CFPB: Announces Forthcoming Rules Transfer

As required by the Consumer Financial Protection Act (Act) of 2010, the Consumer Financial Protection Bureau (CFPB) published a list of the rules and orders that it will enforce.  Section 1063(i) of the Act required publication in the Federal Register. The issuance is dated May 31, 2011.

A final list will be published not later than July 21, 2011, the Designated Transfer Date of the enumerated laws. Any orders for inclusion in the list should be noted by the deadline for comments. After considering any public comments, the CFPB will publish a final list in the Federal Register not later than the Designated Transfer Date.

 Comment Period Deadline: June 30, 2011

TRANSFER OF AUTHORITIES *

* Issuance contains specific citations.

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Under the Act, certain consumer financial protection authorities will transfer from seven (7) transferor agencies to the CFPB, and the CFPB will also assume certain new authorities.

Subject to the limitations and other provisions of the Act, the CFPB will be authorized to enforce, inter alia, rules and orders issued by the transferor agencies under the enumerated consumer laws.

Categorized by their current, respective Agency oversight, the following is the list of enumerated authorities that will be transferred on the Designated Transfer Date.

Board of Governors of the Federal Reserve (FRB)  

1. Equal Credit Opportunity Act (Regulation B)

2. Home Mortgage Disclosure (Regulation C)

3. Electronic Fund Transfers (Regulation E)

4. Registration of Residential Mortgage Loan Originators (Regulation H, Subpart I) (12 CFR 208.101-105 & Appendix A to Subpart I)

5. Consumer Leasing (Regulation M)

6. Privacy of Consumer Financial Information (Regulation P)

7. Fair Credit Reporting (Regulation V), except with respect to §§ 222.1(c) (effective dates), 222.83 (Disposal of consumer information), 222.90 (Duties regarding the detection, prevention, and mitigation of identity theft), 222.91 (Duties of card issuers regarding changes of address), & Appendix J (Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation)

8. Truth in Lending (Regulation Z)

9. Truth in Savings (Regulation DD)

Federal Deposit Insurance Corporation (FDIC)  

1. Privacy of Consumer Financial Information

2. Fair Credit Reporting, except with respect to §§ 334.83 (Disposal of consumer information), 334.90 (Duties regarding the detection, prevention, and mitigation of identity theft), 334.91 (Duties of card issuers regarding changes of address), & Appendix J (Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation)

3. Registration of Residential Mortgage Loan Originators (12 CFR 365.101-.105 & Appendix A to Subpart B)

Office of the Comptroller of the Currency (OCC)   

1. Adjustable-Rate Mortgages (but only as applied to non- federally chartered housing creditors under the Alternative Mortgage Transaction Parity Act ("AMTPA"))

2. Registration of Residential Mortgage Loan Originators (12 CFR 34.101-.105 & Appendix A to Subpart F)

3. Privacy of Consumer Financial Information

4. Fair Credit Reporting, except with respect to §§ 41.83 (Disposal of consumer information), 41.90 (Duties regarding the detection, prevention, and mitigation of identity theft), 41.91 (Duties of card issuers regarding changes of address), & Appendix J (Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation)

Office of Thrift Supervision (OTS)

1. Adjustments to home loans (but only as applied to non-federally chartered housing creditors under AMTPA)

2. Alternative Mortgage Transactions (but only as it relates to AMTPA)

3. Registration of Residential Mortgage Loan Originators (12 CFR 563.101-.105 & Appendix A to Subpart D)

4. Fair Credit Reporting, except with respect to §§ 571.83 (Disposal of consumer information), 571.90 (Duties regarding the detection, prevention, and mitigation of identity theft), 571.91 (Duties of card issuers regarding change of address), & Appendix J (Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation)

5. Privacy of Consumer Financial Information

National Credit Union Administration (NCUA)     

1. Loans to members and lines of credit to members (but only as applied to non-federally chartered housing creditors under AMTPA)

2. Truth in Savings

3. Privacy of Consumer Financial Information

4. Fair Credit Reporting, except with respect to §§ 717.83 (Disposal of consumer information), 717.90 (Duties regarding the detection, prevention, and mitigation of identity theft), 717.91 (Duties of card issuers regarding changes of address), & Appendix J (Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation)

