(202) 349-8000
1250 24 th St NW · Suite 700 · Washington D.C. 20037
www.buckleykolar.com
InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
OCC Challenges Proposed FNMA, FHLMC and OFHEO Appraisal Agreement with New York Attorney General. On May 27, the Office of the Comptroller of Currency (OCC) submitted a formal letter addressing the proposed agreement among Fannie Mae, Freddie Mac and Office of Federal Housing Enterprise Oversight (OFHEO) and the New York Attorney General (NY AG) to establish the Home Valuation Code of Conduct (Code), a code for real estate appraisal practices. On March 3, 2008, the NY AG announced settlement agreements with Fannie Mae, Freddie Mac, and OFHEO, the office within the Department of Housing and Urban Development that oversees Fannie Mae and Freddie Mac. Pursuant to the agreements, beginning on January 1, 2009, Fannie Mae and Freddie Mac would no longer purchase single-family mortgage loans, other than government-insured loans, from mortgage originators that do not agree to adopt the Code with respect to such loans. The Code provides for various restrictions, prohibitions, and requirements regarding appraisal reports used to secure mortgage loans. The OCC joins the Federal Trade Commission (FTC), Office of Thrift Supervision (OTS) and various trade groups in (i) raising concerns over the potential effect of the proposed Code on the mortgage industry and consumers, and (ii) urging the withdrawal of the Code. (the FTC and OTS letters were reported in InfoBytes, May 9, 2008). The OCC’s letter highlights likely adverse consequences that may result from the Code, which include, among others, unnecessarily raising mortgage origination costs, disrupting the mortgage appraisal process and undermining rather than enhancing the quality of appraisals. In addition, the OCC contends that the Code and underlying “Home Valuation Protection Program and Cooperation Agreements” (i) constitute a de facto rule adopted in violation of the Administrative Procedures Act (APA); (ii) exceed the scope of OFHEO’s authority; (iii) violate federal law by setting requirements or restrictions on the real estate lending operations of national banks; and, (iv) ignore that federal standards for real estate appraisals should be set by Congress, not through private litigation. For a copy of the OCC letter, please see http://www.occ.treas.gov/ftp/release/letter_20080527.pdf.
Mishkin Resigns From Federal Reserve Board. On May 28, Frederic Mishkin submitted his resignation from the Federal Reserve Board, effective August 31, 2008. Mishkin has been a member since September 5, 2006. During his time on the Board, Mishkin served as Chairman of the Committee on Economic Affairs and as a member of the Committee on Supervisory and Regulatory Affairs and the Committee on Consumer and Community Affairs. For a copy of the resignation, please see http://www.federalreserve.gov/newsevents/press/other/other20080528a1.pdf.
FRB and FTC Issue a Correction to Their Risk-Based Pricing Proposal. The Federal Reserve Board and the Federal Trade Commission corrected the model forms for the alternative credit-score disclosure for non-mortgage credit, which creditors may use to comply with the requirements of its proposed rules pursuant to the risk-based pricing provisions in section 311 of the Fair and Accurate Credit Transactions Act. When the proposal was published, the model forms included space for the key factors that adversely affected the credit score, which the proposed rule does not require for non-mortgage credit. The deadline for filing comments remains August 18, 2008. The correction is available at http://edocket.access.gpo.gov/2008/pdf/E8-11961.pdf.
HUD Issues Mortgagee Letter to Remind Mortgagees of HECM Advisor Limitations. On May 16, the Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2008-14 to remind lenders of FHA’s policies regarding non FHA-approved entities that participate in HECM originations. Under current FHA requirements, FHA approved entities must complete the full origination process for FHA insured HECMs. However, non FHA-approved entities may support a HECM origination for compensation if such entities provide “educational-type” origination services. To comply with RESPA, a non-approved entity may receive market rate compensation for actual services performed, but to also comply with FHA rules, the entity must not perform any services during the HECM origination process that require FHA approval. For example, FHA requirements permit non-approved entities to: (i) educate prospective borrowers about the reverse mortgage lending process, (ii) advise the borrower about different types of loan products available, (iii) demonstrate how closing costs and payment options could vary under each product, and (iv) maintain regulator contact with the lender to keep the borrower apprised of the status of the loan application. Amongst other limitations, the non-approved entity must also “be ‘engaged independently by the homeowner’ and there must be ‘no financial interest between the mortgage broker and the mortgagee.’” Moreover, the non-approved entity’s compensation “must be ‘included as part of the origination fee’ paid to the mortgagee or loan correspondent” or paid directly from the borrower’s own assets. For a copy of HUD Mortgagee Letter 2008-14, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/08-14ml.doc.
HUD Issues Mortgagee Letter Regarding New Underwriting Forms. On May 22, HUD issued Mortgagee Letter 2008-15, which notified mortgagees that FHA has developed FHA Loan Underwriting and Transmittal Summary (LT) HUD-92900-LT, which will replace mortgage credit worksheets HUD-92900-PUR and HUD-92900-WS (MCAWS). The HUD-92900-LT provides one document for all forward mortgage types, including refinance transactions, and simplifies the disclosure of loan-level information. Also, form HUD-92900-A, Addendum to Uniform Residential Loan Application, has been updated with minor revisions. Specifically, there are now dedicated signature lines for co-borrowers in Parts IV and V, along with a footnote in Part V informing borrowers they must sign both of these Parts. Part III has been updated to inform program participants where to find Office of Management and Budget (OMB) control numbers and approved information collections on OMB’s website. Mortgagees may begin using HUD-92900-LT on June 9, 2008, but must use it for all loan applications taken on or after October 1, 2008. Lenders may begin using the amended Addendum immediately but must use it for all loan applications taken on or after October 1, 2008. For a copy of Mortgagee Letter 2008-15, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/08-15ml.doc.
IRS Releases Revenue Procedure Providing Guidance on Loan Modifications. On May 26, the Internal Revenue Service (IRS) released Revenue Procedure 2008-28 which describes conditions under which modifications of certain mortgage loans will not cause the IRS to challenge the tax status of certain securitization vehicles that hold the loan or assert that the modifications create a liability for a tax on a prohibited transaction. The revenue procedure will assist servicers and investors attempting to implement foreclosure prevention programs for subprime mortgages, and facilitate servicers that want to work with borrowers to modify loans in advance of default activity, whereas doing so will no longer be viewed as “active management” of the underlying pool of loans under the IRS rules regarding Real Estate Mortgage Investment Conduits (REMICs). The guidance governs determinations made by the IRS on or after May 16, 2008 with respect to loan modifications effected on or before December 31, 2010. For a copy of Revenue Procedure 2008-28, please see http://www.irs.gov/pub/irs-drop/rp-08-28.pdf.
IOSCO Amends Code of Conduct for Credit Rating Agencies. On May 28, the International Organization of Securities Commissions (IOSCO) amended its Code of Conduct for credit rating agencies (CRAs) in response to the activities of CRAs in the market for structured finance products. Amongst other changes, the amendments to the Code of Conduct recommend that CRAs: (i) prohibit analysts from making proposals or recommendations regarding the design of structured finance products that the CRA rates, (ii) differentiate ratings of structured finance products, such as mortgage backed securities, from other ratings, preferably through different rating symbols, (iii) disclose whether any one issuer, originator, arranger, subscriber or other client and its affiliates make up more than 10 percent of the CRA’s annual revenue, and, (iv) discourage “ratings shopping,” by disclosing in their rating announcements whether the issuer of a structured finance product has informed it that it is publicly disclosing all relevant information about the product being rated. The Code of Conduct is not binding on the U.S. operations of CRAs. For a copy of the amended Code of Conduct, please see http://www.iosco.org/library/pubdocs/pdf/IOSCOPD271.pdf.
