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  • HUD Amends Social Security Income Documentation Requirements for FHA-Approved Mortgages


    On August 17, HUD issued Mortgagee Letter 12-15, which clarifies the documentation requirements for the types of Social Security Administration (SSA) income used to assess a borrower’s income qualification. According to the Letter, all income from the SSA can be used to qualify a borrower, provided the income is verified using one of several listed documents. A lender also must document the continuance of SSA income, and if such income is due to expire within three years of the mortgage application date, it can be considered only as a compensating factor. A lender should assume continuance if the documentation does not provide a defined expiration date, and the lender should not request additional documentation.

    Mortgage Origination HUD

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  • New FinCEN Director Announced

    Financial Crimes

    On August 20, the U.S. Department of Treasury announced that next month Jennifer Shasky Calvery will replace James Fries as the Director of FinCEN. Ms. Calvery joins FinCEN after a fifteen year career with the U.S. Department of Justice. Most recently she served as Chief of the Asset Forfeiture and Money Laundering Section.

    Anti-Money Laundering FinCEN

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  • Washington Supreme Court Rules on Electronic Mortgage Registry's Role As Beneficiary


    On August 16, the Supreme Court of the State of Washington held that an electronic mortgage registry system cannot commence a nonjudicial foreclosure in that state if it is not the promissory note holder. Bain v. Metro. Mort. Group, Inc., No. 86206-1, 2012 WL 3517326 (Wash. Aug. 16, 2012). In this case, the registry, as the named beneficiary of the deeds of trust, appointed trustees to initiate foreclosure proceedings against two borrowers. The borrowers sought injunctions in federal court to halt the foreclosures, arguing that the beneficiary did not actually hold the promissory notes, and therefore could not foreclose in its own name. The federal court certified several questions for consideration by the Washington Supreme Court. The Washington Supreme Court held that under Washington law only the actual holder of the promissory note evidencing the obligation may be a beneficiary with the power to appoint a trustee to proceed with a nonjudicial foreclosure. The court concluded that the electronic registry “does not hold the note, it is not a lawful beneficiary,” and therefore cannot commence a nonjudicial foreclosure. The court also noted that an agent can represent the note holder, but found that the electronic registry failed to identify the entities that “control and are accountable for its actions,” and therefore failed to establish that it is an “agent for a lawful principal.”

    Foreclosure Mortgage Servicing

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  • State Law Update: New York Bans Yield Spread Premiums, Expands Consumer Privacy Protections


    On August 17, New York Governor Andrew Cuomo signed Senate Bill 886, which prohibits any compensation paid to a mortgage broker or lender that is based on the terms of a mortgage, except for compensation linked to the principal balance of the loan. This prohibition of so-called yield spread premiums is a change from existing state law that prohibited “abusive” yield spread premiums in connection with high-cost mortgages.

    On August 14, New York enhanced consumer privacy protections when it enacted Assembly Bill 8992. Just as the Federal Privacy Act of 1974 applies to federal, state, and local government agencies, this bill prohibits private businesses from conditioning the provision of services on a consumer’s willingness to disclose his or her Social Security number upon request. The law provides several exceptions, including when the collection of the Social Security Number is (i) otherwise required by law, (ii) requested in connection with the opening of a deposit account or a credit transaction initiated by the consumer, or (iii) required for any business function allowed under the Gramm Leach Bliley Act.

    Mortgage Origination Yield Spread Premium Privacy/Cyber Risk & Data Security

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  • OCC Proposes Stress Test Reporting Requirements for Large Banks

    Consumer Finance

    On August 16, the OCC published a notice that describes the reports and information the OCC proposes to collect to implement the Dodd-Frank Act’s annual stress tests for banks with consolidated assets of $50 billion or more. The information that the OCC proposes to collect includes documentation regarding income statements, balance sheets, capital statements, retail projections, securities, trading risk, counterparty credit risk, operational risk, and pre-provision net revenue. The OCC proposed rules to implement the stress tests earlier this year. A separate notice regarding reports for institutions with consolidated assets between $10 billion and $50 billion will be published at a later date. The OCC is accepting comments on the instant notice through October 15, 2012.

    Dodd-Frank OCC Bank Compliance

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  • CFPB Proposes Mortgage Originator Compensation and Qualification Rule


    On August 17, the CFPB proposed the latest rule in a series of mortgage-related rules mandated by the Dodd-Frank Act. This latest proposal seeks to amend regulations regarding upfront points and fees and loan originator compensation, and to implement other Dodd-Frank Act provisions regarding mortgage credit. Generally, for closed-end mortgages, the rule would prohibit a creditor or mortgage broker from imposing upfront points or fees unless the creditor or broker first offers the consumer an alternative loan with no such fees (a zero-zero alternative). If the upfront fees are passed on to independent third parties, or if the consumer is unlikely to qualify for the alternative loan, this requirement would not be triggered. The proposal provides separate safe harbors for transactions that involve mortgage brokers and those that do not. The rule also would refine an existing ban on loan originator commissions to allow reductions in compensation to cover certain increases in closing costs and to clarify when a factor used as a basis for compensation is prohibited as a “proxy.” Also with regard to compensation, the rule proposes to revise restrictions on pooled compensation and to amend the general ban on compensation of originators by both parties. Additionally, the CFPB seeks to (i) establish originator qualification requirements, (ii) restrict agreements that require consumer disputes to be resolved through mandatory arbitration, and (iii) prohibit the financing of premiums for credit insurance. The CFPB is accepting comments through October 16, 2012 and plans to finalize the rule by January 2013.

