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  • Freddie Mac Publishes Revisions to Selling Requirements

    Lending

    On March 15, Freddie Mac published Single-Family Seller/Servicer Guide Bulletin 2012-8, which (i) updates mortgage eligibility and credit underwriting requirements Borrower Funds and Mortgage Credit Certificates for Borrower qualification, (ii) revises Forms 16SF and 1107SF regarding warehouse lender agreements and facilities, (iii) eliminates certain requirements for document custodians on Form 1034A, and (iv) updates certain delivery requirements under the Uniform Loan Delivery Dataset and clarifies delivery requirements for certain refinances under HARP.

    Freddie Mac Mortgage Origination

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  • Washington Expands Servicemember Protections

    State Issues

    On March 7, Washington Governor Christine Gregoire signed Senate Bill 5627 which expands protection for members of the state National Guard. The law expands the definition of “military service” to include servicemembers called to service by the governor for more than thirty consecutive days. This change is designed to provide National Guard members activated by the governor the same protections already provided under state law to servicemembers called to federal service by the President or the Secretary of Defense. This law becomes effective June 7, 2012.

    Servicemembers

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  • FDIC Warns Bank Directors and Officers Regarding Copying and Removal of Institution Information

    Consumer Finance

    On March 19, the FDIC issued Financial Institution Letter FIL-14-2012, which warns bank directors and officers that financial institution records belong exclusively to the institution, and supervisory records are the property of the FDIC. As such, directors and officers of failing institutions who make and remove copies of institution and supervisory records for “personal use” in preparing for anticipated litigation or enforcement activity (i) are breaching their fiduciary duty, (ii) are engaging in an unsafe and unsound banking practice, and (iii) may be violating the institution’s information security program. Personal use includes use by directors or officers to defend themselves against administrative, civil, and criminal proceedings or lawsuits based on actions taken in their official capacity. The Financial Institution Letter also reminds outside counsel to financial institutions that their legal and ethical obligations are only to the institution, and not to an institution’s directors or officers. The FDIC threatens bank directors and officers, and outside counsel with legal action for knowing or reckless violations of law or breach of fiduciary duty. In 2011, in a case in which the FDIC sued a law firm for having accepted copies of bank records from a bank prior to its closing to preserve for the defense of bank directors, BuckleySandler prepared an amicus brief for the American Association of Bank Directors asserting the right of bank directors to have free access to bank records that they need to defend themselves against administrative, civil, and criminal proceedings or suits.

    FDIC

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  • American Association of Bank Directors Releases Bank Director Regulatory Burden Report

    Consumer Finance

    In response to President Obama's initiatives to identify and reduce unnecessary governmental burdens on the private sector, the American Association of Bank Directors ("AABD") today released its "Bank Director Regulatory Burden Report," which includes a review of laws, regulations and federal banking agency regulatory guidance that direct bank boards of directors to take certain action. The Report identifies over 800 legislative and regulatory provisions that impact bank directors. AABD is requesting that the federal banking agencies take immediate action to develop a regulatory review process to address not only laws and regulations, but also the numerous regulatory guidance provisions affecting bank directors.

    "The overburdening of bank directors with responsibilities that are insignificant or that are better delegated to management is a serious public policy issue," noted AABD Executive Director, David H. Baris, the co-author of the Report. "Bank directors need to focus on the important issues facing their banks to meet their fundamental duties of care and loyalty."

    Baris further explains, "It is evident that no one -- not Congress and not the federal banking agencies -- is evaluating the aggregate effect that legislative and regulatory actions are having on the duties and responsibilities of bank directors. Bank directors are entitled to exercise their business judgment in good faith, delegate duties to management, and reasonably rely on such management. One would never know that by reading the voluminous admonishments and directives in the documents we have compiled."

    AABD recognized the need for a central repository of all of the obligations imposed on bank directors. The Report provides a compilation, accomplished through months of searching and evaluating numerous disparate documents. For ease of reference, the regulatory guidance material and regulations have been grouped under each federal banking agency.

    "This ever-increasing regulatory burden is a significant distraction from board time necessary for risk oversight and other essential board responsibilities," explained Charles J Thayer, AABD Chairman. "The increasing threat of personal liability is forcing bank boards to become 'compliance' boards where attention must be focused on satisfying laws, regulations, and regulatory guidance that often pertain to duties that are properly the function of day-to-day management."

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  • FRB Releases Study on Use of Mobile Financial Services

    FinTech

    On July 28, the SEC announced that Smith & Wesson Holding Corporation agreed to pay $2 million to settle charges that the United States-based firearms manufacturer had violated the FCPA by making or authorizing improper payments to foreign officials in Pakistan and other countries in an effort to win contracts to sell weapons to overseas military and police forces.  The settlement comes just weeks after Smith & Wesson announced in a June 19 securities filing with the SEC that the DOJ had abandoned its own related investigation without pursuing FCPA criminal charges.

    The claims against Smith & Wesson were filed in the SEC’s administrative court.  In the order instituting the settled administrative proceeding, the SEC alleged that Smith & Wesson from 2007 to 2010 engaged in a “pervasive effort” of making the improper payments in order to generate new overseas business.  According to the SEC the only contract that was successfully consummated under the scheme arose after Smith & Wesson officials in 2008 authorized a third party agent to make cash payments and provide firearms to Pakistani police officials as gifts.  The resulting agreement to sell more than 500 pistols yielded a profit to Smith & Wesson of more than $100,000, the SEC found.  Similar improper payments and gifts that did not ultimately result in contracts for Smith & Wesson were allegedly made to foreign officials in Indonesia, Turkey, Nepal, and Bangladesh.  As described in the SEC’s order, Smith & Wesson failed to account for the improper payments and instead characterized them as legitimate commissions and business expenses.  The order also found the illegal conduct was allowed to continue undetected for years because Smith & Wesson failed to establish an appropriate compliance program or adequate internal accounting controls in connection with its expanding business in “new and high risk” overseas markets.