NCUA Proposes to Amend Regulation Governing Federal Credit Unions’ Incidental Powers. On May 22, the National Credit Union Administration (NCUA) proposed to amend its regulation governing a federal credit union's (FCU's) incidental powers by adding illustrations of permissible activities under the categories of correspondent services, operational programs, and finder activities. 12 CFR Part 721 describes the incidental powers an FCU may exercise under the incidental powers authority in the Federal Credit Union Act (Act), which provides an FCU may ‘‘exercise such incidental powers as shall be necessary or requisite to enable it to carry on effectively the business for which it was incorporated.’’ The proposed amendments aim to clarify and update the illustrations regarding permissible activities. Comments regarding the proposed amendments must be received on or before July 28, 2008. For a more information regarding the proposed amendments and a copy of the proposed amendments, please see http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/Proposed%20Rule.pdf.
Federal Agencies Release 2008 List of Distressed or Underserved Tract List. On May 30, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision jointly released the 2008 list of distressed or underserved nonmetropolitan middle-income geographies. The geographies on the list can be considered by the federal agencies in question for community development activity assistance available under the Community Reinvestment Act. For more information regarding the Community Reinvestment Act, please see http://www.ffiec.gov/cra/.
STATE ISSUES
Connecticut Enacts Wide-Ranging Mortgage Bill, Eliminates Secondary Lenders and Brokers Act. On May 27, Connecticut Governor M. Jodi Rell approved Substitute House Bill No. 5577, a wide-ranging mortgage bill. The bill’s provisions include (i) providing emergency mortgage assistance, (ii) instituting a moratorium on certain foreclosures, (iii) creating suitability standards for nonprime loans, (iv) imposing counseling requirements for certain borrowers, (v) prohibiting prepayment penalties on nonprime loans, (vi) requiring a tangible benefit for refinancings, (vii) increasing the bond amount for lender and broker licensees, and (viii) modifying mortgage license application procedures and requirements. The legislation essentially does away with the Secondary Mortgage Lenders, Brokers and Originators Act by consolidating all regulation of mortgage lenders and brokers under one act, effective July 1, 2008. For a copy of Substitute House Bill No. 5577, please see http://www.cga.ct.gov/2008/ACT/Pa/pdf/2008PA-00176-R00HB-05577-PA.pdf.
Minnesota Governor Vetoes Foreclosure Deferment Bill. On May 29, Minnesota Governor Tim Pawlenty vetoed the Minnesota Subprime Borrower Relief Act (S.F. 3396) (reported in InfoBytes, May 23, 2008). In his veto message, Governor Pawlenty wrote, "[i]f Minnesota creates a statutory right for individuals to remain in their homes beyond our already extensive foreclosure laws, mortgage providers will factor this additional business risk into mortgage agreements and Minnesota mortgages will be more expensive." He further noted that the bill “raises significant legal and philosophical concerns,” including concerns regarding the contract clause of the U.S. Constitution, which forbids states from enacting legislation that impairs existing contracts, and the Due Process and Equal Protection clauses of the U.S. Constitution. For a copy of Governor Pawlenty’s veto message, please contact .
Michigan Amends Foreclosure Laws to Protect Military Service Members. On May 21, Michigan Governor Jennifer Granholm approved S.B. 749, which amends Michigan’s foreclosure laws to provide certain protections for military service members involved in foreclosure proceedings. Under the new law, if a defendant in an action to foreclose a mortgage on real estate or a land contract is a service member and either the defendant entered into the mortgage or land contract before becoming a service member or the defendant is deployed in overseas service, the court is authorized to (i) stay proceedings in the action until 6 months after the end of the service member’s period of military service, or (ii) issue another order that is equitable to conserve the interests of the parties. The new law also prohibits a person from selling or foreclosing real estate in violation of the new law, invalidates any such transactions, and prescribes a $2,000 civil fine for persons who knowingly foreclose, sell, or attempt to foreclose or sell real estate with the knowledge that the foreclosure or sale is invalid under the new law. The new law became effective on May 21, 2008, and applies to mortgages on real estate or land contracts entered into on or after May 21, 2008. For a copy of the new law, please see http://www.legislature.mi.gov/documents/2007-2008/publicact/pdf/2008-PA-0138.pdf.
Georgia Passes Bill Amending Foreclosure Notice Requirements. Georgia Governor Sonny Perdue recently signed into law S.B. 531, which amends the notice requirement for non-judicial foreclosures. Under the new law, the foreclosing party must provide the borrower with notice of a foreclosure sale at least 30 days prior to the date of sale. Previously, only a 15-day notice period was required. The requisite notice must include the name, address, and telephone number of the individual or party that will have authority to negotiate, amend and modify all terms of the mortgage with the debtor. The new law became effective on May 13, 2008. For a copy of the bill, please see http://www.legis.state.ga.us/legis/2007_08/pdf/sb531.pdf.
Iowa Amends Code Chapters Administered By Division of Banking. On May 10, Iowa Governor Chester Culver signed H.F. 2556, the annual omnibus bill for the Iowa Division of Banking. The legislation includes several changes to code chapters administered by the Division. Among other things, the legislation establishes initial education and examination requirements for persons subject to registration under the Mortgage Bankers and Brokers Act, as well as increases the required surety bond amount and changes annual license and registration expiration dates from June 30 to December 31 for mortgage banker and broker licensees. Although the legislation becomes effective July 1, 2008, the initial education and examination requirements do not become effective until January 1, 2009. For a copy of the bill, please see http://www.buckleykolar.com/documents/IAHF2556.pdf.
Connecticut Requires Mortgagees to Provide Reinstatement Payment Statements to Borrowers. Connecticut Governor M. Jodi Rell recently signed H.B. 5578, which requires mortgagees to provide reinstatement payment statements within seven business days of a borrower’s request. The new law defines a reinstatement payment statement as a statement which provides the amount of money owed by a borrower to the mortgagee to reinstate the mortgage loan or the terms of the mortgage loan. The new law does not require mortgagees to provide a reinstatement payment statement if the borrower does not have the right to cure a payment default under the terms of the mortgage loan or under the law. The new law also decreases the amount of time a mortgagee has to provide a payoff statement upon a borrower’s request from ten business days to seven business days. The new law is effective on October 1, 2008. For a copy of the bill, please see http://www.cga.ct.gov/2008/ACT/PA/2008PA-00058-R00HB-05578-PA.htm.
West Virginia Division of Banking Adopts Statement on Subprime Mortgage Lending. The West Virginia Division of Banking recently announced that it has adopted the Statement on Subprime Mortgage Lending. The Statement includes regulatory guidance covering underwriting standards, management practices, and consumer protection provisions that mortgage originators should follow when marketing and selling certain mortgage loan products to subprime borrowers. The Statement is the product of a joint effort by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, and is intended to assist state regulators of mortgage providers not affiliated with banks, bank holding companies, savings associations, savings and loan holding companies, or credit unions. For a copy of the Division of Banking press release, please see http://www.wvdob.org/pressreleasesubprime.pdf.
