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Massachusetts Division of Banks Releases Industry Letter on Mortgage Loan Modification
On April 27, the Massachusetts Division of Banks (Division) published an industry letter addressing several frequently asked questions regarding mortgage loan modifications in Massachusetts. The Division determined that a broker or any third party cannot charge a modification fee on any loan where the borrower is exercising his right to cure a default, because such fees are prohibited under § 11 of Chapter 206 of the Acts of 2007 and regulation 940 CMR 25.00. In contrast, mortgage lenders can charge a fee to modify a mortgage pursuant to the authority granted them by § 63A of Chapter 183, but only if said lender is also the mortgage holder. In addition to questions concerning fees, the Division addressed whether an unlicensed individual can negotiate or assist in the process of obtaining a loan modification from a mortgage holder on behalf of a borrower. Considering the mortgage broker and/or mortgage loan originator licensing requirements of Chapters 255E and 255F of the General Laws, the Division determined that any person negotiating or assisting in the process of obtaining a loan modification must obtain the applicable broker or originator license if such assistance resulted in a refinancing. Further, the Division warned that such activity may also trigger state law regulatory requirements applicable to financial advisors, credit counseling services and credit services organizations.
Nevada Regulator Revises Mortgage Banking Regulations to Permit Electronic Reproduction and Storage of Mortgage Records
On April 23, the Nevada Commissioner of Mortgage Lending (Commissioner) published final regulations in the Nevada Register of Administrative Regulations that, among other things, permits the Commissioner, for good cause, to allow a mortgage banker to electronically reproduce and store required records pertaining to completed mortgage transactions. The mortgage banker must retain a hard copy that is accessible by the Commissioner for one year after the closing date of the loan.
California Regulator Makes Available Foreclosure Prevention Act Draft Regulations, Report Form for Comment
On April 21, the California Department of Corporations (the Department) made available draft regulations and a reporting form in connection with the California Foreclosure Prevention Act (the Act). The Act grants an additional 90 days (in addition to the period already provided) before a mortgage servicer can file a “Notice of Sale” to allow borrowers to work out a loan modification. Further, the Act imposes a reporting requirement on servicers regarding loan modification data. The Act exempts mortgage loan servicers that have implemented a “comprehensive loan modification program” from providing the additional 90 day extension. An entity seeking this exemption is temporarily exempted upon submitting an application (which has not yet been made available) to the Department. On February 20, 2009, Governor Arnold Schwarzenegger signed the Act (SB 7). Comments on the draft regulations and reporting form are due by May 9, 2009. The anticipated effective date of the Act is June 15, 2009
California Federal Court Holds that CAN-SPAM Act Does not Preempt State Law Claims
The U.S. District Court for the Northern District of California recently ruled that the federal Controlling Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM Act) does not preempt California’s Deceptive Commercial Email statute (the Code). Asis Internet Servs. v. Consumerbargaingiveaways, LLC, No. C 08-04856, 2009 WL 1035538 (N.D. Cal. Apr. 17, 2009). In this case, the plaintiffs sued email advertising companies for violating § 17529.5 of the Code, alleging that the companies sent emails containing (i) third-party domain names without the permission of the third party; (ii) falsified, misrepresented, or forged header information; and (iii) subject lines that would likely mislead a recipient about a material fact regarding the message’s contents. The defendants moved to dismiss the case on grounds that that § 7707(b)(1) of the CAN-SPAM Act preempted the plaintiffs’ claims. Section 7707(b)(1) of the CAN-SPAM Act preempts any state statute, regulation, or rule that expressly regulates the use of electronic mail to send commercial messages, unless the statute, regulation, or rule prohibits “falsity or deception.” The defendants interpreted the phrase “falsity or deception” to mean that the plaintiffs needed to plead fraud in order to make a valid claim under the California Code. The court disagreed, finding that the defendants’ interpretation conflicted with the statute’s plain meaning. According to the court, the phrase must have a broader meaning than simply fraud, because if Congress had meant for it to mean only fraud, it simply would have used the word fraud. The court concluded that the phrase encompasses general false advertising wrongs in addition to fraudulent claims. As a result, the court held that the plaintiffs sufficiently pled false advertising and the court denied the defendants’ motion to dismiss the § 17529.5 claims.
Additional States Implement SAFE Act
Several states recently amended applicable state law to reflect compliance with the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act); namely, (i) on April 22, Nebraska Governor Dave Heineman signed LB 328, (ii) on April 15, Iowa Governor Chet Culver signed SF 355, (iii) on April 15, Mississippi Governor Haley Barbour signed SB 2983, (iv) on April 14, Maryland Governor Martin O’Malley signed SB 269, (v) on April 17, Washington Governor Christine Gregoire signed HB 1621, (vi) on April 3, Idaho Governor Butch Otter signed HB 169, (vii) on March 12, Wyoming Governor Dave Freudenthal signed HB 169, and (viii) on February 19, Wisconsin Governor Jim Doyle signed SB 62 (an omnibus bill containing provisions regarding the SAFE Act). The bills implement the mandate of the SAFE Act by providing for the licensing of all mortgage loan originators under the Nationwide Mortgage Licensing System. In addition to technical amendments, the bills prescribe loan originator requirements regarding, among other things, licensing, prior and continuing education, testing, minimum net worth, and surety bonds. Most of the bills become effective July 1, 2009, except (i) Nebraska LB 328 (effective July 31, 2009), (ii) Washington HB 1621 (effective July 1, 2010, with certain provisions becoming effective January 1, 2010), (iii) Mississippi SB 2983 (effective July 31, 2009), and (iv) Wisconsin SB 62 (effective January 1, 2010).
