Singular destiny where the goal keeps shifting ...

COMMENTARY: by JONATHAN FOXX

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

In the last few years, the US has been undergoing significant economic and political changes - some of which have their roots in many past decades. We find the momentum of these changes, now forcefully underway, to be altering many of our financial, political, and professional plans.

Change is not easy to experience. Nor is crisis, fraught with uncertainty.

The Chinese character for crisis conveys our current circumstances: a perilous situation, an incipient moment when something begins or changes, and when one should be especially wary.

Reflections

We are a unique generation of Americans, blessed with the benefits of advanced technologies, more affluent than our forebears, more aware of the world around us, able to explore our galaxy and see into the far reaches of the universe, indeed able to look deeply into the infinitesimally small, physical world within our own human being.

But no matter how much we learn about ourselves and our world, we will never open a brain and find the traces of a compassionate thought, or open a heart and find the feeling of love. Yet we do know what we think and how we feel. As both surveyors and inhabitants of our world, as its caretakers and caregivers, there are many ways and means to improve the quality of life for all living beings. Living not only for ourselves, we want to pass on a better world to the next generation. Yet it is through the application of knowledge, howsoever derived, that risks emerge and shape the future.

Goals and Destiny

In these last few days of this year, reflecting on the crises facing the mortgage industry, it is clear that change has been blunt, quick, and irreversible. Many industry members have lost their jobs and their savings and, in some instances, their companies. A plethora of new regulations, new proposed regulations, new consumer protection laws, financial reform legislation, new federal and state disclosure requirements, and new rules regarding mortgage originator compensation, seem to be promulgated without end. Some market actors have been caught up in a dragnet of disputes, such as in foreclosuregate, loan modification delays, loss mitigation failures, mortgage loan fraud, appraisal fraud, identity theft scams, strategic defaults and high mortgage default ratios. FHA, Fannie, and Freddie are barely hanging on to their missions and corporate charters, even with potential or actual "bailouts" from taxpayers. Litigation and lobbying abound!

And yet, there are those on Wall Street who believe that subprime securitization will return soon. There are those who want to delay financial reform. There are those who want to deactivate plans for a consumer financial protection agency. There are those who believe that regulators should serve the banks, rather than to assertively monitor them on behalf of taxpayers and to preserve the public trust.

We have clients that have fought valiantly to stay in business at a time when their peers have had to shut down - and, to the former's credit, they have made it through the struggle. And we have clients that proactively come to us now and seek guidance in implementing the many new regulatory compliance requirements. Because I have witnessed our clients' commitment, fortitude, and drive, I know the mortgage industry will survive and continue to foster innovative leadership.

Crossroads

In general, actors in a market have conflicting goals. The mortgage and financial markets are no exception. Conflicts are necessarily delineated between certain market participants.

At the crossroads of politics and economics, our democracy will find its way forward. But out of the differing expectations, all of us need to forge bold goals and transgenerational resolutions. And we need to identify the risks associated with our goals.

Perhaps 2011 will bring decisive options and opportunities, heretofore unrecognized, to bring closure to some of the mortgage industry's most pressing concerns.

As we meet the future, let's be mindful that we will be judged not on what we thought or felt, but on what we actually did at a time of crisis!

Singular destiny where the goal keeps shifting …

Please consider Beaudelaire's penetrating verse,
as we boldly, compassionately, and humbly
seek our own precious goals in 2011:

Singulière fortune où le but se déplace,
Et, n'étant nulle part, peut être n'importe où!
Où l'Homme, dont jamais l'espérance n'est lasse,
Pour trouver le repos court toujours comme un fou!

Singular destiny where the goal keeps shifting,
And, being nowhere, can perhaps be anywhere!
Where Man, whose hope never grows weary,
Is always seeking a short respite like a fool!

"Le Voyage" (The Voyage)
from Les Fleurs du Mal - Charles Beaudelaire. (My translation)

Best wishes from all of us to all of you -

for a safe, joyous, and fulfilling New Year!