COURTS
Bank’s Loan Claim Excluded from Bankruptcy Discharge Plan Despite Borrower Stated Income Misrepresentations. On May 28, a U.S. Bankruptcy Court for the Northern District of California held that a bank’s home equity line of credit (HELOC) claim should be excluded from the debtors’ Chapter 7 discharge plan, even though the debtors intentionally misrepresented their income on the loan applications, because the bank could not have reasonably relied on the debtors’ misrepresentations. In re Hill, No. 07-41137 (Bankr. N.D. Calif. May 28, 2008). In this case, which the judge called “a poster child for some of the practices that have led to the current crisis in our housing market,” the debtors obtained a HELOC of $200,000 from National City Bank through a mortgage broker in April 2006. On the application for this loan, the debtors stated their annual income as $145,716. In October 2006, the debtors applied directly to National City to increase their HELOC limit to $250,000. On this application, the debtors stated their income as $190,800. In reality, the debtors’ income never exceeded $65,000. At the foreclosure sale in April 2007, the first-lien creditor purchased the property. The court found that the debtors, “while not highly educated, were not unsophisticated” and “knew they were responsible for supplying accurate information to a lender concerning their financial condition.” However, when National City sued to include its HELOC claim in the debtors’ discharge plan, claiming that the debt should not be discharged because (i) the debtors lied about their income and (ii) National City relied upon these misrepresentations, the court agreed that that the debtors had knowingly misrepresented their incomes, but it held that either the bank did not rely on these income representations, or its reliance was not reasonable based on an objective standard. The court stated that it is “highly questionable whether the industry standards” for stated-income loans, upon which National City relied, “were objectively reasonable.” Further, the court noted that the bank ignored a “red flag” established by the variation in the income set forth on the April loan application as compared to the income set forth on the October loan application, which “should have called for more investigation concerning the accuracy of the income figures.” For a copy of the opinion, please http://www.buckleykolar.com/documents/HillvNationalCityBank.pdf.
Court Rules That MERS Registration Fee Does Not Violate RESPA. On May 16, a U.S. District Court for the Southern District of Texas ruled that the fee paid to register mortgages electronically on the MERS® System does not violate either the kickback or fee splitting prohibitions of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. 2601 et seq. In re Merscorp, Inc., MDL Docket No. 1810 (S.D. Tex. May 16, 2008). The court therefore dismissed potential class actions alleging such violations brought by mortgage borrowers in several states, which had been consolidated before the court by the Judicial Panel on Multidistrict Litigation. Established in 1997 by the Mortgage Bankers Association with the support of various federal and state agencies, the MERS System allows a participating mortgage lender or servicer to designate Mortgage Electronic Registration Systems, Inc. (MERS) as its nominee on county land records in return for a small registration fee (currently $4.95). The MERS System then tracks subsequent sales of the mortgage loan and associated servicing rights, thereby relieving lenders and servicers of the burden of re-recording mortgages following such sales. In this case, the mortgage borrowers argued that each registration fee was a kickback to MERS and its affiliates for their help in avoiding local recording fees and, consequently, a violation of Section 8(a) of RESPA, 12 U.S.C. § 2607(a). The court rejected this argument, holding that the mortgage tracking services performed by the MERS System made each registration fee a permissible payment under RESPA for “services actually performed.” See 12 U.S.C. § 2607(c)(2). The mortgage borrowers also argued that each registration fee, which was passed onto them for payment, violated the prohibition in Section 8(b) of RESPA against splitting real estate settlement fees with those who do not earn them “for services actually performed.” See 12 U.S.C. § 2607(b). Specifically, the borrowers argued that MERS and its affiliates did not earn the registration fee for actual services within the meaning of Section 8(b) because the party that paid for the services, the borrower, did not benefit from them. The court rejected this argument as well, holding that Section 8(b) requires only that services must actually be performed in return for a fee and “does not dictate which party to the loan transaction must pay for which settlement service.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/InreMerscorpInc.pdf.
Court Rules FACTA Truncation Does Not Apply to Receipts Sent Via Email. On May 20, a U.S. District Court for the Southern District of Florida dismissed the plaintiff’s Fair and Accurate Credit Transaction Act (FACTA) credit card receipt truncation claim with prejudice. King v. Movietickets.com, Inc., 2008 WL 2127995, No. 07-22119-CIV (S.D.Fla. May 20, 2008). Mr. King brought the FACTA claim under 15 U.S.C. § 1681c(g), which provides that a person who accepts credit or debit cards for the transaction of business may not print more than the last 5 digits of the card number or the expiration date on receipt provided to the cardholder at the point of sale or transaction. FACTA further states that this section applies only to receipts that are electronically printed. Mr. King ordered movie tickets over the Internet and received a receipt of the transaction via email. In his complaint, Mr. King alleged that the defendant had “printed” a “receipt” in violation of FACTA, because the email contained more than 4 digits of the card number or the expiration date. In dismissing the complaint, the court noted that the email was printed by the plaintiff, not the defendant, as required by FACTA, and that no violation could be proven. For a copy of the opinion, please see http://www.buckleykolar.com/documents/KingvMovieticketscom.pdf.
Kentucky Supreme Court Holds Lender’s Conduct Did Not Amount To Waiver of Arbitration Rights. On May 22, the Supreme Court of Kentucky held that a company’s actions in litigation did not produce an implied waiver of its arbitration rights. American General Home Equity, Inc. v. Kestel, No. 2006-SC-000830-DG (Ky. May 22, 2008). This case arises from a foreclosure action by American General Home Equity (American General) against the borrowers, who defaulted on their mortgage. About nine months after the borrowers filed counterclaims alleging violations of state and federal consumer protection laws, American General filed a motion to compel arbitration. After contrary holdings in the trial and appellate courts, the Kentucky Supreme Court reviewed the issue of whether American General waived its arbitration rights by (i) failing to move for arbitration for nine months; and (ii) defending motions filed in circuit court by the borrowers after the borrowers were on notice of the possibility of arbitration. Using a standard previously set forth by the Court of Appeals, the Court focused on whether American General’s conduct was “so inconsistent with asserting arbitration rights that a waiver of such rights should be implied.” The Court found that, although American General’s actions “[did] not demonstrate a prompt and decisive invocation of arbitration rights,” because American General consistently informed the borrowers that arbitration was a possibility, and because American General was merely defending motions and not filing affirmative motions against the borrowers, it did not act inconsistently with the intent to assert arbitration rights. For a copy of the opinion, please see http://www.buckleykolar.com/documents/AGHEvKestel.pdf.
FIRM NEWS
Joseph Kolar will be speaking at the Mealey’s Subprime Mortgage Litigation & Insurance Coverage Conference on June 20 in Washington, DC. Mr. Kolar’s presentation is entitled, “The New Structure of the Mortgage Lending Industry.” For more information or to register, please see http://bookstore.lexis.com/bookstore/product/69880t.html.
Jerry Buckley and Margo Tank spoke at the Managing Electronic Records (MER) Conference on May 20 in Chicago, Illinois. Their panel entitled, "Legal Considerations for Conducting Business Electronically: Practical Guidance," focused on how the Electronic Signatures and Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA) now make it possible to present and store information and to sign agreements electronically in circumstances where, in the past, paper documents and wet signatures would have been required. Mr. Buckley and Ms. Tank discussed the new challenges presented and provided practical guidance to the industry. To view the Power Point presentation, please see http://www.buckleykolar.com/documents/MERConferencePowerPointMay202008.pdf.
