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CFPB Unveils Revamp of Mortgage Servicing

American Banker (08/10/12) Berry, Kate

On Aug. 10, the Consumer Financial Protection Bureau (CFPB) proposed new rules  that would require mortgage servicers to provide clearer monthly statements, earlier notice for interest rate adjustments and options to help homeowners avoid foreclosures and force-placed insurance. Under the rules, which are to be finalized by January 2013,  servicers also would have to promptly credit payments to customers’ accounts and make a good faith effort to contact delinquent borrowers and inform them of their options for loan modifications and other payment plans to avoid foreclosure. Servicers would also be prohibited from proceeding with a foreclosure sale until the review of the borrower’s application is complete. Small servicers that handle less than 1,000 loans would be exempt from sending the periodic billing statements to borrowers with a breakdown of terms and fees.
One provision of concern to industry is the requirements that servicers provide notice to borrowers as early as seven or eight months before the first interest rate adjustment. "It's not helpful for consumers to get information that isn't accurate and it's going to cause confusion if all the servicer can do is make a best estimate," said Robert Cook, a partner with HudsonCook LLP. Provisions regarding force-placed insurance that would require servicers to give advance notice and pricing information before charging consumers, as well as terminate the insurance within 15 days and refund premiums if evidence shows the borrower already has property insurance, have also raised concerns.
The CFPB has partnered with Cornell University’s eRulemaking Initiative (CeRI) in an online pilot project called Regulation Room, which provides a forum for the public to read and comment on selected rules proposed by federal agencies. The comments will not be considered formal comments, but will be assembled by CeRI into a public report for the CFPB to use in preparing the final rule.

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AFSA Participates in CFPB Roundtable on Qualified Mortgage

On Aug. 13, AFSA staff attended a roundtable at the Consumer Financial Protection Bureau (CFPB) on the qualified mortgage (QM)/ability to repay proposed rule and its implications for small financial institutions. The discussion took place at the request of AFSA and other trade associations, as the Bureau opted not to convene a formal Small Business Review Panel – which is required for most major new regulations. At the meeting, representatives of banks, credit unions and non-depositories offered perspectives on how the rule could further consolidate the residential mortgage market into the hands of a few large lenders. The groups spent a lot of time discussing the detrimental impact of the rule on portfolio lending, which could result in fewer choices for consumers, especially those with imperfect credit or nontraditional backgrounds.
The proposed rule would require consideration of a borrower’s ability to repay for most residential mortgages. In its July 2011 comment on the proposal, AFSA observed that the ability to repay requirement is subjective, making it difficult to determine when a creditor has complied. The QM standard favors conventional lenders that participate in the secondary market controlled by Fannie Mae, Freddie Mac and the Federal Housing Administration, which AFSA believes will make non-QM loans difficult to fund, thereby harming underserved communities. AFSA suggested an alternative ability to repay test that it believes will help preserve access to affordable mortgage credit.
The CFPB is expected to finalize the rule by January, when the underlying statutory provisions of the Dodd-Frank Act go into effect.

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Troubling New Mexico Language Provision to be Repealed

New Mexico Attorney General Gary King has decided to repeal Section 12.2.9, “Negotiating a Sale in Language other than English,” from the New Mexico Administrative Code, pending further review. The section required that customers receive written material terms of a transaction in the same language in which the transaction was negotiated, a requirement nearly impossible to comply with.
AFSA has been involved with this issue since the fall 2011, and sent a joint letter with the Consumer Installment Lenders Association of New Mexico earlier this summer outlining concerns about the attorney general’s proposed amendments to the rule.
The formal effective date of the repeal, which has yet to be filed, will be Aug. 30, 2012. The attorney general’s office will not take any action under the authority of this rule pending its formal repeal. The attorney general’s Consumer Protection Division will continue to monitor business practices involving such negotiations and King may take action in certain instances.

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Inside the Beltway
Bank Regulators Seek to Revamp Home Appraisal Process
American Banker (08/15/12) Adler, Joe and Berry, Kate

On Aug. 15, the Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corp., Federal Housing Finance Agency, Federal Reserve Board, National Credit Union Administration and the Office of the Comptroller of the Currency issued proposals establishing new appraisal standards for “higher risk” mortgage loans, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Many of the proposed standards have already been adopted by the industry after the housing crisis. “Higher-risk” mortgages would be defined as loans exceeding the average prime rate by 1.5 percentage points, by 2.5 percent for jumbo loans, and by 3.5 points for second liens.
The proposed rules would require an initial appraisal for “higher-risk” mortgages, an interior inspection of the property, and providing the consumer a free copy of the appraisal at least three days before the loan closes. If the home had previously sold less than 180 days earlier at a lower price, a follow-up appraisal and analysis would be required in an attempt to “address fraudulent property flipping by seeking to ensure that the value of the property being used as collateral for the loan legitimately increased.” The proposal also relies on other CFPB rulemakings that have yet to be finalized, including the exemption for “qualified mortgages” (QM) and the alternative calculation for annual percentage rates under their proposed disclosure plan.
In a separate proposal, the CFPB would require lenders to notify applicants of their right to an appraisal. Additional fees for providing the reports would be prohibited, although lenders could still charge a “reasonable fee” for conducting the appraisal. "When looking to buy a home or refinance a mortgage, consumers need the best available facts and data," said CFPB Director Richard Cordray. "This rule would guarantee consumers receive important disclosures on how a lender determines the value of the home, making it easier for loan applicants to make informed decisions."