I would welcome your comments.

Please feel free to email me at any time.

FHA: Extends Deadlines for DE Mortgagees & Loan Correspondents

By Jonathan Foxx

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

On December 20, 2010, FHA Commissioner David H. Stevens announced an extension of deadlines for obtaining unconditional Direct Endorsement Approval to July 1, 2011 and a temporary and narrow extension (with conditions) of FHA-Approval for Loan Correspondents to March 31, 2011.

The deadlines were given in Mortgagee Letter 2010-20 (June 11, 2010), and the Final Rule published in the Federal Register, which set forth the following revisions affecting DE Mortgagees and Loan Correspondents:

• Increased Net Worth Requirements
• Elimination of Loan Correspondent Approval for Single Family Programs
• Principal-Authorized Agent Relationships
• Areas Approved for Business

The waivers provide the following applicability:

For DE Mortgagees: The effective date for the Code of Federal Regulations Title 24, Section 202.3(a)(3) (as amended by the April 20, 2010 Final Rule) requires that an FHA-approved mortgagee have unconditional Direct Endorsement approval under Section 203.3 in order to serve as the principal in a Principal-Authorized Agent origination is waived until July 1, 2011.

For Loan Correspondents: A loan correspondent will maintain its FHA approval past December 31, 2010, but in no event past March 31, 2011, solely for purposes of closing mortgage loans in its name for which, as of December 31, 2010, either: (1) HUD has issued a firm commitment for insurance; or (2) a DE underwriter has approved the mortgagor for such mortgage. The FHA approval of the loan correspondent will expire on December 31, 2010, for all other purposes.

In my nationally published article, entitled FHA Issues Guidance for Lender Approvals (July 2010), I discussed the many changes that would be required by implementation of Mortgagee Letter 2010-20. (Article)

We have also issued numerous Compliance Alerts and Mortgage Compliance Updates regarding these changes, including:

• FHA: Net Worth and Lender Approval Final Rules To Be Issued (4/7/2010)
• FHA: Net Worth and Lender Approval Advance Issuance Final Rule (4/14/2010)
• FHA: Net Worth and Lender Approval Final Rule Published in Federal Register (4/20/2010)

Please visit our Archive for relevant posts.

It is critical that all DE mortgagees set forth and clearly delineate policies, procedures, approval guidelines, operational plans, quality control requirements, and many other features of FHA and regulatory compliance with respect to properly implementing Mortgagee Letter 2010-20.

Our clients now have their policies and procedures in place to support the Final Rule.

ACTION! If your organization has not drafted policies and procedures to comply with Mortgagee Letter 2010-20, we urge you to do so immediately.

On December 22, 2010, I participated in a conference call with FHA Single Family Housing staff to discuss these extensions. I will have more to discuss in a future notification.

Please don't wait for the last minute to prepare for and implement the requirements of Mortgagee Letter 2010-20!

Best regards,
Jonathan

Temporary Extension of Deadline for Obtaining
Unconditional Direct Endorsement Approval
Extended to July 1, 2011

FHA is extending the deadline for obtaining unconditional direct endorsement (DE) approval for those DE-eligible entities that wish to participate as a Principal in Principal-Authorized Agent originations.

• A Principal-Authorized Agent origination is a type of FHA origination by two FHA-approved mortgagees, neither of which is a loan correspondent. The Principal-Authorized Agent relationship is used when the two FHA-approved lenders originate a loan together and both need access to the loan file in FHA Connection. In a Principal-Authorized Agent origination, the Principal must originate the loan, and the Authorized Agent must underwrite the loan.

NOTE: The Final Rule changed Principal-Authorized Agent relationship originations to require that both lenders (Principal and Authorized Agent) possess unconditional direct endorsement approval. This requirement was to take effect January 1, 2011.