OCC Challenges Proposed FNMA, FHLMC and OFHEO Appraisal Agreement with New York Attorney General. On May 27, the Office of the Comptroller of Currency (OCC) submitted a formal letter addressing the proposed agreement among Fannie Mae, Freddie Mac and Office of Federal Housing Enterprise Oversight (OFHEO) and the New York Attorney General (NY AG) to establish the Home Valuation Code of Conduct (Code), a code for real estate appraisal practices. On March 3, 2008, the NY AG announced settlement agreements with Fannie Mae, Freddie Mac, and OFHEO, the office within the Department of Housing and Urban Development that oversees Fannie Mae and Freddie Mac. Pursuant to the agreements, beginning on January 1, 2009, Fannie Mae and Freddie Mac would no longer purchase single-family mortgage loans, other than government-insured loans, from mortgage originators that do not agree to adopt the Code with respect to such loans. The Code provides for various restrictions, prohibitions, and requirements regarding appraisal reports used to secure mortgage loans. The OCC joins the Federal Trade Commission (FTC), Office of Thrift Supervision (OTS) and various trade groups in (i) raising concerns over the potential effect of the proposed Code on the mortgage industry and consumers, and (ii) urging the withdrawal of the Code. (the FTC and OTS letters were reported in InfoBytes, May 9, 2008). The OCC’s letter highlights likely adverse consequences that may result from the Code, which include, among others, unnecessarily raising mortgage origination costs, disrupting the mortgage appraisal process and undermining rather than enhancing the quality of appraisals. In addition, the OCC contends that the Code and underlying “Home Valuation Protection Program and Cooperation Agreements” (i) constitute a de facto rule adopted in violation of the Administrative Procedures Act (APA); (ii) exceed the scope of OFHEO’s authority; (iii) violate federal law by setting requirements or restrictions on the real estate lending operations of national banks; and, (iv) ignore that federal standards for real estate appraisals should be set by Congress, not through private litigation. For a copy of the OCC letter, please see http://www.occ.treas.gov/ftp/release/letter_20080527.pdf.
HUD Issues Mortgagee Letter to Remind Mortgagees of HECM Advisor Limitations. On May 16, the Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2008-14 to remind lenders of FHA’s policies regarding non FHA-approved entities that participate in HECM originations. Under current FHA requirements, FHA approved entities must complete the full origination process for FHA insured HECMs. However, non FHA-approved entities may support a HECM origination for compensation if such entities provide “educational-type” origination services. To comply with RESPA, a non-approved entity may receive market rate compensation for actual services performed, but to also comply with FHA rules, the entity must not perform any services during the HECM origination process that require FHA approval. For example, FHA requirements permit non-approved entities to: (i) educate prospective borrowers about the reverse mortgage lending process, (ii) advise the borrower about different types of loan products available, (iii) demonstrate how closing costs and payment options could vary under each product, and (iv) maintain regulator contact with the lender to keep the borrower apprised of the status of the loan application. Amongst other limitations, the non-approved entity must also “be ‘engaged independently by the homeowner’ and there must be ‘no financial interest between the mortgage broker and the mortgagee.’” Moreover, the non-approved entity’s compensation “must be ‘included as part of the origination fee’ paid to the mortgagee or loan correspondent” or paid directly from the borrower’s own assets. For a copy of HUD Mortgagee Letter 2008-14, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/08-14ml.doc.
HUD Issues Mortgagee Letter Regarding New Underwriting Forms. On May 22, HUD issued Mortgagee Letter 2008-15, which notified mortgagees that FHA has developed FHA Loan Underwriting and Transmittal Summary (LT) HUD-92900-LT, which will replace mortgage credit worksheets HUD-92900-PUR and HUD-92900-WS (MCAWS). The HUD-92900-LT provides one document for all forward mortgage types, including refinance transactions, and simplifies the disclosure of loan-level information. Also, form HUD-92900-A, Addendum to Uniform Residential Loan Application, has been updated with minor revisions. Specifically, there are now dedicated signature lines for co-borrowers in Parts IV and V, along with a footnote in Part V informing borrowers they must sign both of these Parts. Part III has been updated to inform program participants where to find Office of Management and Budget (OMB) control numbers and approved information collections on OMB’s website. Mortgagees may begin using HUD-92900-LT on June 9, 2008, but must use it for all loan applications taken on or after October 1, 2008. Lenders may begin using the amended Addendum immediately but must use it for all loan applications taken on or after October 1, 2008. For a copy of Mortgagee Letter 2008-15, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/08-15ml.doc.
IRS Releases Revenue Procedure Providing Guidance on Loan Modifications. On May 26, the Internal Revenue Service (IRS) released Revenue Procedure 2008-28 which describes conditions under which modifications of certain mortgage loans will not cause the IRS to challenge the tax status of certain securitization vehicles that hold the loan or assert that the modifications create a liability for a tax on a prohibited transaction. The revenue procedure will assist servicers and investors attempting to implement foreclosure prevention programs for subprime mortgages, and facilitate servicers that want to work with borrowers to modify loans in advance of default activity, whereas doing so will no longer be viewed as “active management” of the underlying pool of loans under the IRS rules regarding Real Estate Mortgage Investment Conduits (REMICs). The guidance governs determinations made by the IRS on or after May 16, 2008 with respect to loan modifications effected on or before December 31, 2010. For a copy of Revenue Procedure 2008-28, please see http://www.irs.gov/pub/irs-drop/rp-08-28.pdf.
Federal Agencies Release 2008 List of Distressed or Underserved Tract List. On May 30, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision jointly released the 2008 list of distressed or underserved nonmetropolitan middle-income geographies. The geographies on the list can be considered by the federal agencies in question for community development activity assistance available under the Community Reinvestment Act. For more information regarding the Community Reinvestment Act, please see http://www.ffiec.gov/cra/.
Connecticut Enacts Wide-Ranging Mortgage Bill, Eliminates Secondary Lenders and Brokers Act. On May 27, Connecticut Governor M. Jodi Rell approved Substitute House Bill No. 5577, a wide-ranging mortgage bill. The bill’s provisions include (i) providing emergency mortgage assistance, (ii) instituting a moratorium on certain foreclosures, (iii) creating suitability standards for nonprime loans, (iv) imposing counseling requirements for certain borrowers, (v) prohibiting prepayment penalties on nonprime loans, (vi) requiring a tangible benefit for refinancings, (vii) increasing the bond amount for lender and broker licensees, and (viii) modifying mortgage license application procedures and requirements. The legislation essentially does away with the Secondary Mortgage Lenders, Brokers and Originators Act by consolidating all regulation of mortgage lenders and brokers under one act, effective July 1, 2008. For a copy of Substitute House Bill No. 5577, please see http://www.cga.ct.gov/2008/ACT/Pa/pdf/2008PA-00176-R00HB-05577-PA.pdf.
Minnesota Governor Vetoes Foreclosure Deferment Bill. On May 29, Minnesota Governor Tim Pawlenty vetoed the Minnesota Subprime Borrower Relief Act (S.F. 3396) (reported in InfoBytes, May 23, 2008). In his veto message, Governor Pawlenty wrote, "[i]f Minnesota creates a statutory right for individuals to remain in their homes beyond our already extensive foreclosure laws, mortgage providers will factor this additional business risk into mortgage agreements and Minnesota mortgages will be more expensive." He further noted that the bill “raises significant legal and philosophical concerns,” including concerns regarding the contract clause of the U.S. Constitution, which forbids states from enacting legislation that impairs existing contracts, and the Due Process and Equal Protection clauses of the U.S. Constitution. For a copy of Governor Pawlenty’s veto message, please contact .
