Revised RESPA Mortgage Disclosures Take Effect
New regulations promulgated by the U.S. Department of Housing and Urban Development in November 2008 to revise RESPA disclosures took effect on January 1, 2010. Among other things, the new RESPA final rule requires mortgage issuers to use a new HUD-1 settlement statement and a new Good Faith Estimate. To assist compliance, HUD has issued a list of answers to frequently asked questions as well as new instructions for HUD-1 and GFE forms. HUD has also issued a revised settlement booklet to educate consumers about mortgage products and the financial impact of buying a home.
House Passes Consumer Financial Protection Agency Act
On December 11, 2009, the U.S. House of Representatives passed the “Wall Street Reform and Consumer Protection Act of 2009,” H.R. 4173. This sweeping legislation—a combination of several bills, including a modified version of the Consumer Financial Protection Agency Act, formerly HR 3126—includes broad new regulation of derivatives, executive compensation, systemic risk, investor rights, mortgages, credit-rating agencies, hedge funds and private equity, insurance, and consumer financial protection.
Title IV of the Act (sections 4001 – 4901) provides for the creation of a Consumer Financial Protection Agency (section 4101 – 4703), a new, independent federal agency to oversee virtually every aspect of consumer financial services, including mortgages, credit cards, debit cards, car loans, gift cards, credit reporting agencies, debt collectors, and financial advisers. Certain merchants, such as auto dealers and pawnbrokers, would be exempted.
Continue Reading...Fed Approves Mortgage Sale Disclosure Rule
On November 16, 2009, the Federal Reserve Board approved an interim final rule amending Regulation Z, 12 CFR 226, establishing a new requirement for notifying consumers of the sale or transfer of their mortgage loans. Specifically, the rule amends Section 131(g) of the Truth in Lending Act (TILA), to implement Section 404(a) of the 2009 Helping Families Save Their Homes Act, and requires a purchaser or assignee that acquires a mortgage loan to provide the required disclosures to the consumer in writing no later than 30 days after the date on which the loan is sold or otherwise transferred or assigned. The new disclosure requirements apply whether the acquisition occurs as a result of a purchase or other transfer or assignment, but a person is covered by the rule only if the person acquires legal title to the debt obligation.
Continue Reading...Financial Regulatory Reform Moves Out of Committee
The House Financial Services Committee on Thursday voted to approve the Consumer Financial Protection Agency Act, HR 3126.
The legislation is changing in significant ways as it moves through the legislative process. Among the revisions from the administration's original plan, the Committee's approved version would vest authority over the proposed Consumer Financial Protection Agency in a single director, as opposed to a 5-member board. The approved version of the legislation also includes a compromise on federal preemption, which permits the federal regulator to preempt state consumer financial protection laws only after a written finding that the state law “prevents or significantly interferes” with a federally regulated bank or thrift’s exercise of its powers.
Powers of the Proposed Consumer Financial Protection Agency
Subpart F, sections 161 through 166, of the Consumer Financial Protection Agency Act of 2009 (HR 3126, July 8, 2009) provides for the transfer of broad areas of power to regulate consumer financial protection functions from a variety of federal agencies and the Federal Reserve to the proposed Consumer Financial Protection Agency.
In general, the CFPA would have the authority and accountability to supervise, examine, and enforce consumer financial protection laws, including mortgages, credit cards, student loans, auto loans, payday loans, and more. The Act would transfer functions and personnel to the new CFPA and provide for interim powers for the Secretary of Treasury pending the establishment of the CFPA and the completion of the transfer of powers and people.
Financial Regulatory Reform Moving Forward
Legislation for federal financial regulatory reform, introduced by the Obama administration in June, is moving forward through the legislative process. Treasury Secretary Geithner testified before the House Financial Services Committee on September 23.
The proposed financial regulatory reform legislation in the U.S. House is the Consumer Financial Protection Agency Act of 2009 in the House (HR 3126). The Financial Services Committee has issued a section-by-section summary of the proposed legislation as well as a September 25 discussion draft.
Track the progress of the legislation at the administration's Financial Stability website.
Tracking the Proposed Financial Regulatory Changes
Last week, President Obama announced sweeping proposed changes in federal financial regulation. U.S. Treasury Secretary Timothy Geithner and Director of the National Economic Council Lawrence Summers wrote an op-ed piece describing the new regulatory structure, called "A New Foundation: Rebuilding Financial Supervision and Regulation."
The Final Report of the proposed comprehensive plan has five stated goals: (1) to promote robust supervision and regulation of financial firms; (2) to establish comprehensive supervision of financial markets; (3) to protect consumers and investors from financial abuse; (4) to provide the government tools to manage the financial crisis; and (5) to raise international regulatory standards and to improve international cooperation.
