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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
DOJ Revises Policy on Corporate Privilege Waivers. On August 28, Deputy Attorney General Mark R. Filip announced, on behalf of the Department of Justice (DOJ), a revision to corporate charging guidelines that will preclude federal prosecutors from being able to provide leniency to corporations in exchange for the waiver of privileges to confidential information in criminal cases. Corporations will continue to receive due credit for the disclosure of “relevant facts.” The guidelines further (i) instruct prosecutors not to consider a corporation’s advancement of attorney’s fees to employees or participation in a joint defense agreement when evaluating cooperativeness, and (ii) disallow prosecutors from considering whether a corporation “has sanctioned, disciplined or retained culpable employees.” The revisions and policy changes, effective immediately, are binding for all federal prosecutors within the DOJ and will be published as part of the U.S. Attorney’s Manual. For a copy of the DOJ’s press release, please see http://www.usdoj.gov/opa/pr/2008/August/08-odag-757.html. For a copy of the guidelines, please see http://www.usdoj.gov/opa/documents/corp-charging-guidelines.pdf.
FHFA “Notice of Establishment” Sent to Federal Register. On September 4, the Federal Housing Finance Agency (FHFA) transmitted to the Federal Register a notice of the “Establishment of a New Independent Agency.” The notice provides formal public notice of the existence of the FHFA, its purpose, and the chapter of the Code of Federal Regulations, Title 12 CFR Chapter XII, that it will employ for public dissemination of regulations, guidance, and other publications. The Housing and Economic Recovery Act, effective July 30, 2008, created the FHFA, an independent agency of the Federal Government. FHFA has regulatory authority over Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. For a copy of the Federal Register Notice, please see http://www.ofheo.gov/media/notices/FHFANoticeofEstablishment.pdf.
Fed Issues Guidance on Exceptions for Banks As “Brokers” Under Regulation R. On August 29, the Federal Reserve Board issued guidance regarding exceptions for banks from the definition of “broker” under the Securities Exchange Act of 1934, as amended by the Gramm-Leach-Bliley Act and implemented by Regulation R. Regulation R creates several exceptions to the definition of “broker,” including, among others, (i) trust and fiduciary activities, (ii) de minimis number of accounts, (iii) money market funds, (iv) securities-lending, (v) investment company securities, and (vi) employee benefit plans. According to the guidance, if more than one broker exception or exemption is available to a bank under the statute or rules for a securities transaction, the bank may choose the exception upon which it relies. For a copy of the guidance, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20080829a1.pdf.
HUD Adopts Interim Rule Regarding HECMs. On September 4, the Federal Register published notice of a final rule amending the Department of Housing and Urban Development’s Home Equity Conversion Mortgage (HECM) program. The final rule extends the date for calculating a maximum HECM claim amount to the date of closing and allows for the eligibility of HECM loans that have been assigned pursuant to regulatory provisions and remain in effect, but that are not in default, to be refinanced with a discounted initial mortgage insurance premium. The effective date for the final rule is October 6, 2008. For a copy of the Federal Register notice, please see http://edocket.access.gpo.gov/2008/pdf/E8-20471.pdf.
FDIC Issues Best Practices on Low- and Moderate-Income Mortgage Lending. On September 4, the Federal Deposit Insurance Corporation issued a Financial Institution Letter (FIL-88-2008) discussing the best practices discussed at a forum on mortgage lending for low- and moderate-income (LMI) households. The best practices emphasize that the traditionally underwritten, 30-year fixed-rate mortgages are best for most LMI borrowers, and that all parties to a mortgage transaction should have a long-term stake in the outcome of the transaction. In order to revive the secondary market, the best practices outline methods of improving transparency. Also, the best practices discuss a variety of existing and proposed practices banks and others can use to increase the availability of LMI mortgage credit, including extending repayment schedules, expanding alternative underwriting processes for consumers with limited credit history, and creating innovative insurance products to address temporary income disruptions. The best practices also suggest greater public-private partnerships to increase responsible LMI mortgage lending. For a copy of this letter, please see http://www.fdic.gov/news/news/financial/2008/fil08088a.html.
STATE ISSUES
Delaware Passes Bill Requiring Mortgage Loan Originator Licensure. On August 21, Delaware Governor Ruth Ann Minner signed H.B. 508, a bill that creates a new licensing scheme for mortgage loan originators. The bill defines a mortgage loan originator as an employee or independent contractor of a licensee under Delaware law. The bill requires that loan originator licensees have at least 18 hours of education courses within the five years prior to licensure, or within one year following licensure. The bill also establishes continuing education requirements. Applicants may work as mortgage loan originators upon initial employment on a temporary basis until the person is either licensed or the application is denied. Applicants must submit a $250 investigation fee and a $250 annual license fee. H.B. 508 becomes effective on January 1, 2009. On the same day, Governor Minner signed H.B. 507, which increases the annual license fee for mortgage loan broker licensees from $250 to $500. For a copy of H.B. 507, please see http://www.buckleykolar.com/documents/DE-HB_507.pdf; for a copy of H.B. 508, please see http://www.buckleykolar.com/documents/DE-HB_508.pdf.
California Revises Mortgage Loan Disclosure Statements. Effective August 15, the California Department of Real Estate modified all three versions (RE 882, RE 883, and RE 885) of the California Mortgage Loan Disclosure Statement. Each disclosure statement is available on the Department’s web site with an accompanying information sheet containing instructions for completion of the revised forms. For a copy of RE 882, please see http://www.dre.ca.gov/pdf_docs/forms/re882.pdf; for a copy of RE 883, please see http://www.dre.ca.gov/pdf_docs/forms/re883.pdf; for a copy of RE 885, please see http://www.dre.ca.gov/pdf_docs/forms/re885.pdf.