Michigan Amends Foreclosure Laws to Protect Military Service Members. On May 21, Michigan Governor Jennifer Granholm approved S.B. 749, which amends Michigan’s foreclosure laws to provide certain protections for military service members involved in foreclosure proceedings. Under the new law, if a defendant in an action to foreclose a mortgage on real estate or a land contract is a service member and either the defendant entered into the mortgage or land contract before becoming a service member or the defendant is deployed in overseas service, the court is authorized to (i) stay proceedings in the action until 6 months after the end of the service member’s period of military service, or (ii) issue another order that is equitable to conserve the interests of the parties. The new law also prohibits a person from selling or foreclosing real estate in violation of the new law, invalidates any such transactions, and prescribes a $2,000 civil fine for persons who knowingly foreclose, sell, or attempt to foreclose or sell real estate with the knowledge that the foreclosure or sale is invalid under the new law. The new law became effective on May 21, 2008, and applies to mortgages on real estate or land contracts entered into on or after May 21, 2008. For a copy of the new law, please see http://www.legislature.mi.gov/documents/2007-2008/publicact/pdf/2008-PA-0138.pdf.
Georgia Passes Bill Amending Foreclosure Notice Requirements. Georgia Governor Sonny Perdue recently signed into law S.B. 531, which amends the notice requirement for non-judicial foreclosures. Under the new law, the foreclosing party must provide the borrower with notice of a foreclosure sale at least 30 days prior to the date of sale. Previously, only a 15-day notice period was required. The requisite notice must include the name, address, and telephone number of the individual or party that will have authority to negotiate, amend and modify all terms of the mortgage with the debtor. The new law became effective on May 13, 2008. For a copy of the bill, please see http://www.legis.state.ga.us/legis/2007_08/pdf/sb531.pdf.
Iowa Amends Code Chapters Administered By Division of Banking. On May 10, Iowa Governor Chester Culver signed H.F. 2556, the annual omnibus bill for the Iowa Division of Banking. The legislation includes several changes to code chapters administered by the Division. Among other things, the legislation establishes initial education and examination requirements for persons subject to registration under the Mortgage Bankers and Brokers Act, as well as increases the required surety bond amount and changes annual license and registration expiration dates from June 30 to December 31 for mortgage banker and broker licensees. Although the legislation becomes effective July 1, 2008, the initial education and examination requirements do not become effective until January 1, 2009. For a copy of the bill, please see http://www.buckleykolar.com/documents/IAHF2556.pdf.
Connecticut Requires Mortgagees to Provide Reinstatement Payment Statements to Borrowers. Connecticut Governor M. Jodi Rell recently signed H.B. 5578, which requires mortgagees to provide reinstatement payment statements within seven business days of a borrower’s request. The new law defines a reinstatement payment statement as a statement which provides the amount of money owed by a borrower to the mortgagee to reinstate the mortgage loan or the terms of the mortgage loan. The new law does not require mortgagees to provide a reinstatement payment statement if the borrower does not have the right to cure a payment default under the terms of the mortgage loan or under the law. The new law also decreases the amount of time a mortgagee has to provide a payoff statement upon a borrower’s request from ten business days to seven business days. The new law is effective on October 1, 2008. For a copy of the bill, please see http://www.cga.ct.gov/2008/ACT/PA/2008PA-00058-R00HB-05578-PA.htm.
West Virginia Division of Banking Adopts Statement on Subprime Mortgage Lending. The West Virginia Division of Banking recently announced that it has adopted the Statement on Subprime Mortgage Lending. The Statement includes regulatory guidance covering underwriting standards, management practices, and consumer protection provisions that mortgage originators should follow when marketing and selling certain mortgage loan products to subprime borrowers. The Statement is the product of a joint effort by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, and is intended to assist state regulators of mortgage providers not affiliated with banks, bank holding companies, savings associations, savings and loan holding companies, or credit unions. For a copy of the Division of Banking press release, please see http://www.wvdob.org/pressreleasesubprime.pdf.
Bank’s Loan Claim Excluded from Bankruptcy Discharge Plan Despite Borrower Stated Income Misrepresentations. On May 28, a U.S. Bankruptcy Court for the Northern District of California held that a bank’s home equity line of credit (HELOC) claim should be excluded from the debtors’ Chapter 7 discharge plan, even though the debtors intentionally misrepresented their income on the loan applications, because the bank could not have reasonably relied on the debtors’ misrepresentations. In re Hill, No. 07-41137 (Bankr. N.D. Calif. May 28, 2008). In this case, which the judge called “a poster child for some of the practices that have led to the current crisis in our housing market,” the debtors obtained a HELOC of $200,000 from National City Bank through a mortgage broker in April 2006. On the application for this loan, the debtors stated their annual income as $145,716. In October 2006, the debtors applied directly to National City to increase their HELOC limit to $250,000. On this application, the debtors stated their income as $190,800. In reality, the debtors’ income never exceeded $65,000. At the foreclosure sale in April 2007, the first-lien creditor purchased the property. The court found that the debtors, “while not highly educated, were not unsophisticated” and “knew they were responsible for supplying accurate information to a lender concerning their financial condition.” However, when National City sued to include its HELOC claim in the debtors’ discharge plan, claiming that the debt should not be discharged because (i) the debtors lied about their income and (ii) National City relied upon these misrepresentations, the court agreed that that the debtors had knowingly misrepresented their incomes, but it held that either the bank did not rely on these income representations, or its reliance was not reasonable based on an objective standard. The court stated that it is “highly questionable whether the industry standards” for stated-income loans, upon which National City relied, “were objectively reasonable.” Further, the court noted that the bank ignored a “red flag” established by the variation in the income set forth on the April loan application as compared to the income set forth on the October loan application, which “should have called for more investigation concerning the accuracy of the income figures.” For a copy of the opinion, please http://www.buckleykolar.com/documents/HillvNationalCityBank.pdf.
Court Rules That MERS Registration Fee Does Not Violate RESPA. On May 16, a U.S. District Court for the Southern District of Texas ruled that the fee paid to register mortgages electronically on the MERS® System does not violate either the kickback or fee splitting prohibitions of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. 2601 et seq. In re Merscorp, Inc., MDL Docket No. 1810 (S.D. Tex. May 16, 2008). The court therefore dismissed potential class actions alleging such violations brought by mortgage borrowers in several states, which had been consolidated before the court by the Judicial Panel on Multidistrict Litigation. Established in 1997 by the Mortgage Bankers Association with the support of various federal and state agencies, the MERS System allows a participating mortgage lender or servicer to designate Mortgage Electronic Registration Systems, Inc. (MERS) as its nominee on county land records in return for a small registration fee (currently $4.95). The MERS System then tracks subsequent sales of the mortgage loan and associated servicing rights, thereby relieving lenders and servicers of the burden of re-recording mortgages following such sales. In this case, the mortgage borrowers argued that each registration fee was a kickback to MERS and its affiliates for their help in avoiding local recording fees and, consequently, a violation of Section 8(a) of RESPA, 12 U.S.C. § 2607(a). The court rejected this argument, holding that the mortgage tracking services performed by the MERS System made each registration fee a permissible payment under RESPA for “services actually performed.” See 12 U.S.C. § 2607(c)(2). The mortgage borrowers also argued that each registration fee, which was passed onto them for payment, violated the prohibition in Section 8(b) of RESPA against splitting real estate settlement fees with those who do not earn them “for services actually performed.” See 12 U.S.C. § 2607(b). Specifically, the borrowers argued that MERS and its affiliates did not earn the registration fee for actual services within the meaning of Section 8(b) because the party that paid for the services, the borrower, did not benefit from them. The court rejected this argument as well, holding that Section 8(b) requires only that services must actually be performed in return for a fee and “does not dictate which party to the loan transaction must pay for which settlement service.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/InreMerscorpInc.pdf.