Without this extension, these non-DE mortgagees will only be able to participate in the origination of single family loans on or after January 1, 2011 as sponsored originators until they have obtained unconditional DE approval.

All other changes to Principal-Authorized Agent requirements in the Final Rule will take effect January 1, 2011, as previously announced in Mortgagee Letter 2010-20.

FHA mortgagees that do not obtain unconditional direct endorsement approval by July 1, 2011, can no longer act as Principals. However, they may continue to pursue unconditional approval through the test case process and may participate in originations of FHA single family loans as sponsored Originators.

Temporary and Narrow Extension
of FHA-Approval for Loan Correspondents
Extended to March 31, 2011 (with conditions)

The final rule provided that FHA-approved Loan Correspondents may close FHA-insured mortgages in their names until December 31, 2010. However, a significant number of Loan Correspondents have mortgage loans that have been assigned FHA case numbers but are unlikely to close by December 31, 2010.

Since FHA will no longer be approving Loan Correspondents after December 31, 2010, they will be statutorily prohibited from closing FHA-insured mortgage loans in their own names. If FHA did not extend that deadline, the inability of currently approved Loan Correspondents to close mortgage loans in their names will likely disrupt the loan processes of a significant number of lenders.

Because of this, FHA is granting a temporary extension of FHA-approval for currently approved Loan Correspondents with pipeline loans that meet certain criteria for the narrow purpose of allowing these loans to close in the Loan Correspondents' names.

This extension will extend FHA-approval of currently approved Loan Correspondents for the narrow purpose of permitting existing loans in their pipelines to close in their names.

This extension will only apply to loans in which a case number has been assigned and the loan has been approved by a DE underwriter as of December 31, 2010. The extension will expire March 31, 2011.

• The extension only applies to loans for which, as of December 31, 2010:

1. HUD has issued a firm commitment for insurance; or
2. A DE underwriter has approved the borrower for such loan (i.e., the lender has received and accepted approval via TOTAL Scorecard or has manually underwritten the loan).

• This approval includes the DE underwriter review and approval of the appraisal. Loans eligible for this waiver must close by March 31, 2011.

• The FHA approval of all Loan Correspondents for all other purposes will expire on December 31, 2010.

All other pipeline loans that do not meet these criteria and have not closed prior to January 1, 2011, must close in the name of an approved FHA Lender/Sponsoring Lender.

Visit Library for Issuance

FHA: Waiver - Extension of Effective Date for the DE Mortgagee Approval Requirement for Principal Mortgagee in 24 CFR § 202.3 (a)(3)
December 20, 2010

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

FRB: Publishes TILA Interim Rule - Update

Today, the Federal Reserve Board approved an interim rule amending Regulation Z, which implements the Truth in Lending Act (TILA).

The Board is issuing this interim rule to clarify certain aspects of a September 24, 2010 interim rule, in response to public comments.

The September interim rule implements provisions of the Mortgage Disclosure Improvement Act (MDIA) which amended TILA to require mortgage lenders to disclose examples of how a loan's interest rate or monthly payments can change.

Those statutory amendments are effective on January 30, 2011.

Please visit out archive for relevant posts, such as our compliance update of October 14, 2010. (Archive)

The MDIA seeks to alert borrowers to the risks of payment increases before they take out mortgage loans with variable rates or payments. Under the Board's September interim rule, lenders' cost disclosures must include a payment summary in the form of a table stating the initial rate and corresponding periodic payment and, for adjustable rate loans, the maximum rate and payment that can occur during the first five years as well as a "worst case" example showing the maximum rate and payment possible over the life of the loan.

• This interim rule clarifies that creditors' disclosure should reflect the first rate adjustment for a "5/1 ARM" loan because the new rate typically becomes effective within 5 years after the first regular payment due date.

• Today's interim rule also corrects the requirements for interest-only loans to clarify that creditors' disclosures should show the earliest date the consumer's interest rate can change rather than the due date for making the first payment under the new rate.

