Financial Services Update

Transcription

1 Financial Services Update June 16, 2010 In this issue we discuss a recent Countrywide settlement with the FTC, the new FHA property preservation requirements, and a new Ginnie Mae manufactured home program. In our state law section, we discuss the Colorado requirement for itemization of loan charges, the new Minnesota requirements for reverse mortgages, and state laws relating to licensing in Florida, North Carolina and Georgia. Finally we highlight a recent victory by WBSK relating to officer liability. FEDERAL ACTIONS: Countrywide Settles FTC Claims Regarding Over Charges on Default Services In a negotiated settlement, two Countrywide affiliates agreed to one of the largest judgments ever imposed by the FTC. The Countrywide affiliates agreed to pay $108 million to homeowners who were overcharged for defaulted loan services before July According to the FTC complaint, Countrywide created two mortgage servicing subsidiaries (Countrywide Home Loans, Inc. and BAC Home Loans Servicing, LP) for the sole purpose of collecting inflated fees. Countrywide ordered property inspections, lawn moving, and other services for properties on which homeowners had fallen behind on payments and were in default. However, instead of directly hiring third party venders to perform these services, Countrywide had Countrywide Home Loans, Inc. and BAC Home Loans Servicing, LP contract out to vendors. The FTC alleged that the Countrywide affiliates charged homeowners exorbitant mark ups (sometimes surpassing 100%) for default services provided by third party vendors. The FTC complaint also charged Countrywide with making false or unsupported claims to borrowers about the status of their loans and amounts owed. Additional charges included failing to notify borrowers in bankruptcy of new fees and escrow charges that the company later tried to collect unfairly once the borrowers were out of bankruptcy protection. In addition to the $108 million to be refunded to the aforementioned homeowners, the Countrywide affiliates and certain persons working with those affiliates will also be prohibited from taking advantage of borrowers who are behind on their payments. The Countrywide affiliates and certain persons working with those affiliates are barred from:

2 Making false or unsubstantiated representations about loan accounts, such as amounts owed. Charging any fee for a service unless it is authorized by the loan instruments, by law, or by the consumer for a specific service requested by the consumer. Charging any fee for a default-related service unless it is a reasonable fee charged by a third party for work actually performed. If the service is provided by an affiliate of a defendant, the fee must be within limits set by state law, investor guidelines, and market rates. Defendants must obtain annual, independent market reviews of their affiliates fees to ensure that they are not excessive. The affiliates and certain persons working with the affiliates will be required to make significant changes to bankruptcy servicing practices as well, including sending borrowers in Chapter 13 bankruptcy a monthly notice with information regarding how much the borrower owes and instituting a new data integrity program. The Commission voted 5-0 to file the complaint and accept the settlement. FHA Updates Property and Preservation Requirements and Cost Reimbursement Procedures The Federal Housing Administration announced in Mortgagee Letter updated and consolidated property and preservation guidance for lenders regarding foreclosed properties previously secured by FHA-insured mortgages. This article provides a general overview of the new guidelines. Changes to Over-Allowable Requests: Lenders may request over-allowable approval from HUD only if the property and preservation costs exceed $2,500 per property. This $2,500 amount does not include one time major repair items (e.g., roof replacement and demolition). HUD has also established a new maximum property preservation allowable cost schedule, which also includes a per item cost maximum. Property and preservation charges that exceed $2,500 per property must be pre-approved by HUD s Mortgagee Compliance Manager through the webbased P260 Internet portal. Mortgagee Compliance Manager: The MCM is the single point of contact designated by HUD to administer all mortgagee compliance functions, including property preservation activities. The MCM also audits all single family applications for insurance benefits, Form HUD 27011, parts B- D to evaluate the amounts claimed against the HUD allowable charges. Conveyance Condition Standards: At the time that a property is conveyed to HUD, it must be undamaged by fire, earthquake, flood, hurricane, tornado, boiler explosions (for condominiums that were secured by mortgages insured under Section 234 of the National Housing Act), or mortgagee neglect. In addition, any debris must be removed from the interior of the property and the property must be maintained in broom-swept condition. Lenders are responsible for