Delaware Passes Act Providing Foreclosure Protection for Homeowners. On August 21, Delaware Governor Ruth Ann Minner signed S.B. 252, the “Delaware Mortgage Rescue Fraud Protection Act.” The bill’s purpose is to protect homeowners from unfair or deceptive practices, such as foreclosure rescue schemes that deplete the homeowner’s equity, by foreclosure consultants or through foreclosure reconveyance agreements. The bill defines, among other terms, “foreclosure consultants” and “foreclosure reconveyance agreements,” as well as details requirements and restrictions on contracts qualifying as “foreclosure consulting contracts.” The bill also summarizes exemptions, prohibited activities, and available remedies and penalties. The bill is effective as of January 1, 2009. For more information on the bill, including the text of the bill, please see http://legis.delaware.gov/LIS/LIS144.NSF/vwLegislation/SB+252?Opendocument.
Illinois Makes Loan Servicer Questionnaires Available Online. The Illinois Department of Financial and Professional Regulation, Division of Banking has made available on its website two Loan Servicer Questionnaire Report forms. The reports pertain to first- and subordinate-lien Illinois loans for the periods of July through December 2007 and January through June 2008. The reports are due by September 30, 2008. Please see http://www.obre.state.il.us/RESFIN/Servicers/ServicerQuestionniare2007P2.pdf for the July - December 2007 questionnaire and http://www.obre.state.il.us/RESFIN/Servicers/ServicerQuestionniare2008P1.pdf for the January - June 2008 questionnaire.
Kentucky Posts Notice Regarding Homeownership Protection Center Disclosure. Recently, the Kentucky Department of Financial Institutions posted a notice on its website reminding mortgagees that the "Notification to New Homeowners of the Kentucky Homeownership Protection Center" document must be provided to all Kentucky borrowers at the time of closing and with the final signed loan documents as of January 1, 2009. The requirement is part of H.B. 552 (as reported in InfoBytes, April 25, 2008), a bill signed by Kentucky Governor Steve Beshear on April 24, 2008. The document makes borrowers aware of the Kentucky Homeownership Protection Center, which provides free counseling to Kentucky homeowners in default or facing default (reported in InfoBytes, August 16, 2008). For a copy of the press release regarding the notification requirement, please see http://www.kfi.ky.gov/industryinformation/khpc.htm. For a copy of the notification form, please see http://www.kfi.ky.gov/NR/rdonlyres/D4CB8A79-4775-4D7F-9B74-27E00AF84830/0/notificationofKYHomeownershipProtectionCenter.pdf.
Georgia Adopts Final Regulations Regarding Books and Records, Interest-Only Loans. On August 4, the Georgia Department of Banking and Finance adopted final regulations that, in part, amend books and records requirements for licensees. A rule now requires the maintenance of employee information, including date of hire, a criminal background check, and the date the regulator’s website was reviewed to verify eligibility for employment. A separate rule eliminates an interest-only amortization provision pertaining to interest-only loans for single-family owner-occupied residential loans. The adopted rules became effective August 25, 2008. For a copy of the notice of the final rulemaking, including the text of the adopted rules, please see http://dbf.georgia.gov/vgn/images/portal/cit_1210/60/38/119085108FinalRules8-4-2008.pdf.
COURTS
Ninth Circuit Reinstates Parts of California Affiliate-Sharing Provision. On September 4, the U.S. Court of Appeals for the Ninth Circuit again reversed a decision of the U.S. District Court for the Eastern District of California in American Bankers Ass’n v. Lockyer, No. 05-17163 (9th Cir. Sept. 4, 2008), a case involving the affiliate information sharing provisions of California’s S.B. 1, also known as the California Financial Information Privacy Act (codified at Cal. Fin. Code §§4050-60). This is the second trip that this case has made to a panel of the Ninth Circuit. In the current decision, the Court of Appeals rejected the district court’s holding, on remand from the first Ninth Circuit opinion, that the Fair Credit Reporting Act (FCRA) completely preempts California’s restrictions on the sharing of information among affiliated entities. (For a discussion of the first decision, please see InfoBytes Special Alert for June 22, 2005.) A FCRA provision, 15 U.S.C. §1681t(b)(2), preempts any “requirement or prohibition ... imposed under the laws of any State ... with respect to the exchange of information among persons affiliated by common ownership or common corporate control.” In the first opinion, the court of appeals held that this provision applies only to information that either is a “consumer report,” or would be a consumer report but for the fact that it is “transaction/experience information” under FCRA, and remanded to the district court the question whether any portion of the affiliate information-sharing limitations of S.B. 1 would survive this limited preemption, and if so, whether those provisions would be severable from the portions that did not survive preemption. On remand, the district court held that the non-preempted provisions were not severable, so that the entire California provision was preempted (reported in InfoBytes for October 7, 2005). In the current decision, the majority concluded that the California legislature would have preferred a narrowed affiliate-sharing provision to none at all, and held that the portions of S.B.1 that do not apply to “consumer report” information are not preempted. The dissenting judge agreed that FCRA does not completely preempt the California law but argued that the federal court should have left reinterpreting the statute to the legislature. For a copy of the opinion, please see http://www.ca9.uscourts.gov/ca9/newopinions.nsf/755A3A44760A8488882574BA004A9883/$file/0517163.pdf.