• The rule also clarifies which mortgage transactions are covered by the special disclosure requirements for loans that allow minimum payments that cause the loan balance to increase.

Creditors have the option of complying with either the Board's September 2010 interim rule as originally published or as revised by this interim rule until October 1, 2011, at which time compliance with this interim rule will become mandatory.

Comment Period Deadline: 60 days after imminent publication in the Federal Register. Contact Information in Federal Register.

Visit Library for Issuance

FRB: TILA Interim Rule - request for public comment.
Clarifying 9/24/10 Interim Rule.
December 22, 2010

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

FHA: Quality Control for TPOs

By Jonathan Foxx

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

Today, the Department of Housing and Urban Development (HUD) published a Comment Request, in a Notice entitled Quality Control Requirements for Direct Endorsement Lenders.

Mortgagee Letter 2010-20, issued on June 11, 2010, outlined some of the most important revisions that HUD-FHA has made to its single family loan origination program and contained the long-awaited guidance regarding the implementation of its Final Rule. That Final Rule adopted changes pertaining to the approval of lenders by the Federal Housing Administration (FHA). (Issuance)

In my article, entitled FHA Issues Guidance for Lender Approvals (July 2010, National Mortgage Professional Magazine), I discussed the many changes that would be required pursuant to Mortgagee Letter 2010-20. (Article)

Please visit our Archive for relevant posts.

As of January 1, 2011, mortgagees that were previously approved as Loan Correspondents will only be able to participate as Third Party Originators (TPOs) in FHA-insured mortgage transactions if the conditions outlined in 24 CFR 202.8 are met.

Per 24 CFR 202.8 (3), DE lenders which sponsor TPOs are responsible for the actions of third party originators or mortgagees in originating loans or mortgages, unless applicable law or regulation requires specific knowledge on the part of the party to be held responsible.

Consequently, DE lenders will be responsible for conducting quality control on TPO originations of FHA-insured mortgage loans, and ensuring that their QC plan is expanded to contain this oversight provision.

Comment Period Deadline: February 22, 2011
Contact Information in Federal Register.

Overview

On and after January 1, 2011, Loan Correspondents (i.e., Third-Party Originators, so-called "TPO"s) will only be permitted to continue participation in FHA programs by establishing a sponsorship relationship with an FHA-approved Direct Endorsement mortgagee.

HUD will hold the DE mortgagee responsible for compliance with FHA requirements in all aspects of an FHA loan transaction, whether performed by the DE mortgagee or by its sponsored TPO (unless applicable law or regulation governing the violations in question require specific knowledge on the part of the party to be held responsible).

Quality control is a core feature of HUD's verification and validation procedures. It is a regulatory compliance requirement that must be implemented in accordance with specified guidelines.

It is, therefore, critical that a DE mortgagee set forth and clearly delineate policies, procedures, approval guidelines, quality control requirements, and many other features of FHA and regulatory compliance, with respect to their sponsored TPOs.

All our clients that have TPO relationships now have their policies and procedures in place to support these new FHA relationship requirements.

ACTION: If your organization has TPO relationships, but has not drafted policies and procedures to comply with Mortgagee Letter 2010-20, we urge you to do so immediately.

Highlights

The Notice is soliciting comments from members of the public and affected agencies concerning the proposed collection of information to:

(1) Evaluate whether the proposed collection is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;

(2) Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information;

(3) Enhance the quality, utility, and clarity of the information to be collected; and

(4) Minimize the burden of the collection of information on those who are to respond, including the use of appropriate automated collection techniques or other forms of information technology (i.e., permitting electronic submission of responses).

Visit Library for Issuance

FHA: Quality Control Requirements for Direct Endorsement Lenders; Notice of Proposed Information Collection: Comment Request
Federal Register: 75/244
December 21, 2010

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

FTC: Telemarketing and Caller ID

The Federal Trade Commission announced on December 7, 2010 that it is seeking public comments on whether and how to strengthen the Caller ID provisions of the Telemarketing Sales Rule.