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National and State News
Mayor Opposes Using Eminent Domain to Combat Foreclosures
Crain's Chicago Business (08/14/12) Tekippe, Abraham

After an April 14 Chicago council committee hearing, Chicago Mayor Rahm Emanuel spoke out against a proposal to use eminent domain to seize and restructure underwater mortgages. "The idea of using eminent domain is not one I support ... because I don't think it's the right way to address the problem," Emanuel said during an unrelated news conference. "I don't think it is the power of the city to deal with the housing issue. We have a national issue. I think we have to address the issue. I just don't think that is the right instrument."
At the committee’s hearing to learn about the proposal from Mortgage Resolution Partners, the investment company that devised it, supporters said it would keep Chicagoans in their homes and protect the value of the homes secured by the loans and neighboring properties that would be negatively affected by foreclosure. Under the proposal, Chicago would use eminent domain to seize the mortgages of underwater homeowners who are current on their payments, buy the loans using funds from the investment company at a discount, and refinance them with lower monthly payments. Mortgages guaranteed by Fannie Mae and Freddie Mac would not be eligible.
At the hearing, Thomas Deutch, executive director of American Securitization Forum, criticized the plan, saying it was unconstitutional and would have unintended consequences by discouraging lenders from doing business in Chicago. "(Eminent domain) is not and should not be intended to help borrowers who have the ability to pay on their contractual obligation," he said. According to Richard Friedman, an attorney that specializes in eminent domain cases, even if the city approved the plan, there would be a legal battle. "It could take several years from the time that the condemnation has begun in court to the time than an appellate court rules on it," he said.

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St. Louis County Council Foreclosure Mediation Clears Big Hurdle towards Passage
St. Louis Beacon (08/14/12) Rosenbaum, Jason

The St. Louis County Council initially approved an ordinance that would require lenders to offer mediation to distressed homeowners. The measure has one more vote before going to County Executive Charlie Dooley, who has stated he supports the proposal. Under the proposal, lenders would be required to enter mediation with the homeowner and a third party and pay a $500 fee for the session or face penalties.
Proponents of the measure, including housing advocacy groups as well as members of Metropolitan Congregations United (MCU), argue that the measure can slow down the foreclosure process and prevent mistakes. They have also said the county’s ordinance could send a message throughout the state and lead to other counties considering similar proposals.
Critics, however, have argued that the ordinance may have unintended consequences, such as affecting the pricing of loans. The legality of the ordinance has also been questioned. Keith Thornburg, vice president and general counsel with the Missouri Bankers Association, argued that the ordinance may violate parts of the Missouri Constitution by taking private contract rights. “This is simply beyond the realm of a county charter’s authority to override or add to state law,” Thornburg said. Chris Krehmeyer, executive director of Beyond Housing and a proponent of the proposal, said the legal arguments had no weight and noted that litigation to overturn an ordinance in Rhode Island failed even though it was a non-judicial state.

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TransUnion: Late Payment Rate on US Credit Cards Edges Higher in Q2, but Near 18-Year Low
Associated Press (08/14/12)

The average credit card debt per borrower in the U.S. rose six percent in the second quarter compared to a year earlier, reported TransUnion. In addition, the rate of payments at least 90 days overdue only grew slightly to 0.63 percent from 0.60 percent from last year, which marked the lowest level in 18 years. Despite the rise in borrowers’ average credit card debt, it is still about 13 percent less than in the second quarter of 2009. TransUnion predicted that severe delinquency rates on cards will remain near these low levels through the end of this year. Average credit card balances also rose on an annual basis, a reflection of the rise of job growth, improved consumer confidence, and an increase in the number of cards banks have been issuing, including lending to higher risk borrowers. The number of cards issued to consumers in the second quarter rose four percent from a year earlier, 26.1 percent of which went to non-prime borrowers. “The credit pie is bigger and non-prime consumers are getting a bigger slice of that pie,” said Ezra Becker, vice president at TransUnion’s financial services business unit. The rise in lending to higher risk borrowers is likely a result of tight competition for top-rated consumers that are not signing up for additional credit.

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More Banks Are Relaxing Car-Loan Standards
Wall Street Journal (08/14/12) Shah, Neil

Car financing is on the rise as more lenders see auto loans as an attractive and safe option to boost their interest income, especially with yields on alternatives like U.S. Treasuries remaining very low. Auto loans outstanding rose 5.7 percent from a year ago to $725 billion in the second quarter, the highest level since the first quarter of 2009, according to Experian. Unlike longer-term mortgages, car loans are relatively small and span three to six years, which is much more appealing to lenders. Another attraction of auto loans is that borrowers tend to skip mortgage payments before car payments because cars are more easily seized by banks. Auto-loan payments 30 days past due fell to a record low in the second quarter to 2.52 percent.
Lenders are also easing standards for making new auto loans – lending to subprime borrowers was up about one percent from a year ago. The availability of financing has also driven up auto sales; total sales rose 8.9 percent in July, according to Autodata Corp. In the latest period, half of the increase in lending came from banks and the rest came from auto makers’ finance units, credit unions and other financial firms. The Federal Reserve reported that finance companies increased auto loans during the first quarter by about $2 billion to $228.4 billion while reducing their credit card loans by $7 billion to $93.5 billion.

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Global Lending Services Acquires Resurgent Auto Finance
F&I and Showroom (08/14/12)

Subprime auto loan originator Resurgent Auto Finance has been acquired by Atlanta-based auto finance company Global Lending Services, LLC, which was formed earlier this year. "This is a very important milestone for Global Lending Services," said the company’s founder Douglas Duncan. "By making this acquisition, we now have a platform in place that will enable us to create a scalable subprime auto finance business and execute our plan to establish a national presence in the market. Resurgent Auto Finance is an exceptional company.” Global Lending Services has partnered with investment firm BlueMountain Capital Management, which will have majority interest in the company, of which Duncan will serve as chairman.

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August 16, 2012

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