Fifth Circuit Holds that “Proof of Claim” Assertion Does Not Violate Automatic Stay. On August 26, the U.S. Court of Appeals for the Fifth Circuit held that a creditor’s “Proof of Claim” assertion for pre-petition bankruptcy debt does not violate the automatic stay in bankruptcy proceedings. Campbell v. Countrywide Home Loans, Inc., No. 07-20499 (5th Cir. Aug. 26, 2008). In this case, the plaintiffs alleged that the defendant creditor violated the automatic stay, which operates to halt collection of pre-petition claims, in their Chapter 13 bankruptcy proceeding by submitting a “Proof of Claim” for pre-petition insurance and property taxes that were to be maintained in escrow by the defendant until due. To establish an actionable violation of the automatic stay, a plaintiff must establish that (i) the defendant knew of the existence of the stay, (ii) the defendant’s actions were willful, and (ii) the defendant’s actions violated the automatic stay. The defendant did not dispute that the defendant knew of the existence of the stay and that it acted willfully when asserting the right to pre-petition escrow payments. The court held that the defendant did not violate the automatic stay, citing to In re Sammon, 253 B.R. 672, 681 (Bankr. D.S.C. 2000), when reasoning that the automatic stay serves to protect the bankruptcy estate from actions taken by creditors outside the bankruptcy court forum, not from legal actions taken within the bankruptcy court. Further citing In re Sammon, the court noted that the filing of a Proof of Claim before a bankruptcy court is the logical equivalent of a request for relief from the automatic stay, which itself cannot constitute a violation of the stay. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Campbell_v_Contrywide.pdf.
Eighth Circuit Finds §§ 85 and 86 of National Bank Act Do Not Apply to State-Chartered Bank. The U.S. Court of Appeals for the Eighth Circuit dismissed a class action brought against the Exchange Bank of Gibbon by bank customers and persons the bank had sued, finding that the sections of the National Bank Act (NBA) upon which the plaintiffs relied do not apply to a state-chartered bank, and that funds derived from alleged fraudulent activity did not constitute “interest” under the Depository Institutions Deregulation and Monetary Control Act (DIDMCA). Mamot Feed Lot and Trucking v. Hobson, No. 07-3129 (8th Cir. Aug. 26, 2008). In this case, the plaintiffs brought their case against the bank, its holding company, and various shareholders, officers, and employees of the bank following the criminal indictment of the bank’s president for defrauding the bank of nearly $1 million. They alleged federal usury and anti-tying claims, relying on §§ 85 and 86 of the NBA and § 1831d of DIDMCA. All defendants (except the bank’s president) filed a joint motion to dismiss for want of jurisdiction as to the NBA claim and for failure to state a claim on the remaining claims. The court found that §§ 85 and 86 of the NBA apply only to “associations,” referring to national banking associations and not to state-chartered banks. It further found that the amended complaint’s broad allegation that the defendants received compensation from the bank president’s fraudulent acts failed to state a claim under DIDMCA because “interest” does not include misallocation and theft of collateral and loan payments. In addition, the court dismissed the anti-tying claim for failure to allege any facts to support this claim. For a copy of the opinion, please see http://www.ca8.uscourts.gov/opndir/08/08/073129P.pdf.
New York Federal Court Dismisses Borrower Lawsuit Against IndyMac. On August 25, the U.S. District Court for the Southern District of New York dismissed a lawsuit brought against IndyMac Bancorp, Inc. and the Federal Deposit Insurance Corporation (as receiver for IndyMac Bank, F.S.B.) alleging violations of the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), and state law. Cedeno v. IndyMac Bancorp, Inc., No. 06 Civ. 6438, 2008 U.S. Dist. LEXIS 65337 (S.D.N.Y. Aug. 25, 2008). In this case, the plaintiff obtained an $80,000 line of credit from IndyMac, secured by her property, and was charged a $500 property appraisal fee. The parties agreed that the cost of the appraisal was accurately and plainly disclosed by IndyMac. The plaintiff alleged that appraisers selected by IndyMac inflated the appraisal price and, as a result, she was charged higher closing and financing costs and was misled as to the true equity in her home.The court did not agree with the plaintiff’s assertion that IndyMac violated RESPA’s “anti-kickback” provision, reasoning that the payment for the appraisal services performed triggered RESPA’s “safe harbor” provision. The court also determined that the plaintiff failed to state a claim under TILA, reasoning that “TILA is directed to requiring that the cost of the service be set out, not to regulating the quality of service,” and that IndyMac properly disclosed the cost of the appraisal. Finally, the court held that the plaintiff’s state-law claims were preempted because, under the Home Owner’s Loan Act, the Office of Thrift Supervision has principal responsibility for regulating federally chartered savings associations like IndyMac. The court reasoned that finding in the plaintiff’s favor would amount to direct regulation of appraisal practices. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Cedeno_v_Indymac.pdf.
SEC Files Securities Fraud Charges Regarding Subprime-Related Auction Rate Securities. On September 3, the Securities and Exchange Commission (SEC) charged two Wall Street brokers with securities fraud regarding over $1 billion in unauthorized purchases of subprime-related auction rate securities. The charges arise under Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and SEC Rule 10b-5. The SEC’s complaint alleges that the brokers represented auction rate securities sold to customers as being collateralized by federally guaranteed student loans when they were actually collateralized by, in part, subprime mortgages. For a copy of the SEC’s compliant, please see http://www.sec.gov/litigation/complaints/2008/comp20698.pdf.
FIRM NEWS
Margo Tank will be a featured speaker at the New York State Bar Association’s Business Law Fall Meeting on September 12 in Newport, Rhode Island. Ms. Tank’s presentation will be entitled “Electronic Signatures – What Does a Business Lawyer Need to Know?” Click here for additional information on this meeting.
Jeff Naimon will be facilitating the Mortgage Bankers Association’s Regulatory Compliance ConferenceRoundtable entitled “Miscellaneous Regulatory Concerns: RESPA and TILA Issues (including Right of Rescission)” on September 15 in Washington, D.C.
Jeff Naimon will be moderating the panel entitled “Ensuring Your Practices Keep Pace with Emerging Legislative and Regulatory Initiatives” panel at the American Conference Institute’s 5th National Forum on Preventing, Detecting And Resolving Mortgage Fraud on September 23. The conference will be taking place in Phoenix, Arizona on September 23 and 24 and will be co-chaired by Bill Heller of Akerman Senterfitt. For a copy of the conference brochure, please see http://www.buckleykolar.com/documents/ACI_Fraud_Conference_Brochure.pdf.
