Consumer Financial Services Alert - October 19, 2010 October 19, 2010
In This Issue

FRB Issues Proposed Rule to Clarify Credit Card Act Rules

Today, the FRB issued a proposed rule to clarify portions of its final rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009. In particular, the proposal would clarify that:

  • Promotional programs that waive interest charges for a specified period of time are subject to the same protections as promotional programs that apply a reduced rate for a specified period. For example, a card issuer that offers to waive interest charges for six months would be prohibited from revoking the waiver and charging interest during the six-month period unless the account becomes more than 60 days delinquent.
  • Application and similar fees that a consumer is required to pay before a credit card account is opened are covered by the same limitations as fees charged during the first year after the account is opened. Because the total amount of these fees cannot exceed 25% of the account's initial credit limit, a card issuer that, for example, charges a $75 fee to apply for a credit card with a $400 credit limit generally would not be permitted to charge more than $25 in additional fees during the first year after account opening.
  • When evaluating a consumer's ability to make the required payments before opening a new credit card account or increasing the credit limit on an existing account, card issuers must consider information regarding the consumer's independent income, rather than his or her household income.

Click here for the notice that will be published in the Federal Register. Comments on the proposal must be submitted within 60 days after publication in the Federal Register.

Attorneys General Issue Joint Statement on Foreclosures

The Attorneys General of all 50 states and certain state bank and mortgage regulators issued a joint statement on the mortgage foreclosure process. The statement addresses the practice of mortgage loan servicer employees signing affidavits and other foreclosure documentation without confirming the accuracy of such documentation (so-called "robo-signing"). According to the statement, all 50 states are concerned that robo-signing may constitute a deceptive act, an unfair practice, or some other violation of state law. In order to address the practice, the states have formed a bi-partisan multistate group comprised of both state Attorneys General and state bank and mortgage regulators. The group will attempt to coordinate state corrective actions. Click here for the joint statement.

FHFA Issues Plan for Remediation of Foreclosure Process Deficiencies

The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, issued a policy framework detailing its plan for mortgage servicers to remediate any deficiencies in the execution of affidavits, verifications, and other legal documents in connection with the foreclosure process on Fannie and Freddie loans. The plan calls for servicers to review their processes and procedures and verify that all documents, including affidavits and verifications, are completed in compliance with legal requirements. In the event a servicer’s review reveals deficiencies, the plan requires the servicer to take certain corrective actions. Deficiencies must be remediated in an appropriate and timely way and be sustainable. In particular, when a servicer identifies shortcomings with foreclosure affidavits, whether due to affidavits signed without appropriate knowledge and review of the documents, or improperly notarized, the plan calls for the following steps to be taken, as appropriate to the particular mortgage:

Pre-Judgment Foreclosure Actions

Servicers must review any filed affidavits to ensure that the information contained in the affidavits was correct and that the affidavits were completed in compliance with applicable law. If the servicer’s review indicates either (1) that the information in a previously filed affidavit was not correct or (2) that the affidavit was not completed in compliance with applicable law, the servicer must work with foreclosure counsel to take appropriate remedial actions, which may include preparing and filing a properly prepared and executed replacement affidavit before proceeding to judgment.

Post-Judgment Foreclosure Actions (Prior to Foreclosure Sale)

Before a foreclosure sale can proceed, servicers must review any affidavits relied upon in the proceedings to ensure that the information contained in the affidavits was correct and that the affidavits were completed in compliance with applicable law. If the servicer’s review indicates either (1) that the information in a previously filed affidavit was not correct or (2) that the affidavit was not completed in compliance with applicable law, the servicer must work with foreclosure counsel to address the issue consistent with local procedures. Potential remedial measures could include filing an appropriate motion to substitute a properly completed replacement affidavit with the court and to ratify or amend the foreclosure judgment.