Kentucky Supreme Court Holds Lender’s Conduct Did Not Amount To Waiver of Arbitration Rights. On May 22, the Supreme Court of Kentucky held that a company’s actions in litigation did not produce an implied waiver of its arbitration rights. American General Home Equity, Inc. v. Kestel, No. 2006-SC-000830-DG (Ky. May 22, 2008). This case arises from a foreclosure action by American General Home Equity (American General) against the borrowers, who defaulted on their mortgage. About nine months after the borrowers filed counterclaims alleging violations of state and federal consumer protection laws, American General filed a motion to compel arbitration. After contrary holdings in the trial and appellate courts, the Kentucky Supreme Court reviewed the issue of whether American General waived its arbitration rights by (i) failing to move for arbitration for nine months; and (ii) defending motions filed in circuit court by the borrowers after the borrowers were on notice of the possibility of arbitration. Using a standard previously set forth by the Court of Appeals, the Court focused on whether American General’s conduct was “so inconsistent with asserting arbitration rights that a waiver of such rights should be implied.” The Court found that, although American General’s actions “[did] not demonstrate a prompt and decisive invocation of arbitration rights,” because American General consistently informed the borrowers that arbitration was a possibility, and because American General was merely defending motions and not filing affirmative motions against the borrowers, it did not act inconsistently with the intent to assert arbitration rights. For a copy of the opinion, please see http://www.buckleykolar.com/documents/AGHEvKestel.pdf.
Mishkin Resigns From Federal Reserve Board. On May 28, Frederic Mishkin submitted his resignation from the Federal Reserve Board, effective August 31, 2008. Mishkin has been a member since September 5, 2006. During his time on the Board, Mishkin served as Chairman of the Committee on Economic Affairs and as a member of the Committee on Supervisory and Regulatory Affairs and the Committee on Consumer and Community Affairs. For a copy of the resignation, please see http://www.federalreserve.gov/newsevents/press/other/other20080528a1.pdf.
NCUA Proposes to Amend Regulation Governing Federal Credit Unions’ Incidental Powers. On May 22, the National Credit Union Administration (NCUA) proposed to amend its regulation governing a federal credit union's (FCU's) incidental powers by adding illustrations of permissible activities under the categories of correspondent services, operational programs, and finder activities. 12 CFR Part 721 describes the incidental powers an FCU may exercise under the incidental powers authority in the Federal Credit Union Act (Act), which provides an FCU may ‘‘exercise such incidental powers as shall be necessary or requisite to enable it to carry on effectively the business for which it was incorporated.’’ The proposed amendments aim to clarify and update the illustrations regarding permissible activities. Comments regarding the proposed amendments must be received on or before July 28, 2008. For a more information regarding the proposed amendments and a copy of the proposed amendments, please see http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/Proposed%20Rule.pdf.
Federal Agencies Release 2008 List of Distressed or Underserved Tract List. On May 30, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision jointly released the 2008 list of distressed or underserved nonmetropolitan middle-income geographies. The geographies on the list can be considered by the federal agencies in question for community development activity assistance available under the Community Reinvestment Act. For more information regarding the Community Reinvestment Act, please see http://www.ffiec.gov/cra/.
Bank’s Loan Claim Excluded from Bankruptcy Discharge Plan Despite Borrower Stated Income Misrepresentations. On May 28, a U.S. Bankruptcy Court for the Northern District of California held that a bank’s home equity line of credit (HELOC) claim should be excluded from the debtors’ Chapter 7 discharge plan, even though the debtors intentionally misrepresented their income on the loan applications, because the bank could not have reasonably relied on the debtors’ misrepresentations. In re Hill, No. 07-41137 (Bankr. N.D. Calif. May 28, 2008). In this case, which the judge called “a poster child for some of the practices that have led to the current crisis in our housing market,” the debtors obtained a HELOC of $200,000 from National City Bank through a mortgage broker in April 2006. On the application for this loan, the debtors stated their annual income as $145,716. In October 2006, the debtors applied directly to National City to increase their HELOC limit to $250,000. On this application, the debtors stated their income as $190,800. In reality, the debtors’ income never exceeded $65,000. At the foreclosure sale in April 2007, the first-lien creditor purchased the property. The court found that the debtors, “while not highly educated, were not unsophisticated” and “knew they were responsible for supplying accurate information to a lender concerning their financial condition.” However, when National City sued to include its HELOC claim in the debtors’ discharge plan, claiming that the debt should not be discharged because (i) the debtors lied about their income and (ii) National City relied upon these misrepresentations, the court agreed that that the debtors had knowingly misrepresented their incomes, but it held that either the bank did not rely on these income representations, or its reliance was not reasonable based on an objective standard. The court stated that it is “highly questionable whether the industry standards” for stated-income loans, upon which National City relied, “were objectively reasonable.” Further, the court noted that the bank ignored a “red flag” established by the variation in the income set forth on the April loan application as compared to the income set forth on the October loan application, which “should have called for more investigation concerning the accuracy of the income figures.” For a copy of the opinion, please http://www.buckleykolar.com/documents/HillvNationalCityBank.pdf.
FRB and FTC Issue a Correction to Their Risk-Based Pricing Proposal. The Federal Reserve Board and the Federal Trade Commission corrected the model forms for the alternative credit-score disclosure for non-mortgage credit, which creditors may use to comply with the requirements of its proposed rules pursuant to the risk-based pricing provisions in section 311 of the Fair and Accurate Credit Transactions Act. When the proposal was published, the model forms included space for the key factors that adversely affected the credit score, which the proposed rule does not require for non-mortgage credit. The deadline for filing comments remains August 18, 2008. The correction is available at http://edocket.access.gpo.gov/2008/pdf/E8-11961.pdf.
Court Rules FACTA Truncation Does Not Apply to Receipts Sent Via Email. On May 20, a U.S. District Court for the Southern District of Florida dismissed the plaintiff’s Fair and Accurate Credit Transaction Act (FACTA) credit card receipt truncation claim with prejudice. King v. Movietickets.com, Inc., 2008 WL 2127995, No. 07-22119-CIV (S.D.Fla. May 20, 2008). Mr. King brought the FACTA claim under 15 U.S.C. § 1681c(g), which provides that a person who accepts credit or debit cards for the transaction of business may not print more than the last 5 digits of the card number or the expiration date on receipt provided to the cardholder at the point of sale or transaction. FACTA further states that this section applies only to receipts that are electronically printed. Mr. King ordered movie tickets over the Internet and received a receipt of the transaction via email. In his complaint, Mr. King alleged that the defendant had “printed” a “receipt” in violation of FACTA, because the email contained more than 4 digits of the card number or the expiration date. In dismissing the complaint, the court noted that the email was printed by the plaintiff, not the defendant, as required by FACTA, and that no violation could be proven. For a copy of the opinion, please see http://www.buckleykolar.com/documents/KingvMovieticketscom.pdf.