Margo Tank will be featured in a panel discussion on eLegal Issues at the Mortgage Bankers Association’s Document Management & Custody Conference entitled “Setting the Pace” on September 23 in Charlotte, North Carolina. This conference is tailored for both new and experienced document custodians, as well as anyone who may be involved in any aspect of the post-closing process, loan delivery, document control and/or servicing issues. Click here for additional information on this conference.
John Kromer participated in the “Industry Issues” panel at the American Association of Residential Mortgage Regulators’ annual meeting in Minneapolis, Minnesota on August 19-22.
Jon Jerison was the featured speaker of a Pratt audio conference entitled “Between a Rock and a Hard Place: Managing HELOCs in the Current Environment” on August 26.
Jeff Naimon participated in the American Bankers Association Telephone Briefing entitled “Is Your Bank Ready for Regulation Z?” on September 3, discussing the Federal Reserve Board’s recently adopted HOEPA rule.
MISCELLANY
GMAC to Close All Mortgage Retail Offices. On September 3, GMAC Financial Services and its subsidiary Residential Capital, LLC announced the details of a September 2 plan that includes the closing of all 200 GMAC Mortgage retail offices. The plan also calls for ceasing originations through its Homecomings wholesale broker channel, as well as additional efforts to streamline its operations. For a copy of the press release, please see http://media.gmacfs.com/index.php?s=43&item=273.
Fifth Circuit Holds that “Proof of Claim” Assertion Does Not Violate Automatic Stay. On August 26, the U.S. Court of Appeals for the Fifth Circuit held that a creditor’s “Proof of Claim” assertion for pre-petition bankruptcy debt does not violate the automatic stay in bankruptcy proceedings. Campbell v. Countrywide Home Loans, Inc., No. 07-20499 (5th Cir. Aug. 26, 2008). In this case, the plaintiffs alleged that the defendant creditor violated the automatic stay, which operates to halt collection of pre-petition claims, in their Chapter 13 bankruptcy proceeding by submitting a “Proof of Claim” for pre-petition insurance and property taxes that were to be maintained in escrow by the defendant until due. To establish an actionable violation of the automatic stay, a plaintiff must establish that (i) the defendant knew of the existence of the stay, (ii) the defendant’s actions were willful, and (iii) the defendant’s actions violated the automatic stay. The defendant did not dispute that the defendant knew of the existence of the stay and that it acted willfully when asserting the right to pre-petition escrow payments. The court held that the defendant did not violate the automatic stay, citing to In re Sammon, 253 B.R. 672, 681 (Bankr. D.S.C. 2000), when reasoning that the automatic stay serves to protect the bankruptcy estate from actions taken by creditors outside the bankruptcy court forum, not from legal actions taken within the bankruptcy court. Further citing In re Sammon, the court noted that the filing of a Proof of Claim before a bankruptcy court is the logical equivalent of a request for relief from the automatic stay, which itself cannot constitute a violation of the stay. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Campbell_v_Contrywide.pdf.
New York Federal Court Dismisses Borrower Lawsuit Against IndyMac. On August 25, the U.S. District Court for the Southern District of New York dismissed a lawsuit brought against IndyMac Bancorp, Inc. and the Federal Deposit Insurance Corporation (as receiver for IndyMac Bank, F.S.B.) alleging violations of the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), and state law. Cedeno v. IndyMac Bancorp, Inc., No. 06 Civ. 6438, 2008 U.S. Dist. LEXIS 65337 (S.D.N.Y. Aug. 25, 2008). In this case, the plaintiff obtained an $80,000 line of credit from IndyMac, secured by her property, and was charged a $500 property appraisal fee. The parties agreed that the cost of the appraisal was accurately and plainly disclosed by IndyMac. The plaintiff alleged that appraisers selected by IndyMac inflated the appraisal price and, as a result, she was charged higher closing and financing costs and was misled as to the true equity in her home.The court did not agree with the plaintiff’s assertion that IndyMac violated RESPA’s “anti-kickback” provision, reasoning that the payment for the appraisal services performed triggered RESPA’s “safe harbor” provision. The court also determined that the plaintiff failed to state a claim under TILA, reasoning that “TILA is directed to requiring that the cost of the service be set out, not to regulating the quality of service,” and that IndyMac properly disclosed the cost of the appraisal. Finally, the court held that the plaintiff’s state-law claims were preempted because, under the Home Owner’s Loan Act, the Office of Thrift Supervision has principal responsibility for regulating federally chartered savings associations like IndyMac. The court reasoned that finding in the plaintiff’s favor would amount to direct regulation of appraisal practices. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Cedeno_v_Indymac.pdf.
FHFA “Notice of Establishment” Sent to Federal Register. On September 4, the Federal Housing Finance Agency (FHFA) transmitted to the Federal Register a notice of the “Establishment of a New Independent Agency.” The notice provides formal public notice of the existence of the FHFA, its purpose, and the chapter of the Code of Federal Regulations, Title 12 CFR Chapter XII, that it will employ for public dissemination of regulations, guidance, and other publications. The Housing and Economic Recovery Act, effective July 30, 2008, created the FHFA, an independent agency of the Federal Government. FHFA has regulatory authority over Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. For a copy of the Federal Register Notice, please see http://www.ofheo.gov/media/notices/FHFANoticeofEstablishment.pdf.
HUD Adopts Interim Rule Regarding HECMs. On September 4, the Federal Register published notice of a final rule amending the Department of Housing and Urban Development’s Home Equity Conversion Mortgage (HECM) program. The final rule extends the date for calculating a maximum HECM claim amount to the date of closing and allows for the eligibility of HECM loans that have been assigned pursuant to regulatory provisions and remain in effect, but that are not in default, to be refinanced with a discounted initial mortgage insurance premium. The effective date for the final rule is October 6, 2008. For a copy of the Federal Register notice, please see http://edocket.access.gpo.gov/2008/pdf/E8-20471.pdf.