    In addition to the $2 million settlement, which consists of disgorgement, prejudgment interest, and a civil penalty of more than $1.9 million, Smith & Wesson also agreed for the next two years to report to the SEC on its FCPA compliance efforts.  In its press release, the SEC praised Smith & Wesson’s cooperation with the investigation and its other remedial efforts following discovery of the bribery scheme, including the termination of the company’s entire international sales staff and the implementation of “a series of significant measures to improve its internal controls and compliance process.”  Smith & Wesson consented to the settlement without admitting or denying the SEC’s findings.

    Mobile Banking

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  • FHFA Issues Final Rule on Private Transfer Fees

    Lending

    On March 15, the Federal Housing Finance Agency (FHFA) issued a final rule to limit the ability of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to deal in mortgages on properties encumbered by certain types of private transfer fee covenants and in certain types of related securities. The rule generally applies, with some exceptions, only prospectively to private transfer fee covenants created on or after the date of publication of the proposed rule, Feb. 8, 2011, and regulated entities must comply with the rule by July 16, 2012. The final rule largely mirrors the proposed rule, though the FHFA did make some changes in response to comments. For example, as described more fully in Section IV of the final rule, (i) certain changes ensure that the rule clearly restricts any activity dealing in mortgages on property encumbered by private transfer fee covenant, (ii) the exception for fees imposed by a court judgment, order or decree was removed, and (iii) the rule now will not apply to private transfer fee covenants imposed pursuant to a litigation settlement agreement or an agreement approved by a government body before February 8, 2011.

    Freddie Mac Fannie Mae

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  • Fannie Mae Updates Lender-Placed Insurance Requirements, Releases 2012 Servicing Guide

    Lending

    On July 14, the SEC moved for leave to file an Amended Complaint in its FCPA enforcement action against three former executives of Magyar Telekom, a Hungarian telecommunications company.  The Amended Complaint dropped allegations that the defendants bribed officials in Montenegro, while maintaining allegations of bribery in Macedonia.

    While this sort of pre-trial narrowing of the allegations is not unusual, the development is still notable for those willing to litigate FCPA cases against the government.  Magyar previously settled with both the SEC and the Department of Justice based on both sets of bribery allegations, even admitting to a detailed statement of facts regarding the alleged bribes in Montenegro in its Deferred Prosecution Agreement.  Yet those allegations evidently did not stand up to scrutiny in contested litigation against the individual defendants.  As with the SEC’s recent enforcement action against two Noble Corp. executives (one of whom was represented by BuckleySandler LLP), it is often the case that individual defendants may have more success defending FCPA charges even where related corporate entities have already admitted or settled those same charges.

    Fannie Mae

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  • Multiple States Reach Separate Settlements with Mortgage Servicers

    Lending

    On March 13, several major mortgage services notified the U.S. District Court for the District of Columbia that they have settled multiple suits brought by certain State Attorneys General (AGs). That court is tasked with approving or denying the multi-party servicer settlement between federal and state officials and the five largest residential mortgage servicers filed on March 12. The notice is intended to provide the court with “a more complete understanding of the terms of the proposed [Settlement] and related litigation.” According to the notice, the servicers have reached agreements with the California, Delaware, Florida, Massachusetts, and New York AGs to resolve certain claims of those states that were preserved under the multi-party agreement. For example, New York settled for $25 million its lawsuit against all of the servicers and MERSCORP, Inc. The notice filed with the court also states that Bank of America is in the process of resolving litigation brought by the AGs of Arizona, Nevada, and Washington.

    Mortgage Servicing State AG

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  • Senators Push for CFPB Action on Payday Lending, Propose Federal Legislation

    Consumer Finance

    On March 12, Senators Jeff Merkley and Daniel Akaka released a letter sent to CFPB Director Richard Cordray urging that the CFPB take action to address online, offshore, and insured depository payday lending activities and products. The letter specifically pushes the CFPB to adopt rules and partner with state attorneys general to address (i) Internet-based lead generators that collect data on potential customers for payday lenders, (ii) offshore Internet lenders that avoid state laws by relying on loopholes in the rules covering debit transactions and remotely-created checks, and (iii) insured depository institutions that offer payday loan or similar products. In the same announcement, Senator Merkley revealed plans to introduce legislation that will, broadly, (i) require greater disclosure for online lending websites, (ii) address the abusive practice of providing false or misleading data to payday lenders and debt collectors to defraud consumers in paying debts they do not owe, (iii) attempt to limit the activities of offshore payday lenders, and (iv) address bank and insured depository institution payday loan products.

    CFPB Payday Lending

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  • HUD Issues Mortgagee Letter Regarding FHA Refinance of Negative Equity Borrowers

    Lending

    On March 13, HUD issued Mortgagee Letter 2012-5, which amends and updates Mortgagee Letter 2010-23 regarding FHA’s Refinance of Borrowers in Negative Equity Positions. Effective immediately, the Mortgagee Letter offers program enhancements to (i) broaden the eligibility for FHA Short Refinance Trial Payment Plans, (ii) offer an additional option for first lien holders to extinguish second lien debt, (iii) increase the allowable housing debt-to-income ratio for loans that receive a “refer” risk calculation, and (iv) extend the program expiration date to cover all loans closed on or before December 31, 2014.

    HUD

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