Continue Reading...Mortgage Cramdown Fails in Senate
The hotly-contested mortgage cramdown legislation, passed in the House last month as HR 1106, the "Helping Families Save Their Homes in Bankruptcy Act of 2009," has failed in the Senate.
Among other significant changes, the failed legislation would have permitted a Chapter 13 bankruptcy plan to: (1) modify the rights of claim holders with respect to a claim for a loan originated before the effective date of the Act and secured by a security interest in the debtor's principal residence that is the subject of a foreclosure notice; and (2) deny debtor liability for certain fees and charges incurred while the bankruptcy case is pending and arising from a debt secured by the debtor's principal residence, unless the claim holder observes specified requirements. The legislative summary detailed the bill's other proposed changes, including amendments to the HOPE for Homeowners plan.
Treasury Unveils Plan for Toxic Mortgage Assets
The Treasury today unveiled specific details regarding its plan to create a public-private partnership to purchase toxic assets from financial institutions, named the Public Private Investment Program (PPIP) for Legacy Assets. Along with its press release, the Treasury also released a white paper on the program. Among other things, the program provides FDIC and Federal Reserve financing to spur private investors to price and finance purchases of real estate loans held directly on the books of banks ("legacy loans") and securities backed by loan portfolios ("legacy securities").
Mortgage Cram-Down Bill Passes House
The U.S. House has passed a compromise version of mortgage cram-down legislation, HR 1106, officially known as entitled the "Helping Families Save Their Homes in Bankruptcy Act of 2009."
Among other significant changes, the legislation permits a Chapter 13 bankruptcy plan to: (1) modify the rights of claim holders with respect to a claim for a loan originated before the effective date of the Act and secured by a security interest in the debtor's principal residence that is the subject of a foreclosure notice; and (2) deny debtor liability for certain fees and charges incurred while the bankruptcy case is pending and arising from a debt secured by the debtor's principal residence, unless the claim holder observes specified requirements.
The legislative summary details the bill's other changes, including amendments to the HOPE for Homeowners plan.
Treasury Releases Guidelines for Refinance and Modification
The Treasury today announced the release of Modification Guidelines for the "Homeowner Affordability and Stability Plan." The updated program description details the intended purposes of the plan, as does the updated Executive Summary.
The guidelines identify two types of mortgage assistance for homeowners: the Home Affordable Refinance, intended to assist underwater borrowers seeking to refinance to lower mortgage rates; and the Home Affordable Modification, intended to assist "at-risk" homeowners to modify mortgages. The refinance portion of the plan is designed to work with an improved Hope for Homeowners plan. The guidelines for modification detail eligibility and verification, loan modification terms and procedures, payments to lenders, servicers, and borrowers, and controls for transparency and accountability.
Continue Reading...In Detail: Homeowner Affordability and Stability Plan
The Treasury released details about the Homeowner Affordability and Stability Plan, including a summary of the proposal to encourage mortgage modification and several illustrations about how the plan is designed to work and answers to potential questions. As outlined, the plan has three stated purposes: (1) to provide low-cost refinancing to homeowners now unable to refinance; (2) to create a $75 billion fund to aid loan modifications for homeowners now underwater on mortgages; and (3) to keep current mortgage rates low by providing additional support for Fannie Mae and Freddie Mac.
Not to be outdone, the White House unveiled its Financial Stability website and posted additional information about the plan on the White House blog.
One to Watch: Mortgage Cram-Downs Clear Committee
The House Judiciary Committee has approved H.R. 200, entitled the "Helping Families Save Their Homes in Bankruptcy Act of 2009." Judiciary Committee Chairman John Conyers issued a statement after the measure was approved.
The measure would amend bankruptcy laws for Chapter 13 debtors, excluding some mortgages from debt calculations, and allowing judge-imposed modifications to mortgages. Specifically, the measure would grant a judge the ability to modify the terms of a mortgage for a homeowner in chapter 13 bankruptcy, by: (1) reducing a claim to equal the value of the debtor's interest in the residence securing such claim, and any adjustments to a related adjustable rate of interest; (2) waiving early repayment or prepayment penalties; and (3) extending the repayment period.
Fed Seeks Public Comment on MDIA TILA Revisions
Last week, the Federal Reserve released its latest proposed revisions to Regulation Z, the Truth In Lending Act, to implement the July 2008 Mortgage Disclosure Improvement Act ("MDIA"), enacted as part of the Housing and Economic Recovery Act of 2008. The comment period for the proposed rule closes on January 23, 2009.
Among other things, the proposed rule implements the MDIA's requirements that lenders give good faith estimates within three business days of receiving an application for a mortgage and before collecting any fees, other than credit report fees. The MDIA broadens the Fed's July 2008 final rule by extending these requirements to homes other than a borrower's principal dwelling. The proposed rule also requires lenders to wait seven days to close a loan after providing the disclosures. The proposed rule also requires new disclosures of a revised annual percentage rate, and to wait three days before closing the loan if the APR changes in the interim beyond a minimum amount.