5. Requirements for Insurance, but only with respect to §§ 741.217 (Truth in savings), 741.220 (Privacy of consumer financial information), & 741.223 (Registration of residential mortgage loan originators)

6. Registration of Mortgage Loan Originators

Federal Trade Commission (FTC)      

1. Telemarketing Sales Rule

2. Privacy of Consumer Financial Information

3. Disclosure Requirements for Depository Institutions Lacking Federal Depository Insurance

4. Mortgage Assistance Relief Services

5. Use of Prenotification Negative Option Plans

6. Rule Concerning Cooling-Off Period for Sales Made at Homes or at Certain Other Locations

7. Preservation of Consumers' Claims and Defenses

8. Credit Practices

9. Mail or Telephone Order Merchandise

10. Disclosure Requirements and Prohibitions Concerning Franchising

11. Disclosure Requirements and Prohibitions Concerning Business Opportunities

12. Fair Credit Reporting Act (16 CFR Subchapter F, Parts 603 et seq.), except with respect to Part 681 (Identity Theft Rules), Part 682 (Disposal of Consumer Report Information and Records), & Appendix A to Part 681 (Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation)

13. Procedures for State Application for Exemption from the Provisions of the Fair Debt Collection Practices Act

Department of Housing and Urban Development (HUD)      

1. Hearing Procedures Pursuant to the Administrative Procedure Act

2. Civil Money Penalties: Certain Prohibited Conduct (but only as applied to the Real Estate Settlement Procedures Act of 1974 ("RESPA") and the Interstate Land Sales Full Disclosure Act ("ILSA"))

3. Land Registration

4. Purchasers' Revocation Rights, Sales Practices, and Standards

5. Formal Procedures and Rules of Practice

6. Real Estate Settlement Procedures Act

7. Investigations in Consumer Regulatory Programs (but only as applied to RESPA and ILSA)

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Bureau of Consumer Financial Protection
Identification of Enforceable Rules and Orders, Notice for Public Comment
Federal Register, Vol. 76, No. 104.
May 31, 2011 - Rules and Regulations

LMI Mortgage Lending: Road Less Traveled

The Federal Deposit Insurance Corporation's (FDIC's) Advisory Committee on Economic Inclusion (given the catchy name "ComE-IN") will meet on Wednesday, March 2, 2011 to discuss principles for low and moderate income (LMI) mortgage lending (as well as supporting financial education).

Committee members will discuss "responsible ways to restore LMI mortgage lending and sustainable homeownership in the wake of the mortgage and housing crisis." Observing the obvious, the FDIC's announcement states that "borrowers' opportunities for homeownership have diminished as the availability of mortgage credit has contracted" and "market disruptions have been particularly difficult for lower-income borrowers, who have been disproportionately affected."

LMI has not quite been in the forefront of community lending for awhile. The subsidies associated with LMI are responsive to the Community Reinvestment Act (CRA) requirements designed to promote home ownership. Chase, for instance, currently provides an LMI program for 1 - 4 Units, Condo, PUDs or New York Co-ops, loan amounts up to $400,000, primary/purchases only, and a maximum subsidy that is the lesser of $1,500 or .75% of the loan amount. Chase also offers a Correspondent LMI Subsidy Eligibility tool.

Of course, geographic locations matter in CRA loans, so banks determine eligibility using the property location as an eligibility factor.

LMI and CRA – Controversy

The CRA was designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. Congress passed the Act in 1977 to reduce discriminatory ("redlining") credit practices against low-income neighborhoods. In recent years, CRA lending has been accused of contributing to the mortgage meltdown in 2008, the assertion being that such loans were inherently unsafe.

In point of fact, the FRB has examined the statistical evidence and concluded that their empirical research did not validate any relationship between the CRA and the 2008 financial crisis.

In 2008 the FDIC's Chair Sheila Bair - who is also addressing the forthcoming meeting - noted that the majority of subprime loans originated from lenders were not regulated by the CRA. She asserted that CRA was a "scapegoat," and stated: "I want to give you my verdict on CRA: NOT guilty."

Whatever your thoughts - whether you think CRA encouraged a loosening of lending standards or dispute that CRA was a significant cause of the subprime crisis - LMI did not go away, and the FDIC now clearly wants to explore its strengths and weaknesses in an effort to "restore LMI mortgage lending and sustainable homeownership."