IeRS Releases Rvenue Procedure Providing Guidance on Loan Modifications. On May 26, the Internal Revenue Service (IRS) released Revenue Procedure 2008-28 which describes conditions under which modifications of certain mortgage loans will not cause the IRS to challenge the tax status of certain securitization vehicles that hold the loan or assert that the modifications create a liability for a tax on a prohibited transaction. The revenue procedure will assist servicers and investors attempting to implement foreclosure prevention programs for subprime mortgages, and facilitate servicers that want to work with borrowers to modify loans in advance of default activity, whereas doing so will no longer be viewed as “active management” of the underlying pool of loans under the IRS rules regarding Real Estate Mortgage Investment Conduits (REMICs). The guidance governs determinations made by the IRS on or after May 16, 2008 with respect to loan modifications effected on or before December 31, 2010. For a copy of Revenue Procedure 2008-28, please see http://www.irs.gov/pub/irs-drop/rp-08-28.pdf .
IOSCO Amends Code of Conduct for Credit Rating Agencies. On May 28, the International Organization of Securities Commissions (IOSCO) amended its Code of Conduct for credit rating agencies (CRAs) in response to the activities of CRAs in the market for structured finance products. Amongst other changes, the amendments to the Code of Conduct recommend that CRAs: (i) prohibit analysts from making proposals or recommendations regarding the design of structured finance products that the CRA rates, (ii) differentiate ratings of structured finance products, such as mortgage backed securities, from other ratings, preferably through different rating symbols, (iii) disclose whether any one issuer, originator, arranger, subscriber or other client and its affiliates make up more than 10 percent of the CRA’s annual revenue, and, (iv) discourage “ratings shopping,” by disclosing in their rating announcements whether the issuer of a structured finance product has informed it that it is publicly disclosing all relevant information about the product being rated. The Code of Conduct is not binding on the U.S. operations of CRAs. For a copy of the amended Code of Conduct, please see http://www.iosco.org/library/pubdocs/pdf/IOSCOPD271.pdf .
Bank’s Loan Claim Excluded from Bankruptcy Discharge Plan Despite Borrower Stated Income Misrepresentations. On May 28, a U.S. Bankruptcy Court for the Northern District of California held that a bank’s home equity line of credit (HELOC) claim should be excluded from the debtors’ Chapter 7 discharge plan, even though the debtors intentionally misrepresented their income on the loan applications, because the bank could not have reasonably relied on the debtors’ misrepresentations. In re Hill, No. 07-41137 (Bankr. N.D. Calif. May 28, 2008). In this case, which the judge called “a poster child for some of the practices that have led to the current crisis in our housing market,” the debtors obtained a HELOC of $200,000 from National City Bank through a mortgage broker in April 2006. On the application for this loan, the debtors stated their annual income as $145,716. In October 2006, the debtors applied directly to National City to increase their HELOC limit to $250,000. On this application, the debtors stated their income as $190,800. In reality, the debtors’ income never exceeded $65,000. At the foreclosure sale in April 2007, the first-lien creditor purchased the property. The court found that the debtors, “while not highly educated, were not unsophisticated” and “knew they were responsible for supplying accurate information to a lender concerning their financial condition.” However, when National City sued to include its HELOC claim in the debtors’ discharge plan, claiming that the debt should not be discharged because (i) the debtors lied about their income and (ii) National City relied upon these misrepresentations, the court agreed that that the debtors had knowingly misrepresented their incomes, but it held that either the bank did not rely on these income representations, or its reliance was not reasonable based on an objective standard. The court stated that it is “highly questionable whether the industry standards” for stated-income loans, upon which National City relied, “were objectively reasonable.” Further, the court noted that the bank ignored a “red flag” established by the variation in the income set forth on the April loan application as compared to the income set forth on the October loan application, which “should have called for more investigation concerning the accuracy of the income figures.” For a copy of the opinion, please http://www.buckleykolar.com/documents/HillvNationalCityBank.pdf.
Court Rules That MERS Registration Fee Does Not Violate RESPA. On May 16, a U.S. District Court for the Southern District of Texas ruled that the fee paid to register mortgages electronically on the MERS® System does not violate either the kickback or fee splitting prohibitions of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. 2601 et seq. In re Merscorp, Inc., MDL Docket No. 1810 (S.D. Tex. May 16, 2008). The court therefore dismissed potential class actions alleging such violations brought by mortgage borrowers in several states, which had been consolidated before the court by the Judicial Panel on Multidistrict Litigation. Established in 1997 by the Mortgage Bankers Association with the support of various federal and state agencies, the MERS System allows a participating mortgage lender or servicer to designate Mortgage Electronic Registration Systems, Inc. (MERS) as its nominee on county land records in return for a small registration fee (currently $4.95). The MERS System then tracks subsequent sales of the mortgage loan and associated servicing rights, thereby relieving lenders and servicers of the burden of re-recording mortgages following such sales. In this case, the mortgage borrowers argued that each registration fee was a kickback to MERS and its affiliates for their help in avoiding local recording fees and, consequently, a violation of Section 8(a) of RESPA, 12 U.S.C. § 2607(a). The court rejected this argument, holding that the mortgage tracking services performed by the MERS System made each registration fee a permissible payment under RESPA for “services actually performed.” See 12 U.S.C. § 2607(c)(2). The mortgage borrowers also argued that each registration fee, which was passed onto them for payment, violated the prohibition in Section 8(b) of RESPA against splitting real estate settlement fees with those who do not earn them “for services actually performed.” See 12 U.S.C. § 2607(b). Specifically, the borrowers argued that MERS and its affiliates did not earn the registration fee for actual services within the meaning of Section 8(b) because the party that paid for the services, the borrower, did not benefit from them. The court rejected this argument as well, holding that Section 8(b) requires only that services must actually be performed in return for a fee and “does not dictate which party to the loan transaction must pay for which settlement service.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/InreMerscorpInc.pdf.
Court Rules FACTA Truncation Does Not Apply to Receipts Sent Via Email. On May 20, a U.S. District Court for the Southern District of Florida dismissed the plaintiff’s Fair and Accurate Credit Transaction Act (FACTA) credit card receipt truncation claim with prejudice. King v. Movietickets.com, Inc., 2008 WL 2127995, No. 07-22119-CIV (S.D.Fla. May 20, 2008). Mr. King brought the FACTA claim under 15 U.S.C. § 1681c(g), which provides that a person who accepts credit or debit cards for the transaction of business may not print more than the last 5 digits of the card number or the expiration date on receipt provided to the cardholder at the point of sale or transaction. FACTA further states that this section applies only to receipts that are electronically printed. Mr. King ordered movie tickets over the Internet and received a receipt of the transaction via email. In his complaint, Mr. King alleged that the defendant had “printed” a “receipt” in violation of FACTA, because the email contained more than 4 digits of the card number or the expiration date. In dismissing the complaint, the court noted that the email was printed by the plaintiff, not the defendant, as required by FACTA, and that no violation could be proven. For a copy of the opinion, please see http://www.buckleykolar.com/documents/KingvMovieticketscom.pdf.