The proposed rule would become effective on July 30, 2009.
Forbearance of Foreclosure is Within the Statute of Frauds
In Secrest v. Security National Mortgage Loan Trust 2002-2, the Fourth District California Court of Appeal held that an agreement to forbear foreclosure comes within the statute of frauds.
In Secrest, plaintiff borrowers filed suit to enjoin foreclosure proceedings initiated by defendant lenders. Borrowers alleged that lenders' predecessors in interest had entered into an agreement to forbear foreclosure based on certain conditions. Borrowers had in fact made two such agreements, one in 2001 and one in 2002, each of which included a lump sum payment and timely payments on the note securing the deed of trust. Lenders asserted that the forbearance agreement was unenforceable under California's statute of frauds (Civil Code §1624) because lenders did not sign it. The trial court held that the forbearance agreement was unenforceable, and borrowers appealed.
Continue Reading...Court of Appeal Addresses Issues in Foreclosure Litigation
In what may be the leading edge of a wave of litigation related to foreclosures, in FDIC v. Dintino, the California Court of Appeal last week issued an opinion addressing statutes of limitations and attorney's fees related to an IndyMac (FDIC) foreclosure.
In Dintino, IndyMac sued borrower to foreclose on a mortgage, alleging breach of contract, money lent, and unjust enrichment. Borrower raised affirmative defenses based on the statute of limitations, the antideficiency statutes (Code of Civil Procedure §580 et seq.) and the doctrine of unclean hands. Both parties moved for summary judgment. The trial court denied IndyMac's motion for summary judgment and granted, in part, borrower's motion for summary adjudication, holding IndyMac's breach of contract cause of action was barred by the One Action Rule (Code of Civil Procedure §726 et seq.). The trial court rejected borrower's statute of limitations argument, holding IndyMac's unjust enrichment cause of action was not barred by the applicable statute of limitations (Code of Civil Procedure § 337).
The parties stipulated to a bench trial, after which the trial court entered judgment for IndyMac. Borrower moved to recover attorney's fees incurred in the defense of the breach of contract cause of action. The trial court denied the motion. Borrower appealed the partial denial of his motion for summary judgment and the denial of his motion for attorney's fees.
Continue Reading...New Mortgage Laws in California
After California's budget standoff backed up nearly 850 bills on his desk, Governor Schwarzenegger is furiously signing significant legislation that will affect the California mortgage market. Last week, the Governor signed 10 bills into law related to mortgage and housing finance regulation:
SB1461 requires real estate agents to disclose their license number on all first point of contact marketing materials and property purchases beginning July 1, 2009;
SB1737 authorizes the Department of Real Estate to suspend or bar a person who has committed a violation of the Real Estate Law if the suspension or bar is in the best interest of the public;
AB69 mandates that all mortgage loan servicers report specific, detailed data to their licensing agency concerning loan modifications;
AB180 provides a registration and bonding process for foreclosure consultants and prohibits a foreclosure consultant from entering into an agreement to assist an owner in arranging the release of surplus funds after the trustee's sale is conducted;
SB870 allows the California Housing Finance Agency to more quickly establish a mortgage refinance program;
SB1065 includes the refinancing of home mortgages in the criteria for a city or county-administered home financing program;
SB1055 allows taxpayers to exclude the forgiven mortgage debt from their incomes for state income tax purposes which brings the state in compliance with federal law;
SB1604 requires that any private insurance policy maintained by an escrow agent be applied as primary coverage in the event of a loss covered by both the private insurance and the Escrow Agents Fidelity Corporation;
SB1675 provides the California Department of Veterans Affairs with the discretion to structure the terms and conditions of any authorized debt issuance; and
AB2454 would increase potential recovery for harmed consumers applying for Recovery Account payments filed on or after January 1, 2009, to $50,000 for any one transaction and $250,000 for any one licensee.
Details on the "Emergency Economic Stabilization Act"
Congressional leaders and the administration announced agreement this evening on the Troubled Asset Relief Program, reborn as the expanded "Emergency Economic Stabilization Act of 2008." House Speaker Nancy Pelosi issued a statement detailing the agreement. Congressional leadership also released a section-by-section analysis of the proposed legislation and the full text of the bill. The American Bankers Association has posted its reactions and resources, including detailed analysis of versions of the proposed legislation.
A vote on the bill could come as early as Monday.
(No) Agreement on "Troubled Asset Relief Program"?
The administration and the Congress reached preliminary agreement on the "Troubled Asset Relief Program," a massive program that would provide up to $700 billion in increments for the U.S. government to purchase and manage portfolios of troubled asset-backed securities from financial institutions. After several days of testimony in the House and the Senate followed by a presidential address, the administration's proposed program changed substantially in negotiations and emerged as an "Agreement on Principles" today. Late in the day talks stalled and the agreement was called into question.