3 the damage to, or destruction of, properties due to their failure to take reasonable action to secure, inspect, preserve, and protect the properties. Property Inspections: Generally, lenders are responsible for three types of inspections consisting of occupancy inspections, initial vacant property inspections, and vacant property inspections. (Reference 24 CFR Section and HUD Handbook , Rev-5, Chapter 9-9 for specific requirements). Effective Date: The new P&P guidelines become effective July 13, New Ginnie Mae Title I Manufactured Home Loan Mortgage-backed Security Program On June 10, 2010, Ginnie Mae announced its plans for the implementation of a new mortgagebacked security program for manufactured housing loans. The new program was developed in response to the recent FHA Title I program changes in connection with the Housing and Economic Recovery Act of Ginnie Mae is accepting applications to become a new Issuer for Title I manufactured home loans and is requiring all currently approved Issuers to make a new application for participation in the new program. Issuers will be required to maintain a minimum adjusted net worth of $10 million plus 10% of the amount of outstanding manufactured housing mortgage backed securities, calculated in accordance with HUD Audit Guide calculations. Some features of the new program include: Loan applications dated June 1, 2009, and thereafter, are eligible under the new program; Minimum pool origination balance will increase to $1mm, however the guarantee for manufactured housing mortgage-backed securities will remain at 30 basis points; Title I manufactured housing loans are eligible for pooling as Ginnie Mae II MBS under the Manufactured Housing Custom Pool type ( C MH ); Title I loans will not be eligible for pooling as multiple issuer pools ( MIP ) and for immediate issuance transfer ( PIIT ) pools; Concurrent Date accounting methods must be used for the C MH pooling type. Complete program guidance will be available by September 1, STATE ACTIONS Colorado Requires Lenders to Itemize Loan Charges

4 The Colorado Division of Real Estate recently revised the regulations for mortgage loan originators regarding a disclosure required to be provided by such licensees under Colorado statutes. Prior to the changes to the Good Faith Estimate ( GFE ) by HUD effective January 1, 2010, mortgage loan originators used the GFE to meet the requirements of the Colorado statute and regulations requiring a itemization of loan charges. Due to the 2010 changes to the GFE made under the revised RESPA regulations, the Division of Real Estate has determined that the federal GFE form no longer provides sufficient itemization of charges to meet the Colorado disclosure requirements contained in the Mortgage Loan Originator Licensing Act. Accordingly, mortgage loan originators must create and implement a form that itemizes all third-party fees and costs in compliance with the Colorado statute. The disclosure shall include mortgage loan originator and borrower signatures and dates in which the disclosure was completed and signed. In Colorado, mortgage loan originators are individuals who (1) take a residential mortgage loan application; or (2) offer or negotiate terms of a residential mortgage loan. Such individuals must be licensed as mortgage loan originators. The disclosures must be made within three business days after receipt of a loan application or any moneys from a borrower. Minnesota Amends Reverse Mortgage Laws On May 19, 2010, the Minnesota Governor signed Senate File 2430 that includes provisions amending current Minnesota statutes that regulate reverse mortgages. Senate File 2430 becomes effective August 1, Senate File 2430 amends Minn. Stat to require a lender to refer a prospective borrower to an independent housing counseling agency for reverse mortgage counseling prior to accepting a final and complete application for a reverse mortgage loan or assessing any fees. The counseling session must be no less than 60 minutes, and must cover certain specific topics provided in the statute. Senate File 2430 also provides for a 7-day cooling off period for the borrower. Specifically, the borrower would not be bound for seven (7) days after the borrower s written acceptance of the lender s written commitment to make the reverse mortgage loan, and the borrower cannot be required to close or proceed with the loan during that time period. Senate File 2430 mirrors current federal regulations by providing that the borrower may rescind any reverse mortgage within three (3) days of execution. In addition, Senate File 2430 also prohibits a lender, mortgage broker, or residential mortgage originator from requiring the purchase of an annuity, investment, life insurance, or long-term care insurance product as a condition of obtaining a reverse mortgage loan. Moreover, the borrower may not enter into any agreement to make a reverse mortgage loan that obligates

5 the borrower to purchase an annuity, investment, life insurance, or long-term care insurance product. No lender, mortgage broker, or residential mortgage originator may receive compensation for providing the borrower with information related to an annuity, investment, life insurance, or long-term care insurance product. A lender who fails to make loan advances with respect to a mortgage that is not federally insured, as required in the loan documents (and fails to cure an actual default after notice), shall forfeit any right to repayment of the outstanding loan balance. No person acting as a residential mortgage originator or servicer (including a person required to be licensed under the Minnesota Residential Mortgage Originator and Servicer Licensing Act), and no person exempt from licensing under that Act, may make, provide, or arrange for a reverse mortgage without complying with Minn. Stat. Ann Note that last year, Minnesota amended the definition of the term lender as contained in Minn. Stat , and a lender now includes any residential mortgage originator subject to the Minnesota Residential Mortgage Originator and Servicer Licensing Act. That amendment became effective July 1, Florida Licensing Requirements for Loan Processors Under Florida s recent modifications to its mortgage licensing laws, the definition of loan originator was expanded to require generally most loan processors and underwriters to be licensed, effective October 1, Unless an individual is performing purely administrative or clerical tasks (which, by definition, include generally quoting available interest rates, physically handling a completed application form, or transmitting a completed form to a lender on behalf of a prospective borrower), it appears that such individual would be required to obtain a loan originator license in the state. Therefore, individuals handling or requesting additional information from a borrower in connection with a specific or partially completed loan application are likely required to obtain a loan originator license in Florida. Recently, Florida s Governor approved House Bill 1281, which amends and clarifies provisions of the Florida licensing law with respect to loan originators. As indicated in this legislation, individuals who operate as loan processors may contract with more than one mortgage broker or mortgage lender, or either simultaneously, if they are licensed as loan originators, act solely as loan processors, and file a declaration of their intent to engage only in the processing of loans. The statute includes a broad definition of loan processor that includes any individual involved in the receipt, collection, distribution, and analysis of information common for processing or underwriting residential mortgage loans, as well as any individual who communicates with consumers to obtain such information without also offering or negotiating or counseling about the loan s rates or terms. The legislation also provides for the declaration of intent to be withdrawn should the loan originator choose to engage in activities beyond solely loan processing. Additional provisions concerning receipt of fees, necessary disclosures, and disciplinary actions are also included in the legislation.