FDIC Issues Best Practices on Low- and Moderate-Income Mortgage Lending. On September 4, the Federal Deposit Insurance Corporation issued a Financial Institution Letter (FIL-88-2008) discussing the best practices discussed at a forum on mortgage lending for low- and moderate-income (LMI) households. The best practices emphasize that the traditionally underwritten, 30-year fixed-rate mortgages are best for most LMI borrowers, and that all parties to a mortgage transaction should have a long-term stake in the outcome of the transaction. In order to revive the secondary market, the best practices outline methods of improving transparency. Also, the best practices discuss a variety of existing and proposed practices banks and others can use to increase the availability of LMI mortgage credit, including extending repayment schedules, expanding alternative underwriting processes for consumers with limited credit history, and creating innovative insurance products to address temporary income disruptions. The best practices also suggest greater public-private partnerships to increase responsible LMI mortgage lending. For a copy of this letter, please see http://www.fdic.gov/news/news/financial/2008/fil08088a.html.
Delaware Passes Bill Requiring Mortgage Loan Originator Licensure. On August 21, Delaware Governor Ruth Ann Minner signed H.B. 508, a bill that creates a new licensing scheme for mortgage loan originators. The bill defines a mortgage loan originator as an employee or independent contractor of a licensee under Delaware law. The bill requires that loan originator licensees have at least 18 hours of education courses within the five years prior to licensure, or within one year following licensure. The bill also establishes continuing education requirements. Applicants may work as mortgage loan originators upon initial employment on a temporary basis until the person is either licensed or the application is denied. Applicants must submit a $250 investigation fee and a $250 annual license fee. H.B. 508 becomes effective on January 1, 2009. On the same day, Governor Minner signed H.B. 507, which increases the annual license fee for mortgage loan broker licensees from $250 to $500. For a copy of H.B. 507, please see http://www.buckleykolar.com/documents/DE-HB_507.pdf; for a copy of H.B. 508, please see http://www.buckleykolar.com/documents/DE-HB_508.pdf.
California Revises Mortgage Loan Disclosure Statements. Effective August 15, the California Department of Real Estate modified all three versions (RE 882, RE 883, and RE 885) of the California Mortgage Loan Disclosure Statement. Each disclosure statement is available on the Department’s web site with an accompanying information sheet containing instructions for completion of the revised forms. For a copy of RE 882, please see http://www.dre.ca.gov/pdf_docs/forms/re882.pdf; for a copy of RE 883, please see http://www.dre.ca.gov/pdf_docs/forms/re883.pdf; for a copy of RE 885, please see http://www.dre.ca.gov/pdf_docs/forms/re885.pdf.
Delaware Passes Act Providing Foreclosure Protection for Homeowners. On August 21, Delaware Governor Ruth Ann Minner signed S.B. 252, the “Delaware Mortgage Rescue Fraud Protection Act.” The bill’s purpose is to protect homeowners from unfair or deceptive practices, such as foreclosure rescue schemes that deplete the homeowner’s equity, by foreclosure consultants or through foreclosure reconveyance agreements. The bill defines, among other terms, “foreclosure consultants” and “foreclosure reconveyance agreements,” as well as details requirements and restrictions on contracts qualifying as “foreclosure consulting contracts.” The bill also summarizes exemptions, prohibited activities, and available remedies and penalties. The bill is effective as of January 1, 2009. For more information on the bill, including the text of the bill, please see http://legis.delaware.gov/LIS/LIS144.NSF/vwLegislation/SB+252?Opendocument.
Illinois Makes Loan Servicer Questionnaires Available Online. The Illinois Department of Financial and Professional Regulation, Division of Banking has made available on its website two Loan Servicer Questionnaire Report forms. The reports pertain to first- and subordinate-lien Illinois loans for the periods of July through December 2007 and January through June 2008. The reports are due by September 30, 2008. Please see http://www.obre.state.il.us/RESFIN/Servicers/ServicerQuestionniare2007P2.pdf for the July - December 2007 questionnaire and http://www.obre.state.il.us/RESFIN/Servicers/ServicerQuestionniare2008P1.pdf for the January - June 2008 questionnaire.
Kentucky Posts Notice Regarding Homeownership Protection Center Disclosure. Recently, the Kentucky Department of Financial Institutions posted a notice on its website reminding mortgagees that the "Notification to New Homeowners of the Kentucky Homeownership Protection Center" document must be provided to all Kentucky borrowers at the time of closing and with the final signed loan documents as of January 1, 2009. The requirement is part of H.B. 552 (as reported in InfoBytes, April 25, 2008), a bill signed by Kentucky Governor Steve Beshear on April 24, 2008. The document makes borrowers aware of the Kentucky Homeownership Protection Center, which provides free counseling to Kentucky homeowners in default or facing default (reported in InfoBytes, August 16, 2008). For a copy of the press release regarding the notification requirement, please see http://www.kfi.ky.gov/industryinformation/khpc.htm. For a copy of the notification form, please see http://www.kfi.ky.gov/NR/rdonlyres/D4CB8A79-4775-4D7F-9B74-27E00AF84830/0/notificationofKYHomeownershipProtectionCenter.pdf.
Georgia Adopts Final Regulations Regarding Books and Records, Interest-Only Loans. On August 4, the Georgia Department of Banking and Finance adopted final regulations that, in part, amend books and records requirements for licensees. A rule now requires the maintenance of employee information, including date of hire, a criminal background check, and the date the regulator’s website was reviewed to verify eligibility for employment. A separate rule eliminates an interest-only amortization provision pertaining to interest-only loans for single-family owner-occupied residential loans. The adopted rules became effective August 25, 2008. For a copy of the notice of the final rulemaking, including the text of the adopted rules, please see http://dbf.georgia.gov/vgn/images/portal/cit_1210/60/38/119085108FinalRules8-4-2008.pdf.