Kentucky Supreme Court Holds Lender’s Conduct Did Not Amount To Waiver of Arbitration Rights. On May 22, the Supreme Court of Kentucky held that a company’s actions in litigation did not produce an implied waiver of its arbitration rights. American General Home Equity, Inc. v. Kestel, No. 2006-SC-000830-DG (Ky. May 22, 2008). This case arises from a foreclosure action by American General Home Equity (American General) against the borrowers, who defaulted on their mortgage. About nine months after the borrowers filed counterclaims alleging violations of state and federal consumer protection laws, American General filed a motion to compel arbitration. After contrary holdings in the trial and appellate courts, the Kentucky Supreme Court reviewed the issue of whether American General waived its arbitration rights by (i) failing to move for arbitration for nine months; and (ii) defending motions filed in circuit court by the borrowers after the borrowers were on notice of the possibility of arbitration. Using a standard previously set forth by the Court of Appeals, the Court focused on whether American General’s conduct was “so inconsistent with asserting arbitration rights that a waiver of such rights should be implied.” The Court found that, although American General’s actions “[did] not demonstrate a prompt and decisive invocation of arbitration rights,” because American General consistently informed the borrowers that arbitration was a possibility, and because American General was merely defending motions and not filing affirmative motions against the borrowers, it did not act inconsistently with the intent to assert arbitration rights. For a copy of the opinion, please see http://www.buckleykolar.com/documents/AGHEvKestel.pdf.
Court Rules That MERS Registration Fee Does Not Violate RESPA. On May 16, a U.S. District Court for the Southern District of Texas ruled that the fee paid to register mortgages electronically on the MERS® System does not violate either the kickback or fee splitting prohibitions of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. 2601 et seq. In re Merscorp, Inc., MDL Docket No. 1810 (S.D. Tex. May 16, 2008). The court therefore dismissed potential class actions alleging such violations brought by mortgage borrowers in several states, which had been consolidated before the court by the Judicial Panel on Multidistrict Litigation. Established in 1997 by the Mortgage Bankers Association with the support of various federal and state agencies, the MERS System allows a participating mortgage lender or servicer to designate Mortgage Electronic Registration Systems, Inc. (MERS) as its nominee on county land records in return for a small registration fee (currently $4.95). The MERS System then tracks subsequent sales of the mortgage loan and associated servicing rights, thereby relieving lenders and servicers of the burden of re-recording mortgages following such sales. In this case, the mortgage borrowers argued that each registration fee was a kickback to MERS and its affiliates for their help in avoiding local recording fees and, consequently, a violation of Section 8(a) of RESPA, 12 U.S.C. § 2607(a). The court rejected this argument, holding that the mortgage tracking services performed by the MERS System made each registration fee a permissible payment under RESPA for “services actually performed.” See 12 U.S.C. § 2607(c)(2). The mortgage borrowers also argued that each registration fee, which was passed onto them for payment, violated the prohibition in Section 8(b) of RESPA against splitting real estate settlement fees with those who do not earn them “for services actually performed.” See 12 U.S.C. § 2607(b). Specifically, the borrowers argued that MERS and its affiliates did not earn the registration fee for actual services within the meaning of Section 8(b) because the party that paid for the services, the borrower, did not benefit from them. The court rejected this argument as well, holding that Section 8(b) requires only that services must actually be performed in return for a fee and “does not dictate which party to the loan transaction must pay for which settlement service.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/InreMerscorpInc.pdf.
Court Rules FACTA Truncation Does Not Apply to Receipts Sent Via Email. On May 20, a U.S. District Court for the Southern District of Florida dismissed the plaintiff’s Fair and Accurate Credit Transaction Act (FACTA) credit card receipt truncation claim with prejudice. King v. Movietickets.com, Inc., 2008 WL 2127995, No. 07-22119-CIV (S.D.Fla. May 20, 2008). Mr. King brought the FACTA claim under 15 U.S.C. § 1681c(g), which provides that a person who accepts credit or debit cards for the transaction of business may not print more than the last 5 digits of the card number or the expiration date on receipt provided to the cardholder at the point of sale or transaction. FACTA further states that this section applies only to receipts that are electronically printed. Mr. King ordered movie tickets over the Internet and received a receipt of the transaction via email. In his complaint, Mr. King alleged that the defendant had “printed” a “receipt” in violation of FACTA, because the email contained more than 4 digits of the card number or the expiration date. In dismissing the complaint, the court noted that the email was printed by the plaintiff, not the defendant, as required by FACTA, and that no violation could be proven. For a copy of the opinion, please see http://www.buckleykolar.com/documents/KingvMovieticketscom.pdf.
Court Rules FACTA Truncation Does Not Apply to Receipts Sent Via Email. On May 20, a U.S. District Court for the Southern District of Florida dismissed the plaintiff’s Fair and Accurate Credit Transaction Act (FACTA) credit card receipt truncation claim with prejudice. King v. Movietickets.com, Inc., 2008 WL 2127995, No. 07-22119-CIV (S.D.Fla. May 20, 2008). Mr. King brought the FACTA claim under 15 U.S.C. § 1681c(g), which provides that a person who accepts credit or debit cards for the transaction of business may not print more than the last 5 digits of the card number or the expiration date on receipt provided to the cardholder at the point of sale or transaction. FACTA further states that this section applies only to receipts that are electronically printed. Mr. King ordered movie tickets over the Internet and received a receipt of the transaction via email. In his complaint, Mr. King alleged that the defendant had “printed” a “receipt” in violation of FACTA, because the email contained more than 4 digits of the card number or the expiration date. In dismissing the complaint, the court noted that the email was printed by the plaintiff, not the defendant, as required by FACTA, and that no violation could be proven. For a copy of the opinion, please see http://www.buckleykolar.com/documents/KingvMovieticketscom.pdf.
Court Rules FACTA Truncation Does Not Apply to Receipts Sent Via Email. On May 20, a U.S. District Court for the Southern District of Florida dismissed the plaintiff’s Fair and Accurate Credit Transaction Act (FACTA) credit card receipt truncation claim with prejudice. King v. Movietickets.com, Inc., 2008 WL 2127995, No. 07-22119-CIV (S.D.Fla. May 20, 2008). Mr. King brought the FACTA claim under 15 U.S.C. § 1681c(g), which provides that a person who accepts credit or debit cards for the transaction of business may not print more than the last 5 digits of the card number or the expiration date on receipt provided to the cardholder at the point of sale or transaction. FACTA further states that this section applies only to receipts that are electronically printed. Mr. King ordered movie tickets over the Internet and received a receipt of the transaction via email. In his complaint, Mr. King alleged that the defendant had “printed” a “receipt” in violation of FACTA, because the email contained more than 4 digits of the card number or the expiration date. In dismissing the complaint, the court noted that the email was printed by the plaintiff, not the defendant, as required by FACTA, and that no violation could be proven. For a copy of the opinion, please see http://www.buckleykolar.com/documents/KingvMovieticketscom.pdf.
© Buckley Kolar, LLP 2005. INFOBYTES is not intended as legal advice to any person or firm. It is provided as a client service and information contained herein is drawn from various public sources, including other publications.
We welcome reader comments and suggestions regarding issues or items of interest to be covered in future editions of InfoBytes. Email:
For back issues of INFOBYTES (or other Buckley Kolar LLP publications), visit http://www.buckleykolar.com/publications.
Copyright © 2008 Buckley Kolar LLP. All rights reserved