The notice was published in the Federal Register on December 15, 2010.

By requiring telemarketers to provide Caller ID information, the Rule allows consumers to screen out unwanted calls. The FTC seeks comments on how to make Caller ID more useful to consumers and combat technologies that hide telemarketers' identities.

Currently, the Rule's Caller ID provisions require telemarketers to provide consumers who use Caller ID services with either a telephone number for the telemarketer or the number of the seller or charitable organization represented by the telemarketer. Some Caller ID services also display names of up to 15 characters to identify the caller.

Under the Rule, telemarketers must provide the name of the telemarketer, seller, or charitable organization to such Caller ID services, if the telemarketer's carrier makes this available.

The Caller ID regulations give telemarketers flexibility in determining what telephone numbers to transmit, and in determining whether the name of the telemarketer, or the name of the seller or charity, is displayed on Caller ID services. The Advance Notice of Proposed Rulemaking does not put forward a specific plan for strengthening the Telemarketing Sales Rule's Caller ID provisions.

Instead, it provides information on how Caller ID services work, and explains how the benefits of Caller ID services are undermined when telemarketers use technology to block transmission of Caller ID, to transmit false information, or to transmit a telephone number or name that does not clearly identify the source of the call.

Deadline for Written Comments: January 28, 2011.

Questions reviewed by the FTC

• How widespread is consumer use of Caller ID services to screen unwanted calls, and do consumers use other services that rely on the transmission of calling party numbers (CPN), such as call-blocking equipment, to avoid unwelcome telemarketing calls?

• Would changes to the Telemarketing Sales Rule improve the ability of Caller ID services to accurately disclose the source of telemarketing calls or improve the ability of service providers to block calls in which information on the source of the call is not available, or has been spoofed?

• Should the FTC amend the Caller ID provisions of the Rule to recognize or anticipate specific developments in telecommunications technologies relating to the transmission and use of Caller ID information, and if so, how?

• Should the FTC amend the Caller ID provisions of the Rule to further specify the characteristics of the phone number that a telemarketer must transmit to a Caller ID service? (For example, should the Rule require that the phone number transmitted be one that is listed in publicly available phone directories, a number with an area code and prefix that are associated with the physical location of the telemarketer's place of business, a number that is answered by a live representative, or automated service that identifies the telemarketer by name?)
• Should the FTC amend the Caller ID provisions to allow a seller or telemarketer to use trade names or product names, rather than the actual name of the seller or telemarketer, in the name information displayed by Caller ID services?

Visit Library for Issuance

FTC: Telemarketing Sales Rule, Advance Notice of Proposed Rulemaking -
Request for Public Comments
Federal Register: 75/240
December 15, 2010

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

FinCEN: 7% Increase in Mortgage Fraud

On December 14, 2010, the Financial Crimes Enforcement Network (FinCEN) released two mortgage fraud reports entitled Mortgage Loan Fraud SAR Filings, which together cover the first six months of 2010.

One report covers January through March 2010, and the other covers April through June 2010.

For previous announcements on this subject, please visit the Compliance ALERTS section of our Archive.

Taken together the reports show that suspicious activity reports (SARs) indicating mortgage loan fraud (MLF) climbed 7%, rising to 35,135 in the first half of 2010 compared with 32,926 in the first half of 2009.

In part, the increase is being attributed to increased attention to older loans spurred by repurchase demands.

In the first quarter of 2010, 78% of reported activities occurred more than two years prior to filing, compared with 44% in the same period of 2009, showing a continued focus on loans originated from 2006 to 2008.

First Quarter

Second Quarter

Key Findings

References to bankruptcy in SARs have steadily increased, rising to 7% of MLF SAR filings in 2010, compared to 1% in 2006 and 2007.