GMAC to Close All Mortgage Retail Offices. On September 3, GMAC Financial Services and its subsidiary Residential Capital, LLC announced the details of a September 2 plan that includes the closing of all 200 GMAC Mortgage retail offices. The plan also calls for ceasing originations through its Homecomings wholesale broker channel, as well as additional efforts to streamline its operations. For a copy of the press release, please see http://media.gmacfs.com/index.php?s=43&item=273.
Eighth Circuit Finds §§ 85 and 86 of National Bank Act Do Not Apply to State-Chartered Bank. The U.S. Court of Appeals for the Eighth Circuit dismissed a class action brought against the Exchange Bank of Gibbon by bank customers and persons the bank had sued, finding that the sections of the National Bank Act (NBA) upon which the plaintiffs relied do not apply to a state-chartered bank, and that funds derived from alleged fraudulent activity did not constitute “interest” under the Depository Institutions Deregulation and Monetary Control Act (DIDMCA). Mamot Feed Lot and Trucking v. Hobson, No. 07-3129 (8th Cir. Aug. 26, 2008). In this case, the plaintiffs brought their case against the bank, its holding company, and various shareholders, officers, and employees of the bank following the criminal indictment of the bank’s president for defrauding the bank of nearly $1 million. They alleged federal usury and anti-tying claims, relying on §§ 85 and 86 of the NBA and § 1831d of DIDMCA. All defendants (except the bank’s president) filed a joint motion to dismiss for want of jurisdiction as to the NBA claim and for failure to state a claim on the remaining claims. The court found that §§ 85 and 86 of the NBA apply only to “associations,” referring to national banking associations and not to state-chartered banks. It further found that the amended complaint’s broad allegation that the defendants received compensation from the bank president’s fraudulent acts failed to state a claim under DIDMCA because “interest” does not include misallocation and theft of collateral and loan payments. In addition, the court dismissed the anti-tying claim for failure to allege any facts to support this claim. For a copy of the opinion, please see http://www.ca8.uscourts.gov/opndir/08/08/073129P.pdf.
DOJ Revises Policy on Corporate Privilege Waivers. On August 28, Deputy Attorney General Mark R. Filip announced, on behalf of the Department of Justice (DOJ), a revision to corporate charging guidelines that will preclude federal prosecutors from being able to provide leniency to corporations in exchange for the waiver of privileges to confidential information in criminal cases. Corporations will continue to receive due credit for the disclosure of “relevant facts.” The guidelines further (i) instruct prosecutors not to consider a corporation’s advancement of attorney’s fees to employees or participation in a joint defense agreement when evaluating cooperativeness, and (ii) disallow prosecutors from considering whether a corporation “has sanctioned, disciplined or retained culpable employees.” The revisions and policy changes, effective immediately, are binding for all federal prosecutors within the DOJ and will be published as part of the U.S. Attorney’s Manual. For a copy of the DOJ’s press release, please see http://www.usdoj.gov/opa/pr/2008/August/08-odag-757.html. For a copy of the guidelines, please see http://www.usdoj.gov/opa/documents/corp-charging-guidelines.pdf.
Fed Issues Guidance on Exceptions for Banks As “Brokers” Under Regulation R. On August 29, the Federal Reserve Board issued guidance regarding exceptions for banks from the definition of “broker” under the Securities Exchange Act of 1934, as amended by the Gramm-Leach-Bliley Act and implemented by Regulation R. Regulation R creates several exceptions to the definition of “broker,” including, among others, (i) trust and fiduciary activities, (ii) de minimis number of accounts, (iii) money market funds, (iv) securities-lending, (v) investment company securities, and (vi) employee benefit plans. According to the guidance, if more than one broker exception or exemption is available to a bank under the statute or rules for a securities transaction, the bank may choose the exception upon which it relies. For a copy of the guidance, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20080829a1.pdf.
Ninth Circuit Reinstates Parts of California Affiliate-Sharing Provision. On September 4, the U.S. Court of Appeals for the Ninth Circuit again reversed a decision of the U.S. District Court for the Eastern District of California in American Bankers Ass’n v. Lockyer, No. 05-17163 (9th Cir. Sept. 4, 2008), a case involving the affiliate information sharing provisions of California’s S.B. 1, also known as the California Financial Information Privacy Act (codified at Cal. Fin. Code §§4050-60). This is the second trip that this case has made to a panel of the Ninth Circuit. In the current decision, the Court of Appeals rejected the district court’s holding, on remand from the first Ninth Circuit opinion, that the Fair Credit Reporting Act (FCRA) completely preempts California’s restrictions on the sharing of information among affiliated entities. (For a discussion of the first decision, please see InfoBytes Special Alert for June 22, 2005.) A FCRA provision, 15 U.S.C. §1681t(b)(2), preempts any “requirement or prohibition ... imposed under the laws of any State ... with respect to the exchange of information among persons affiliated by common ownership or common corporate control.” In the first opinion, the court of appeals held that this provision applies only to information that either is a “consumer report,” or would be a consumer report but for the fact that it is “transaction/experience information” under FCRA, and remanded to the district court the question whether any portion of the affiliate information-sharing limitations of S.B. 1 would survive this limited preemption, and if so, whether those provisions would be severable from the portions that did not survive preemption. On remand, the district court held that the non-preempted provisions were not severable, so that the entire California provision was preempted (reported in InfoBytes for October 7, 2005). In the current decision, the majority concluded that the California legislature would have preferred a narrowed affiliate-sharing provision to none at all, and held that the portions of S.B.1 that do not apply to “consumer report” information are not preempted. The dissenting judge agreed that FCRA does not completely preempt the California law but argued that the federal court should have left reinterpreting the statute to the legislature. For a copy of the opinion, please see http://www.ca9.uscourts.gov/ca9/newopinions.nsf/755A3A44760A8488882574BA004A9883/$file/0517163.pdf.