Delaware Amends Delaware General Corporation Law
On April 10, Delaware Governor Jack Markell signed HB 19, a bill amending the Delaware General Corporation Law. In addition to technical amendments, the amendments authorize, but do not require (i) corporate bylaws to include stockholder nominees to the board in the corporation’s proxy solicitation materials; this provision also authorizes certain stockholder preconditions to such access (e.g., a minimum level of stock ownership), (ii) the corporation to reimburse stockholder expenses incurred in soliciting proxies for the election of directors, subject to conditions that may also be imposed by the bylaws, (iii) separate record dates for determining stockholders entitled to notice of and to vote at a meeting. The bill further (i) clarifies that, when the record date for determining stockholders entitled to vote is set less then ten days before the date of the meeting, the list of stockholders must reflect those stockholders as of the tenth day before the meeting date, (ii) prohibits the corporation from retroactively eliminating advancement or indemnification rights provided by a charter or bylaw provision, and (iii) grants the Delaware Court of Chancery subject matter jurisdiction, in limited circumstances, to remove a director convicted of a felony or found by judgment to have committed a breach of loyalty to the corporation if the director did not act in good faith and if judicial removal is necessary to avoid irreparable harm to the corporation. The bill becomes effective August 1, 2009.
North Dakota Amends State Mortgage Law
On April 9, North Dakota Governor John Hoeven signed SB 2160, a bill amending North Dakota mortgage law. The bill outlines permissible and maximum charges and permissible payment installments by licensees. In addition, the bill reflects compliance with the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 by providing for the licensing of all mortgage loan originators under the Nationwide Mortgage Licensing System. In this regard, the bill proscribes requirements regarding, among other things, licensing, pre-and continuing education, testing, minimum net worth, and surety bonds. The bill also provides for investigation and examination authority and outlines prohibited acts and practices. Most provisions of the bill become effective August 1, 2009.
New Mexico Passes Mortgage Loan Originator Licensing Act
On April 6, New Mexico Governor Bill Richardson signed into law SB 342, the “New Mexico Mortgage Loan Originator Licensing Act” (the Act). The Act implements the mandate of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) by providing for the licensing of all mortgage loan originators under the Nationwide Mortgage Licensing System. In addition, the act imposes a host of new requirements on loan originators, including background checks, surety bonds, testing and education requirements, fiduciary duties, and examination requirements. The Act also amends portions of the Mortgage Loan Company Act and the Home Loan Protection Act. Notably, the Act will require mortgage loan companies to become licensed (rather than merely registered) and to designate a qualified manager to oversee operations in New Mexico. The effective date for most provisions of the Act is July 31, 2009, but the mortgage loan originator licensing provisions become effective July 31, 2010.
Illinois Law Requires Notice of Right to Seek Foreclosure Counseling; Creates 30-Day Grace Period
On April 5, Illinois Governor Pat Quinn signed SB 2513, an omnibus bill containing provisions requiring mortgage lenders to notify borrowers in default for 30 days or more of the borrower’s right to seek housing counseling, which will provide a 30-day grace period during which the mortgage lender may not initiate foreclosure proceedings. The bill does not apply to borrowers who have sought relief under any bankruptcy law. Counseling will be either free or cost a very small amount that will not create a hardship for the borrower, and will be provided by non-profit housing counseling agencies that are both HUD approved and recognized by the Illinois Department of Financial and Professional Regulation. Counseling will aim to result in a “sustainable workout loan plan” (Plan) approved by both the mortgage lender and the counselor to permit the lender to remain in a home. The Plan may include, but is not limited to (i) temporary suspension of payments, (ii) lengthened loan term, (iii) lowered or frozen interest rate, (iv) principal write down, (v) repayment plan to pay the existing loan in full, (vi) deferred payments, or (vii) refinancing into a new, affordable loan. The Plan must be agreed upon in writing by both the lender and borrower, and it will remain in effect so long as the mortgagor is compliant with its terms. The bill is effective immediately.
First Circuit Holds State Law Claims Insufficient to Defeat HOLA Preemption Defense
On April 3, the U.S. Court of Appeals for the First Circuit upheld the denial of a plaintiff’s state law claims in a case involving default interest charged on a credit card. Yeomalakis v. Federal Deposit Insurance Corporation, No. 08-1444, 2009 WL 884936 (1st Cir. Apr. 3, 2009). The plaintiff’s credit card issuer, Washington Mutual Bank (WaMu), charged an increased annual percentage rate (APR) on unpaid credit card balances on accounts where the holder defaulted. The increased rate was charged as of the first day of the billing cycle in which the default occurred. James Yeomalakis brought suit against WaMu to challenge this practice. The plaintiff claimed that WAMU (i) imposed an illegal penalty by retroactively increasing the APR and (ii) engaged in unfair and deceptive acts and practices in violation of Mass. Gen. Law ch. 93A, § 2, alleging that the retroactive increases were unfair and had not been adequately disclosed. The district court granted WaMu’s motion to dismiss the claims on the basis that both counts were preempted by the Home Owners’ Loan Act of 1933 (HOLA) and various regulations promulgated under HOLA, based on preemption of state interest rates (which includes penalties) and disclosures. On appeal, the plaintiff failed to make any plausible arguments as to why the penalty claim would not be preempted, and, further, the plaintiff provided no clear chapter 93A claim that would avoid preemption. The court of appeals indicated that the plaintiff could have alleged state contractual claims (that the card agreement did not permit the “retroactive” increase in APR) and/or state fraud claims, which may not be preempted by HOLA. However, the court pointed out that it is not the job of the court to provide arguments for a party that has not provided them, and the court upheld the lower court’s dismissal of the claims.