Continue Reading...Treasury Details its Fannie/Freddie Conservatorship
Less than two months after receiving congressional authority for increased control over Fannie Mae and Freddie Mac, the Treasury Department today released details about its plan to place Fannie and Freddie under federal government conservatorship.
The Treasury Department's fact sheet includes information related to the appointment of James Lockhart, Director of the newly-created Federal Housing Finance Agency ("FHFA"), as conservator for Fannie and Freddie for an indefinite duration. FHFA also issued a statement about the plan.
In addition to the appointment of a conservator, the Treasury plan has four parts: (1) Fannie and Freddie will "modestly increase" their mortgage-backed securities portfolios through the end of 2009; (2) Treasury and FHFA have entered Preferred Stock Purchase Agreements for Fannie and Freddie stock; (3) Treasury will establish a new secured lending credit facility, which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; and (4) Treasury is initiating a temporary program to purchase Fannie and Freddie mortgage-backed securities.
A Closer Look at the Housing Bill's "HOPE"
The new insured mortgages cannot exceed 90% of the home's value (determined by a new independent appraisal), which means participating lenders must absorb any deficiency for mortgage borrowers who are underwater on current loans. Lenders also must waive all "penalties for prepayment or refinancing of the eligible mortgage, and all fees and penalties related to default or delinquency on the eligible mortgage." The new loan would extinguish any subordinate liens.
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Sweeping Housing Bill Expected to Become Law
President Bush recently signaled that he will sign the Housing and Economic Recovery Act of 2008, H.R. 3221, which passed the Senate on July 26, 2008 after passing the House last week. Among other things, the massive aid package, aimed at shoring up the troubled housing market, includes $300 billion for homeowners to refinance their mortgages into government-backed loans through the Federal Housing Administration. An estimated 2.5 million households are facing possible foreclosures this year.
The bill also provides emergency financing capacity for mortgage titans Fannie Mae and Freddie Mac, two government-sponsored enterprises which own or guarantee nearly half the nation’s $12 trillion in outstanding home mortgage debt. The bill also creates a new regulator with expanded authority to oversee the two mortgage giants.
The final version of the bill also includes hotly contested provisions for a new low income housing tax credit, new tax exempt bonds for housing, and a new housing trust fund.
Your Scorecard For New Laws and Regulations
California law
• Mortgages: new foreclosure procedures are now law in Civil Code §§2923.5, 2923.6 and 2929.3 and Code of Civil Procedure §1161b.
Federal law
• Credit Cards: the 2008 Credit and Debit Card Receipt Clarification Act, now law, clairifies the Fair and Accurate Credit Transactions Act of 2003;
• Credit Cards and Deposit Accounts: "unfair or deceptive acts or practices" are refined and redefined in revisions to Regulation AA, revisions to Regulation DD, and revisions to Regulation Z;
• Mortgages: Regulation X would get a makeover in HUD's proposed rule amending the Real Estate Settlement Procedures Act;
• Arbitration: the proposed "Arbitration Fairness Act of 2007" would slice and dice the Federal Arbitration Act; the "Automobile Arbitration Fairness Act of 2008," would eviscerate pre-dispute arbitration provisions in auto sales or lease contracts.
Fed Issues Final Version of New Mortgage Rule
The new rule, most provisions of which will be effective October 1, 2009, creates a new category of mortgage loans called "higher-priced loans" (determined by reference to an index published by the Fed) to target subprime mortgages. The rule also contains additional regulations applicable to all mortgages.
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Comment Period Closes on HUD's RESPA Reform Rule
The new rule would significantly amend Regulation X provisions regarding required mortgage disclosures and related mortgage loan settlement procedures:
- requiring a new standardized Good Faith Estimate form intended to make loan comparisons easier, to simplify the summary of loan terms and charges, and to provide more accurate estimates of costs for settlement services;
- requiring additional detailed disclosures of yield spread premiums;
- requiring a revised HUD-1 Settlement Statement form;
- requiring a particular "closing script" to be read to and provided to borrowers at closing, which would vary depending on the terms of the mortgage (see, e.g., a fixed interest rate closing script).
New Law Changes California Mortgage Foreclosure Rules
Among other significant changes, the new law amends the Civil Code procedures that must be followed before a lender can issue a notice of default or notice of trustee sale in connection with residential mortgage loans made from January 1, 2003 to December 31, 2007 for owner-occupied residences. The new law also imposes civil penalties up to $1,000 per day for lenders who fail to maintain foreclosed properties and gives tenants 60 days to vacate property sold in foreclosure.
New Mortgage Foreclosure Rules Expected to Become Law
The final version of the California Senate Bill SB 1137 passed the Senate on July 2 after passing the California assembly in late June.