SEC Files Securities Fraud Charges Regarding Subprime-Related Auction Rate Securities. On September 3, the Securities and Exchange Commission (SEC) charged two Wall Street brokers with securities fraud regarding over $1 billion in unauthorized purchases of subprime-related auction rate securities. The charges arise under Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and SEC Rule 10b-5. The SEC’s complaint alleges that the brokers represented auction rate securities sold to customers as being collateralized by federally guaranteed student loans when they were actually collateralized by, in part, subprime mortgages. For a copy of the SEC’s compliant, please see http://www.sec.gov/litigation/complaints/2008/comp20698.pdf.
Fed Issues Guidance on Exceptions for Banks As “Brokers” Under Regulation R. On August 29, the Federal Reserve Board issued guidance regarding exceptions for banks from the definition of “broker” under the Securities Exchange Act of 1934, as amended by the Gramm-Leach-Bliley Act and implemented by Regulation R. Regulation R creates several exceptions to the definition of “broker,” including, among others, (i) trust and fiduciary activities, (ii) de minimis number of accounts, (iii) money market funds, (iv) securities-lending, (v) investment company securities, and (vi) employee benefit plans. According to the guidance, if more than one broker exception or exemption is available to a bank under the statute or rules for a securities transaction, the bank may choose the exception upon which it relies. For a copy of the guidance, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20080829a1.pdf.
Ninth Circuit Reinstates Parts of California Affiliate-Sharing Provision. On September 4, the U.S. Court of Appeals for the Ninth Circuit again reversed a decision of the U.S. District Court for the Eastern District of California in American Bankers Ass’n v. Lockyer, No. 05-17163 (9th Cir. Sept. 4, 2008), a case involving the affiliate information sharing provisions of California’s S.B. 1, also known as the California Financial Information Privacy Act (codified at Cal. Fin. Code §§4050-60). This is the second trip that this case has made to a panel of the Ninth Circuit. In the current decision, the Court of Appeals rejected the district court’s holding, on remand from the first Ninth Circuit opinion, that the Fair Credit Reporting Act (FCRA) completely preempts California’s restrictions on the sharing of information among affiliated entities. (For a discussion of the first decision, please see InfoBytes Special Alert for June 22, 2005.) A FCRA provision, 15 U.S.C. §1681t(b)(2), preempts any “requirement or prohibition ... imposed under the laws of any State ... with respect to the exchange of information among persons affiliated by common ownership or common corporate control.” In the first opinion, the court of appeals held that this provision applies only to information that either is a “consumer report,” or would be a consumer report but for the fact that it is “transaction/experience information” under FCRA, and remanded to the district court the question whether any portion of the affiliate information-sharing limitations of S.B. 1 would survive this limited preemption, and if so, whether those provisions would be severable from the portions that did not survive preemption. On remand, the district court held that the non-preempted provisions were not severable, so that the entire California provision was preempted (reported in InfoBytes for October 7, 2005). In the current decision, the majority concluded that the California legislature would have preferred a narrowed affiliate-sharing provision to none at all, and held that the portions of S.B.1 that do not apply to “consumer report” information are not preempted. The dissenting judge agreed that FCRA does not completely preempt the California law but argued that the federal court should have left reinterpreting the statute to the legislature. For a copy of the opinion, please see http://www.ca9.uscourts.gov/ca9/newopinions.nsf/755A3A44760A8488882574BA004A9883/$file/0517163.pdf.
Fifth Circuit Holds that “Proof of Claim” Assertion Does Not Violate Automatic Stay. On August 26, the U.S. Court of Appeals for the Fifth Circuit held that a creditor’s “Proof of Claim” assertion for pre-petition bankruptcy debt does not violate the automatic stay in bankruptcy proceedings. Campbell v. Countrywide Home Loans, Inc., No. 07-20499 (5th Cir. Aug. 26, 2008). In this case, the plaintiffs alleged that the defendant creditor violated the automatic stay, which operates to halt collection of pre-petition claims, in their Chapter 13 bankruptcy proceeding by submitting a “Proof of Claim” for pre-petition insurance and property taxes that were to be maintained in escrow by the defendant until due. To establish an actionable violation of the automatic stay, a plaintiff must establish that (i) the defendant knew of the existence of the stay, (ii) the defendant’s actions were willful, and (iii) the defendant’s actions violated the automatic stay. The defendant did not dispute that the defendant knew of the existence of the stay and that it acted willfully when asserting the right to pre-petition escrow payments. The court held that the defendant did not violate the automatic stay, citing to In re Sammon, 253 B.R. 672, 681 (Bankr. D.S.C. 2000), when reasoning that the automatic stay serves to protect the bankruptcy estate from actions taken by creditors outside the bankruptcy court forum, not from legal actions taken within the bankruptcy court. Further citing In re Sammon, the court noted that the filing of a Proof of Claim before a bankruptcy court is the logical equivalent of a request for relief from the automatic stay, which itself cannot constitute a violation of the stay. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Campbell_v_Contrywide.pdf.
Eighth Circuit Finds §§ 85 and 86 of National Bank Act Do Not Apply to State-Chartered Bank. The U.S. Court of Appeals for the Eighth Circuit dismissed a class action brought against the Exchange Bank of Gibbon by bank customers and persons the bank had sued, finding that the sections of the National Bank Act (NBA) upon which the plaintiffs relied do not apply to a state-chartered bank, and that funds derived from alleged fraudulent activity did not constitute “interest” under the Depository Institutions Deregulation and Monetary Control Act (DIDMCA). Mamot Feed Lot and Trucking v. Hobson, No. 07-3129 (8th Cir. Aug. 26, 2008). In this case, the plaintiffs brought their case against the bank, its holding company, and various shareholders, officers, and employees of the bank following the criminal indictment of the bank’s president for defrauding the bank of nearly $1 million. They alleged federal usury and anti-tying claims, relying on §§ 85 and 86 of the NBA and § 1831d of DIDMCA. All defendants (except the bank’s president) filed a joint motion to dismiss for want of jurisdiction as to the NBA claim and for failure to state a claim on the remaining claims. The court found that §§ 85 and 86 of the NBA apply only to “associations,” referring to national banking associations and not to state-chartered banks. It further found that the amended complaint’s broad allegation that the defendants received compensation from the bank president’s fraudulent acts failed to state a claim under DIDMCA because “interest” does not include misallocation and theft of collateral and loan payments. In addition, the court dismissed the anti-tying claim for failure to allege any facts to support this claim. For a copy of the opinion, please see http://www.ca8.uscourts.gov/opndir/08/08/073129P.pdf.
