called for enhanced due diligence to address risks arising from the deficiencies associated with each jurisdiction. FinCEN separately published Advisory FIN-2012-A011 to advise institutions of an FATF statement regarding 22 jurisdictions with strategic deficiencies in their anti-money laundering and counter-terrorist financing, but for which each jurisdiction has provided a high-level political commitment to address the strategic AML/CFT deficiencies.

    Anti-Money Laundering FinCEN Combating the Financing of Terrorism

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  • California Cautions Lenders Regarding Vendor Vetting and Management

    Consumer Finance

    On December 5, the California Department of Corporations issued Bulletin No: 001-12 to caution lenders and other institutions about the vetting and management of third-party service providers. The bulletin explains that in response to guidance from the CFPB earlier this year regarding supervision of vendors, third-party risk management companies have emerged to pre-screen potential vendors for bank and nonbank financial service providers.  The bulletin generally advises lenders to be cautious about delegating vendor vetting to third-parties and mindful of their ultimate responsibilities for such vendors. The bulletin specifically (i) reminds escrow agents of the prohibition in California Financial Code section 17420 against the payment of referral fees for soliciting escrow accounts, (ii) advises lenders that mandating the use of a particular service provider on a third-party risk management company’s list, or prohibiting the use of a service provider not appearing on such list, may be violating the California Buyer’s Choice Act, and (iii) highlights potential RESPA violations and unfair business practices.

    CFPB Vendors

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  • Sixth Circuit Affirms Dismissal of Suit Challenging MBS Ratings by Major Credit Reporting Agencies

    Securities

    On December 3, the U.S. Court of Appeals for the Sixth Circuit affirmed the dismissal of claims brought by Ohio public employee pension funds against major credit-rating agencies related to the sale of mortgage-backed securities. Ohio Police & Fire Pension Fund v. Standard & Poor’s Financial Services LLC, No. 11-4203, 2012 WL 5990337 (6th Cir. Dec. 3, 2012). The pension funds claim to have suffered estimated losses of $457 million from investments in MBS made between 2005 and 2008 allegedly caused by their reasonable reliance on the agencies’ false and misleading MBS ratings. The court affirmed the district court’s dismissal and held that the funds’ allegations lacked the requisite specificity to establish either a violation of Ohio’s “blue sky” laws or common-law negligent misrepresentation. Because the agencies’ fees were fixed rather than contingent on the success or proceeds of the sale, the court held that the agencies did not profit from the sale of MBS under the plain language of the statute.  The court also rejected the claim that the Agencies either aided or participated in securities fraud because (i) the pension funds offered no facts from which it was possible to conclude that an entity other than the Agencies engaged in securities fraud, and (ii) the pension funds did not adequately plead that the Agencies themselves made affirmative misrepresentations as to the MBS. In addition, the court affirmed the dismissal of the funds’ common-law negligent misrepresentation claims, determining that under both New York and Ohio law the agencies did not have a relationship with the funds that would establish a duty of care. Finally, the court found that the agencies’ MBS ratings were predictive opinions rather than affirmative false statements, and that the funds failed to adequately allege, beyond general criticism of their business practices, that the agencies did not believe the correctness of their ratings.

    RMBS

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  • FinCEN Releases Summaries of Customer Due Diligence Roundtable Meetings

    Financial Crimes

    This week, FinCEN published summaries of a series of roundtable meetings held to obtain stakeholder feedback on the agency’s proposed rulemaking on customer due diligence. The meetings, held in September and October in Los Angeles, New York, and Chicago, provided a forum to discuss key issues regarding the proposed rulemaking, including (i) the definition of “beneficial ownership,” (ii) practices to obtain and verify beneficial ownership, and (iii) challenges associated with specific products, services, and relationships.

    Anti-Money Laundering FinCEN Bank Secrecy Act

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  • President, Congress Extend Cross-Border Fraud Enforcement Law

    FinTech

    On December 4, President Obama signed a bill, H.R. 6131, that extends through December 2020, a law that enhances the FTC’s ability to address cross-border fraud, and particularly to fight spam, spyware, and Internet fraud and deception. Originally passed in December 2006 and set to expire in December 2013, the U.S. SAFE WEB Act amended the FTC Act to include within the definition of "unfair or deceptive acts or practices" certain acts or practices involving foreign commerce. Further, the law authorizes the FTC to (i) disclose certain privileged or confidential information to foreign law enforcement agencies, and (ii) provide investigative assistance to a foreign law enforcement agency pursuing violations of laws prohibiting fraudulent or deceptive commercial practices or other practices substantially similar to practices prohibited by laws administered by the FTC without requiring that the conduct identified constitute a violation of U.S. laws.

    Fraud FTC

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  • IRS Ready to Accept Electronic Signatures on the 4506-T

    FinTech

    Recently, the Internal Revenue Service issued Electronic Signature Requirements that will allow applicants to electronically sign and submit IRS Forms 4506-T and 4506T-EZ (4506-T) beginning January 7, 2013. IRS regulations permit taxpayers to order a tax transcript using a form 4506-T through the IRS Income Verification Express Services (IVES). Under the Requirements, IVES participants may accept and submit an electronically signed 4506-T if the electronic signature process includes: (i) a structure that places creation of the signature under the signer’s sole control; (ii) a signature technology that permits the signature to be verified, either through the use of software algorithms or forensic analysis;  (iii) the ability to establish that the signature was created by a specific individual; (iv) a signature block on the document with a symbol, logically associated with the 4506-T, that allows validation of the signer’s name against the name listed on the 4506-T; (v) a process flow or communication with the signer establishing the intent to sign and the purpose of the signature; and (vi) application of the signature in a tamper-evident manner. In addition, the process used to present and sign the 4506-T must include each of the following: (i) authentication, (ii) consent, (iii) tamper-proofing, and (iv) an audit log. Each IVES participant accepting electronically signed 4506-Ts must determine that the electronic signature process adheres to the Requirements, and must also retain a copy of each signed 4506-T and accompanying audit log for at least two years. Such participants also must implement a third-party audit program and comply with specific monthly and annual third-party audit and reporting requirements. BuckleySandler’s Electronic Signatures and Records Team has substantial experience assisting entities seeking to comply with electronic signature requirements.

    IRS Electronic Signatures

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