Meeting

• FDIC: Advisory Committee on Economic Inclusion (ComE-IN) 

• Conference: "Principles for LMI Mortgage Lending, Teaching Financial Education, and Policy and Projects Updates"

• Agenda: Speakers and Documents

• Date: March 2, 2011

• Location: FDIC Headquarters, 550 17th Street N.W., Washington, DC
  
• Webcast: Presentation
  
  

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FDIC: Advisory Committee to Discuss Principles for Low- and Moderate-Income Mortgage Lending and Supporting Financial Education
Press Release
February 24, 2011

Agencies: Commence NMLS Registration

The federal bank, thrift and credit union regulatory agencies, along with the Farm Credit Administration, announced today that the Nationwide Mortgage Licensing System and Registry (Federal Registration) will begin accepting federal registrations, effective immediately.

Under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) and the agencies' final rules, residential mortgage loan originators employed by banks, savings associations, credit unions, or Farm Credit System institutions must register with the registry, obtain a unique identifier from the registry, and maintain their registrations. 

Agencies

Farm Credit Administration

Federal Deposit Insurance Corporation

National Credit Union Administration

Office of the Comptroller of the Currency

Office of Thrift Supervision 

Following expiration of the 180-day initial registration period on July 29, 2011, any employee of an agency-regulated institution who is subject to the registration requirements will be prohibited from originating residential mortgage loans without first meeting these requirements.

(The registration rules exclude mortgage loan originators that originated five or fewer mortgage loans during the previous 12 months and who have never been registered.) 

Initial registration: January 31, 2011 to July 29, 2011.

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Registration of Mortgage Loan Originators
Interagency Announcement
January 31, 2011

GMAC: Spectral Hand of "Robosigning"

COMMENTARY by JONATHAN FOXX

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

This past Friday, January 14, 2011, GMAC decided to cancel certain foreclosure actions in Maryland.

At a time in which foreclosure actions are expected to accelerate 20% in 2011, and 2.87 million properties were the subject of default notices, auctions, or repossession in 2010 (a 2% gain from 2009), and banks seized more than 1 million homes in 2010 (up 14% from 2009), the impact of the spectral hand of so-called "robosigning" has now apparently reached a new threshold.

GMAC and Maryland Foreclosures

In a move that should place renewed emphasis on loss mitigation and further curtail the headlong rush to foreclosure processing, GMAC has decided to cancel foreclosure proceedings on 250 properties in Maryland. There have been reports of perhaps 1,000 foreclosures affected and possibly many more.

The ostensible cause of this retreat is due to defective affidavits, executed by one Jeffrey Stephan, a "robo-signer" who has attested to, among other things, the authenticity of foreclosure documents without having had any knowledge about them.

By this point, we all should know the sorry story of robo-signing that has facilitated the massive foreclosure proceedings by banks. GMAC's decision was brought on by a class action handled through the University of Maryland Consumer Protection Clinic and Civil Justice, Inc., a nonprofit. Though there were other aspects tried in the case, the central position of the case argued that any foreclosure action which used Jeffrey Stephan as the "signer" was essentially illegitimate, and therefore must be dismissed.

I should point out that GMAC is not the only recipient of this argument: although not yet a settled matter, the University of Maryland Consumer Protection Clinic and Civil Justice also want dismissed any foreclosure actions with affidavits from Xee Moua, Wells Fargo employee and admitted "robosignor," who stated in a sworn deposition in a Florida case that she had signed foreclosure-related papers on behalf of the bank and that the only information she verified was whether her name and title appeared correctly on the relevant documents.

Stephan estimated that he signed 10,000 documents a month; Moua claimed to sign at the rate of as much as 500 documents each day.

Mediation

In Maryland, a judicial foreclosure state, GMAC will refile these cases, but will be required to do so under new laws that went into effect on July 1, 2010. Certain features of these laws probably should be adopted in those states where state law itself provides a means to implement them.

Pursuant to these new Maryland laws, for instance, banks seeking to foreclose must demonstrate in filings that they reviewed and considered foreclosure alternatives, and provided specific notices to the borrowers. Importantly, these laws permit borrowers to be eligible to pursue court supervised mediation. Obviously, this law will change the timing, method and cost for conducting residential foreclosures in Maryland.