SAR reports referencing "short sale" and "broker price opinion" appeared 827 times and 41 times in SARs respectively during the first quarter of 2010. (Short sales and broker price opinions mentioned in SARs are sometimes associated with a particular type of flipping scheme known as "flopping." Flopping occurs when a foreclosed property is sold at an artificially low price to a straw buyer, who quickly sells the property at a higher price and pockets the difference.)

Visit Library for Issuances

FinCEN: Suspicious Activity Report Filings from January 1-March 31, 2010, Mortgage Loan Fraud Update, December 2010
FinCEN: Suspicious Activity Report Filings from April 1-June 30, 2010, Mortgage Loan Fraud Update, December 2010

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

Yield Spread Premium: Excluded from HOEPA

By Jonathan Foxx

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

As you may know, I have lectured extensively and written many articles relating to the Yield Spread Premium (YSP).

And I will continue to track issues involving the YSP.

Here are some of my recent articles:

• Service Release Premium vs Yield Spread Premium: Match or Mismatch?

• Saving the Yield Spread Premium

• Yield Spread Premiums: Compensation or Kickback?

During the course of this multi-year, ongoing review, I have been following litigation that affects the YSP.

Just such litigation that has national implications is the recent decision on November 30, 2010 by the Louisiana Supreme Court, which held that the YSP is excludable from the Home Ownership and Equity Protection Act (HOEPA) calculation.

On one side was The Bank of New York (Bank) and on the other side was Kathleen Johnson Parnell (Parnell) along with amici curiae such as the National Consumer Law Center, Center for Responsible Lending, and the Southeastern Louisiana Legal Services.

At risk was the interpretation of the FRB's Official Staff Commentary to the Truth in Lending Act as well as a public attempt to portray the lender in the worse possible light.

I thought you might find this recent decision of interest.

Best wishes,
Jonathan

Overview

The Louisiana Supreme Court held that a YSP paid by a lender to a mortgage broker is not part of the "total points and fees payable by the consumer at or before closing," within the meaning of 15 U.S.C. § 1602(aa)(1)(B) of HOEPA.

To quote the ruling itself: "Because the YSP in this case was paid by the lender not the borrower/consumer, the YSP is not included in the calculation for determining the applicability of HOEPA."

The Court used the Truth In Lending Act as its source and relied on a provision in the Federal Reserve Board's Official Staff Commentary of Regulation Z to find that mortgage broker fees which are not paid by the consumer are not included in the HOEPA "points and fees" calculation.

Indeed, the Court cited the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) in its amending of 15 U.S.C. § 1602(aa)(1) replacing "points and fees payable by the consumer at or before closing" with "points and fees payable in connection with the transaction."

The Court decided that "the YSP in this case was not payable [by the consumer] at or before closing as required by the applicable version of 15 U.S.C. § 1602(aa)(1)(B)."

Some Case Facts

Fact Pattern
1) 2001: Kathleen Johnson Parnell (Parnell) executed an adjustable rate promissory note secured by her home.
2) Loan was originated through a mortgage broker.
3) HUD-1 Settlement Statement stated that the lender paid the mortgage broker a YSP in the amount of $1,264, which was paid outside closing.
4) 2003: Parnell attempted to rescind the security interest under the Truth In Lending Act claiming:
4-A) that her loan was governed by HOEPA (because points and fees exceeded 8% of the total loan amount), and
4-B) that she had not been given the requisite disclosures.

Dispute
1) Parnell's rescission demand was denied because the threshold requirement of HOEPA was not met, being the total amount of points and fees of only 6.7%.
2) The difference between these calculations rested on the inclusion of the YSP.