New York Federal Court Dismisses Borrower Lawsuit Against IndyMac. On August 25, the U.S. District Court for the Southern District of New York dismissed a lawsuit brought against IndyMac Bancorp, Inc. and the Federal Deposit Insurance Corporation (as receiver for IndyMac Bank, F.S.B.) alleging violations of the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), and state law. Cedeno v. IndyMac Bancorp, Inc., No. 06 Civ. 6438, 2008 U.S. Dist. LEXIS 65337 (S.D.N.Y. Aug. 25, 2008). In this case, the plaintiff obtained an $80,000 line of credit from IndyMac, secured by her property, and was charged a $500 property appraisal fee. The parties agreed that the cost of the appraisal was accurately and plainly disclosed by IndyMac. The plaintiff alleged that appraisers selected by IndyMac inflated the appraisal price and, as a result, she was charged higher closing and financing costs and was misled as to the true equity in her home.The court did not agree with the plaintiff’s assertion that IndyMac violated RESPA’s “anti-kickback” provision, reasoning that the payment for the appraisal services performed triggered RESPA’s “safe harbor” provision. The court also determined that the plaintiff failed to state a claim under TILA, reasoning that “TILA is directed to requiring that the cost of the service be set out, not to regulating the quality of service,” and that IndyMac properly disclosed the cost of the appraisal. Finally, the court held that the plaintiff’s state-law claims were preempted because, under the Home Owner’s Loan Act, the Office of Thrift Supervision has principal responsibility for regulating federally chartered savings associations like IndyMac. The court reasoned that finding in the plaintiff’s favor would amount to direct regulation of appraisal practices. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Cedeno_v_Indymac.pdf.
SEC Files Securities Fraud Charges Regarding Subprime-Related Auction Rate Securities. On September 3, the Securities and Exchange Commission (SEC) charged two Wall Street brokers with securities fraud regarding over $1 billion in unauthorized purchases of subprime-related auction rate securities. The charges arise under Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and SEC Rule 10b-5. The SEC’s complaint alleges that the brokers represented auction rate securities sold to customers as being collateralized by federally guaranteed student loans when they were actually collateralized by, in part, subprime mortgages. For a copy of the SEC’s compliant, please see http://www.sec.gov/litigation/complaints/2008/comp20698.pdf.
DOJ Revises Policy on Corporate Privilege Waivers. On August 28, Deputy Attorney General Mark R. Filip announced, on behalf of the Department of Justice (DOJ), a revision to corporate charging guidelines that will preclude federal prosecutors from being able to provide leniency to corporations in exchange for the waiver of privileges to confidential information in criminal cases. Corporations will continue to receive due credit for the disclosure of “relevant facts.” The guidelines further (i) instruct prosecutors not to consider a corporation’s advancement of attorney’s fees to employees or participation in a joint defense agreement when evaluating cooperativeness, and (ii) disallow prosecutors from considering whether a corporation “has sanctioned, disciplined or retained culpable employees.” The revisions and policy changes, effective immediately, are binding for all federal prosecutors within the DOJ and will be published as part of the U.S. Attorney’s Manual. For a copy of the DOJ’s press release, please see http://www.usdoj.gov/opa/pr/2008/August/08-odag-757.html. For a copy of the guidelines, please see http://www.usdoj.gov/opa/documents/corp-charging-guidelines.pdf.
Ninth Circuit Reinstates Parts of California Affiliate-Sharing Provision. On September 4, the U.S. Court of Appeals for the Ninth Circuit again reversed a decision of the U.S. District Court for the Eastern District of California in American Bankers Ass’n v. Lockyer, No. 05-17163 (9th Cir. Sept. 4, 2008), a case involving the affiliate information sharing provisions of California’s S.B. 1, also known as the California Financial Information Privacy Act (codified at Cal. Fin. Code §§4050-60). This is the second trip that this case has made to a panel of the Ninth Circuit. In the current decision, the Court of Appeals rejected the district court’s holding, on remand from the first Ninth Circuit opinion, that the Fair Credit Reporting Act (FCRA) completely preempts California’s restrictions on the sharing of information among affiliated entities. (For a discussion of the first decision, please see InfoBytes Special Alert for June 22, 2005.) A FCRA provision, 15 U.S.C. §1681t(b)(2), preempts any “requirement or prohibition ... imposed under the laws of any State ... with respect to the exchange of information among persons affiliated by common ownership or common corporate control.” In the first opinion, the court of appeals held that this provision applies only to information that either is a “consumer report,” or would be a consumer report but for the fact that it is “transaction/experience information” under FCRA, and remanded to the district court the question whether any portion of the affiliate information-sharing limitations of S.B. 1 would survive this limited preemption, and if so, whether those provisions would be severable from the portions that did not survive preemption. On remand, the district court held that the non-preempted provisions were not severable, so that the entire California provision was preempted (reported in InfoBytes for October 7, 2005). In the current decision, the majority concluded that the California legislature would have preferred a narrowed affiliate-sharing provision to none at all, and held that the portions of S.B.1 that do not apply to “consumer report” information are not preempted. The dissenting judge agreed that FCRA does not completely preempt the California law but argued that the federal court should have left reinterpreting the statute to the legislature. For a copy of the opinion, please see http://www.ca9.uscourts.gov/ca9/newopinions.nsf/755A3A44760A8488882574BA004A9883/$file/0517163.pdf.
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