So the foreclosure process, as I've mentioned in previous Commentaries, is not going to cease permanently; for the most part, it will slow down for awhile, regroup, gather up its standing, reinforce its procedural integrity, and then restart.

Here's a good article on the Maryland controversy by a fine reporter who has been tracking this story with clarity for some time.

Servicing and Foreclosure

All this brings me to remarks that will be made today in an "Opening Address by FDIC Chairman Sheila C. Bair" at the Summit on Residential Mortgage Servicing for the 21st Century, an event sponsored in DC by the Mortgage Bankers Association.

In her prepared remarks, Mrs. Bair states that "chaos in mortgage servicing and foreclosure is introducing a dangerous new uncertainty into this fragile market," and that the "persistent adversary has been inertia in the servicing and foreclosure practices applied to problem loans." Her speech centers on the "mortgage servicing problem."

I think this observation of hers pretty much sums up the situation:

"The mortgage crisis also has revealed a fatal flaw in this unbundling of the mortgage-lending process: the misalignment of incentives between the various parties and specialists involved. We have dramatically underappreciated the potential for what economists call "principal-agent" problems arising from misaligned incentives. Mortgage brokers and lenders had little or no incentive to worry about whether borrowers could repay their mortgages. Neither did the investment banks putting together securitizations and CDOs." (My Emphasis.)

Some Suggestions

Essentially, Mrs. Bair suggests a clearly delineated loss mitigation approach that enhances mediation. Perhaps this realization is dawning belatedly on her and the servicers part, but at least it is being discussed in some way.

The suggestions she outlines are well worth considering:

1) In order to remedy failures endemic to the largest mortgage servicers ... [there should be] "enforceable requirements that will significantly improve opportunities for homeowners to avoid foreclosure."

2) Servicers must commit to adequate staffing and training for effective loss mitigation ... [and] "establish industry benchmarks - based on a maximum number of delinquent loans per representative - and insist on a minimum standard of training to ensure that staff are up-to-date on the latest loss-mitigation programs."

3) [Servicers should] "expedite the loan modification process and help clear the market, [looking] for opportunities to greatly simplify loan-modification offers in exchange for waivers of claims."

4) Regarding second lien holders interests competing with first lien holder interests, "as part of any resolution of claims regarding large servicers, a fixed formula should be established to govern the treatment of first and second mortgages when the servicer or its affiliate owns the second lien" [a formula which should, at minimum] "require that the subordinate lien be reduced pro-rata to any change in the first mortgage."

5) There should be an "independent review of loss-mitigation denials" and "borrowers should have the right to appeal any adverse denial of a loan modification request to an independent party who has the proper information to conduct an immediate review and the power to correct erroneous determinations."

6) "Weak practices" in handling title documentation must also "cease" by assuring that banks and other servicers will be required to "foreclose in their own names instead of allowing MERS to foreclose [and] provide complete chain of title and note transfer history in the notice of default."

7) Settlements should eliminate "incentive payments to law firms for speedy foreclosures, as well as the use of lost-note affidavits, except where the servicer has made good faith efforts to obtain the note" [and such settlements] should "prohibit foreclosure sales when a loan is in loss mitigation, except in specific situations where delay would disadvantage the investor, violate existing contracts, or reward a borrower acting in bad faith."

Foreclosure Claims Commission

Mrs. Bair asserts a rather bold suggestion - one I have heard much about over the last few years, but now note that it has made its way into quotidian discourse: the creation of a foreclosure claims commission.

According to Mrs. Bair, this commission would be "modeled on the BP or 9/11 claims commissions, [and] could be set up and funded by servicers to address complaints of homeowners who have wrongly suffered foreclosure through servicer errors."

I think this will likely be resisted politically, legally, and financially for a number of reasons, but I'll let Mrs. Bair speak:

"Many in the servicing industry will resist a settlement such as this because it would impose much of the immediate financial cost on the major servicers themselves. But this would be short-sighted. The fact is, every time servicers have delayed needed changes to minimize their short-term costs, they have seen a deepening of the crisis that has cost them - and the rest of us - even more."

Resolutions

Somewhere in the interstitial fields of loss mitigation and foreclosure actions a resolution must be found.

And must be found soon!

What do you think?

I would welcome your comments.
Please feel free to email me at any time.