Litigation
1) Parnell defaulted on her note.
2) The Bank filed a petition for executory process seeking to seize and sell her home.
3) Parnell filed a petition to suspend the seizure and sale of her home, alleging, among other things, a violation of HOEPA for failing to provide statutorily-required disclosures.
4) The Bank filed a motion for summary judgment, seeking the dismissal of all claims asserted by Parnell primarily on the basis that Parnell's loan was not subject to HOEPA because a YSP paid by a lender is not included in the points and fees calculation.
5) Parnell opposed the Bank's motion arguing that the YSP was ultimately paid by her over the life of the loan and that "all compensation paid to mortgage brokers" constitute "points and fees" under HOEPA.
6) The trial court granted the Bank's motion for summary judgment.
7) Louisiana Court of Appeal for the Fifth Circuit reversed on appeal.
8) Louisiana Supreme Court decided that those portions of the appellate court decision that reversed the trial court's granting of summary judgment in favor of the Bank as to Parnell's HOEPA and wrongful seizure claims are reversed. And, with respect to these two claims, the judgment of the trial court was reinstated.

Visit Library for Issuance

The Bank of New York, Acting Solely in Its Capacity As Trustee for
EQCC Trust 2001-2 v. Kathleen Johnson Parnell
No. 2010-C-0435 (LA: 11/30/2010)

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

Loan Mod Scams: Landing on MARS

On November 11, 2010, the Federal Trade Commission issued its Final Rule to Protect Struggling Homeowners from Mortgage Relief Scams Rule, which outlaws advance fees and false claims, while requiring clear disclosures.

The new rule, known as the Mortgage Assistance Relief Services (MARS) Rule, published in the Federal Register on December 1, 2010, seeks to protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis. For instance, bogus operations falsely claim that, for a fee, they will negotiate with the consumer's mortgage lender or servicer to obtain a loan modification, a short sale, or other relief from foreclosure. Many of these operations pretend to be affiliated with the government and government housing assistance programs.

Essentially, the FTC seeks to ban providers of mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they - the homeowners - decide is acceptable.

NOTE: the Final Rule applies only to entities within the FTC's jurisdiction under the Federal Trade Commission Act, which excludes, among others, banks, savings and loans, federal credit unions, common carriers, and entities engaged in the business of insurance.

Effective Dates

December 29, 2010: All provisions of the rule, except the ban on advance fees.
January 31, 2011: The ban on advance fees provision.

HIGHLIGHTS

Ban on Advance Fees
Under this provision, mortgage relief companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable, and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. The companies also must remind consumers of their right to reject the offer without any charge.

Disclosures
The MARS Rule requires mortgage relief companies to disclose key information to consumers to protect them from being misled and to help them make better informed purchasing decisions.

In their advertising and in communications directed at individual consumers (such as telemarketing calls), these companies must disclose that:

• they are not associated with the government, and their services have not been approved by the government or the consumer's lender;
• the lender may not agree to change the consumer's loan; and
• if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

Companies also must explain in their communications to consumers that:
• they can stop doing business with the company at any time;
• can accept or reject any offer the company obtains from the lender or servicer, and,
• if they reject the offer, they don't have to pay the company's fee.

The companies also must disclose the amount of the fee.

Prohibited Claims
The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

• the likelihood of consumers getting the results they seek;
• the company's affiliation with government or private entities;
• the consumer's payment and other mortgage obligations;
• the company's refund and cancellation policies;
• whether the company has performed the services it promised;
• whether the company will provide legal representation to consumers;
• the availability or cost of any alternative to for-profit mortgage assistance relief services;
• the amount of money a consumer will save by using their services; or
• the cost of the services.

Furthermore, mortgage relief companies are barred from telling consumers to stop communicating with their lenders or servicers.

Companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

Attorney Exemption
Attorneys are generally exempt from the rule if they meet three conditions:

• they are engaged in the practice of law,
• they are licensed in the state where the consumer or the dwelling is located, and
• they are complying with state laws and regulations governing attorney conduct related to the rule.

To be exempt from the advance fee ban, attorneys must meet a fourth requirement - they must place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts.

CONTACT US NOW!

VISIT LIBRARY FOR ISSUANCE

FTC: Mortgage Assistance Relief Services - Final Rule
Federal Register: 75/230
December 1, 2010

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.