    CFPB Dodd-Frank Mortgage Origination Compensation

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  • Treasury Announces More Steps to Wind Down Fannie Mae and Freddie Mac


    On August 17, the U.S. Department of Treasury announced new steps to accelerate the wind down of Fannie Mae’s and Freddie Mac’s (the GSEs) government-backed portfolios. Treasury is modifying its Preferred Stock Purchase Agreements with the FHFA to wind down the GSEs’ portfolios at an annual rate of fifteen percent, moving up the time by which the portfolios must meet the existing $250 billion target. The amended agreements also (i) require that each GSE submit an annual plan on actions to reduce taxpayer exposure to mortgage credit risk and (ii) replace the current ten percent dividend payments to Treasury with a quarterly sweep of every dollar of profit made by each GSE.

    Freddie Mac Fannie Mae FHFA Department of Treasury

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  • Federal Regulators Propose New Appraisal Rules


    On August 15, the Federal Reserve Board, the OCC, the FDIC, the NCUA, the FHFA, and the CFPB proposed new appraisal requirements for certain “higher-risk loans.” The new requirements apply to loans for which the APR exceeds the average market rate by 1.5 percent for first-lien loans, 2.5 percent for first-lien jumbo loans, and 3.5 percent for subordinate-lien loans. The proposal exempts loans that are considered “qualified mortgages” as defined under a separate CFPB rulemaking to implement TILA section 129C, as well as reverse mortgages and loans secured by manufactured homes. The rule would implement amendments to TILA under the Dodd-Frank Act that require creditors to meet certain appraisal conditions before making a higher-risk loan. A creditor would have to obtain a written appraisal from a certified or licensed appraiser that is based on a physical property visit of the interior of the property. At application, the creditor would have to issue a disclosure stating the purpose of the appraisal, that the creditor will provide the applicant a copy of any written appraisal, and that the applicant may choose to have a separate appraisal conducted at his or her own expense. The creditor also would have to provide the borrower with a free copy of any written appraisals at least three business days before closing. Additional appraisal requirements would apply under certain circumstances.

    Concurrently, the CFPB proposed a rule to implement a Dodd-Frank Act provision that adds similar appraisal requirements to ECOA. According to the proposal, for any loan to be secured by a first lien on a dwelling, a creditor would have to (i) notify applicants within three business days of receiving an application of their right to receive a free copy of written appraisals and valuations and (ii) provide applicants a free copy of all written appraisals and valuations promptly after receiving them, but in no case later than three business days prior to closing on the mortgage. The proposed rule prohibits creditors from charging additional fees for providing a copy of written appraisals and valuations. Applicants would be permitted to waive the three day requirement, provided a copy of all written appraisals and valuations is provided at or prior to closing. Together, the revisions to TILA and ECOA, as implemented by the proposed rules, would require creditors to provide two appraisal disclosures to consumers applying for a higher-risk loan secured by a first lien on a borrower’s principal dwelling. Comments on both rules are due by October 15, 2012.

    CFPB Dodd-Frank Mortgage Origination Appraisal

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  • CFPB Seeks Input on Conflict Between State and Federal Gift Card Laws


    On August 16, the CFPB issued a Notice that it intends to make a preemption determination with regard to two state gift card laws. The CFPB is seeking public comment to inform its response to requests that the CFPB address conflicts between the EFTA’s gift card expiration provisions and those in Maine’s and Tennessee’s laws. The Notice explains that Maine’s and Tennessee’s laws presume gift cards to be “abandoned” and release businesses from the obligation to honor the gift cards after two years of inactivity, while federal law generally prohibits the sale of a gift card with an expiration date under five years. The CFPB requests public comment on whether there is any inconsistency between the identified state and federal expiration date provisions and, if so, on the nature of the inconsistency. The CFPB also seeks comment on whether card issuers could comply with the federal and state laws as they currently exist, and whether the Maine and Tennessee laws provide greater consumer protection than the federal law.

    CFPB Gift Cards EFTA Preemption

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  • House Members Seek Delay of CFPB Remittance Rule


    On August 16, a group of thirty-two Members of the House of Representatives sent a letter to CFPB Director Richard Cordray asking that the Bureau delay the effective date of recently adopted remittance transfer rules and examine the potential impact of the rules on consumers. The legislators state that the rules, which are set to take effect in February 2013, include “arbitrary and unworkable requirements . . . that will drastically curtail the availability of international transfers to consumers.” Specifically, the letter argues that the final rule (i) includes disclosure requirements that are infeasible for the majority of financial institutions, (ii) will work against the statutory mandate that policymakers expand the use of the automated clearinghouse system, and (iii) risks increasing fees for consumers.

    CFPB EFTA Remittance

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