6 North Carolina Commissioner of Banks Issues New Rules and Explanations Several amendments to the mortgage lending rules in North Carolina s Administrative Code have recently taken, or will soon take, effect. The rules have been amended to reflect recent changes to the state s mortgage lending laws. Two new rules regarding loss mitigation, Rules 702 and 703 are supplemented by the Office of the Commissioner of Banks frequently asked questions ( FAQs ). Through the issuance of Rules 702 and 703, both of which took effect on June 1, 2010, the Office of the Commissioner of Banks has significantly altered mortgage servicer requirements for borrowers seeking loss mitigation. Rule 702 requires that a mortgage servicer acknowledge in writing a loss mitigation request from a borrower no less than ten business days after the placing of the request. Once the mortgage servicer has received all information it requires to assess a borrower s qualification for the mortgage servicer s loss mitigation programs, the mortgage servicer is given thirty days to notify the borrower of its determination. If the response is a denial, the mortgage servicer is required to provide additional information in its response. Rule 703 further regulates loss mitigation proceedings by requiring a standstill to any foreclosure proceedings while a loss mitigation request is pending, unless one of several exemptions applies. The FAQs also indicate that a mortgage servicer that is exempt from the requirements of Rule 703 must still comply with the required communications set forth in Rule 702. Rule 604, which took effect on June 1, 2010, concerns deceptive refinancing solicitations. The rule provides that certain unsolicited communications regarding a refinancing may not be delivered to a person unless such communication includes specific language. Other recent amendments include the addition of new definitions to Rule 101, clarification of mortgage licensee requirements with respect to notices, applications, financial responsibility, and reporting, and the requirement that servicing rights or obligations may only be transferred to a person who is licensed to service loans or is exempt from the North Carolina mortgage licensing law. Georgia Raises the Residential Mortgage Loan Closing Fee Under Georgia House Bill 1055, among other fee increases imposed by the bill, effective May 12, 2010, the per loan fee required on the closing of a residential mortgage loan is raised to $10 for each such loan. COURT ACTIONS WBSK Saves Corporate Officers from Liability Weiner Brodsky Sidman Kider PC ( WBSK ) recorded a major victory recently when it turned back an effort by state regulators to hold corporate officers personally liable for the alleged

7 misdeeds of a branch manager. In an administrative action, the State of New Hampshire claimed over 200 violations of state and federal mortgage lending laws law arising from the actions of this branch manager. New Hampshire sought nearly $1 million in fines and restitution each from the lender as well as the CEO and its Chief Compliance Officer, ostensibly because of their improper supervision of the branch manager. During the course of a three day hearing and through its briefing, however, WBSK demonstrated that appropriate methods of oversight, training, and compliance had been established by the lender. WBSK also convinced the Commissioner that the individual officers fully complied with the requirements of state and federal law, followed corporate procedures, and exercised care and diligence in carrying out their duties as officers of a mortgage lender. Many months after the hearing, the New Hampshire Bank Commissioner absolved the corporate officers of any liability. The lender also faired nearly as well. The lender ended up with only a technical violation, with a monetary fine that was less than half of the State s final offer of settlement. If you have any questions, please call Weiner Brodsky Sidman Kider PC, at Bruce E. Alexander James A. Brodsky Scott D. Burke Brian J. Evans Troy W. Garris David Goodfriend Don J. Halpern Michelle H. Holmes Fedor Kamensky Mitchel H. Kider Michael Y. Kieval Tom Lawrence III Aldys A. London Jason W. McElroy James M. Milano Rose-Michele Nardi John A. O Shaughnessy Joel A. Schiffman Mark H. Sidman Jennifer E. Silversmith Joseph E. Silvia David M. Souders Leslie A. Sowers Vanessa L. Tran Sandra B. Vipond Melissa J. Wachtel Harvey E. Weiner Jack V. Konyk, Executive Director, Government Affairs Andrew E. Zirneklis, Compliance Specialist Jacqueline L. Melone, Government Relations Specialist Richard J. Barna, Licensing Specialist Sue E. Gamboa, Licensing Specialist Nancy L. Pickover, Licensing Specialist Hazel Berkoh, Litigation Paralegal Theodore B. Babcock, Paralegal Weiner Brodsky Sidman Kider PC th Street NW 5 th Floor Washington DC

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