Post-Foreclosure Sale (Fannie or Freddie Owns the Property)

  • Eviction Actions:  Before an eviction can proceed, servicers with deficiencies must confirm that the information contained in any affidavits relied upon in the foreclosure proceeding was correct and that the affidavits were completed in compliance with applicable law. If the servicer’s review indicates either (a) that the information in a previously filed affidavit was not correct or (b) that the affidavit was not completed in compliance with applicable law, the servicer must work with foreclosure counsel to address the issue consistent with local procedures before the eviction proceeds. Potential remedial measures could include seeking an order to substitute a properly prepared affidavit and to ratify the foreclosure judgment and/or confirm the foreclosure sale.
  • REO:  With respect to the clearing of title for REO properties, servicers must confirm that the information contained in any affidavits relied upon in the foreclosure proceeding was correct and that the affidavits were completed in compliance with applicable law. If the servicer’s review indicates either (a) that the information in a previously filed affidavit was not correct or (b) that the affidavit was not completed in compliance with applicable law, the servicer must work with foreclosure counsel to address the issue consistent with local procedures and take actions as may be required to ensure that title insurance is available to the purchaser for the subject property in light of the facts surrounding the foreclosure actions.

Bankruptcy Cases

The plan requires servicers to review any filed affidavits in pending cases to ensure that the information contained in the affidavits was correct and that the affidavits were completed in compliance with applicable law. If the servicer’s review indicates either (1) that the information in a previously filed affidavit was not correct or (2) that the affidavit was not completed in compliance with applicable law, the servicer must work with bankruptcy counsel to take appropriate remedial actions.

Click here for the FHFA plan.

HUD Grants Narrow RESPA Exemption for Borrower-Assistance Subordinate Loans

HUD granted a limited exemption from Sections 4 and 5 of the Real Estate Settlement Procedures Act for certain borrower-assistance subordinate loan transactions. The exemption applies primarily to subordinate loans offered by assistance programs such as state housing finance authorities, municipal governments and nonprofit organizations. To come within the exemption, the loan must be a subordinate lien with a 0% interest rate and made for the purpose of assisting the borrower with a down payment, closing costs, property rehabilitation, energy efficiency, or foreclosure avoidance or prevention. The loan must also meet certain deferred or forgiveness requirements and have settlement costs of less than 1% of the amount of the subordinate loan. The only fees that can be charged are the recordation fee, application fee, and a housing counseling fee. Finally, the borrower must receive at or before settlement a written disclosure that effectively describes the loan terms, repayment conditions and any costs associated with the loan.

Click here for the exemption letter.

Federal Banking Agencies Issue Final CRA Rule

The federal banking agencies issued a final Community Reinvestment Act rule requiring consideration of low-cost education loans and participation in ventures with women- and minority-owned financial institutions in assessing a financial institution’s CRA record. The rule implements a provision of the Higher Education Opportunity Act that amended the CRA to require the agencies to consider low-cost higher education loans to low-income borrowers as a positive factor when assessing a financial institution’s record of meeting community credit needs. The rule also incorporates a CRA statutory provision that permits the agencies to consider a nonwomen- and nonminority-owned financial institution’s ventures with women-owned and minority-owned financial institutions and low-income credit unions when assessing a financial institution’s CRA record. The rule is effective on November 3, 2010. Click here for the rule.

Federal Court Dismisses Lawsuit Challenging Unacceptable Vendor List

A federal judge in the Western District of Washington recently dismissed with prejudice a lawsuit filed by an appraisal company against Countrywide, Bank of America and various affiliated entities, including LandSafe Appraisal Services, Inc. Plaintiff argued that defendants used an unacceptable vendor list to blacklist appraisers who refused to inflate appraisal values. Plaintiff alleged violations of RICO, and brought state law claims for breach of the duty of fair procedures and tortious interference with economic relationships. The Court found that plaintiff failed to plead a cognizable RICO enterprise or plead its mail and wire fraud claims with the requisite particularity, noting that plaintiff’s allegations did not establish why maintenance of an unacceptable vendor list is fraudulent. The Court also rejected plaintiff’s theory that the duty of fair procedures applies to appraisers and appraisal management companies, as Countrywide was not a gate-keeper organization as defined under state law. That is, the Court found that neither Countrywide, as the lender, nor LandSafe, as an appraisal management company, wielded such substantial power in the appraisal field that their actions could prevent plaintiff from pursuing employment. The Court also rejected plaintiff’s tortious interference claim, holding that plaintiff had not sufficiently shown Countrywide’s knowledge of the alleged relationships. Goodwin Procter partners David Permut and Brooks Brown represented defendants. Click here for Capitol West Appraisals, LLC v. Countrywide Financial Corp., et al., U.S.D.C. W.D. Wash., No. C08-1520RAJ (September 29, 2010).