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Consumer Bureau Proposes New Mortgage Disclosure Rules
The New York Times (07/09/12) Silver-Greenberg, Jessica

On July 9, the Consumer Financial Protection Bureau (CFPB) proposed new rules for mortgage disclosures that would require lenders to provide consumers with two new disclosure forms, the Loan Estimate and Closing Disclosure, which are intended to clarify the costs and risks of loans for consumers. The comment period is open until Nov. 6. The loan estimate, to be provided to consumers within three days of applying for a loan, would include interest rates, monthly payments, loan amounts and how they may shift over the life of the loan. Information about potential pitfalls and risky types of mortgages, such as prepayment penalties and the dangers of negative amortization, would also have to be outlined. Lenders also would have to provide the new five-page closing disclosure to consumers at least three days before closing.
Consumer advocacy groups support the proposed forms’ prominent disclosures of prepayment penalties, but wanted the total cost of the loan, including interest, closing costs and principal, emphasized on the first page. Industry groups have supported the idea of simplified disclosures, but have raised concerns about the 120-day comment period limiting industry and consumer advocacy groups from thoroughly reviewing the proposal, which exceeds 1,000 pages.
The Bureau also proposed new rules for “high-cost” mortgages – open for comment until Sept. 7 – which would prevent lenders from charging balloon payments and excessive late payment fees, or levying fees for loan modifications and payoff statements. Rules aimed at mortgage servicers are expected at the end of the summer and will likely include provisions that require servicers to credit payments to borrowers’ accounts promptly and institute clear procedures for handling documents.

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AFSA White Paper Extensively Previews 2012 State Elections

AFSA’s  latest white paper provides insight into what may happen in the states during the 2012 elections. The extensive report focuses on many different issues, including the effect of term limit restrictions and redistricting on state elections; impact of the 2010 U.S. Supreme Court Citizens United ruling and super PACs on corporate political activity in the elections; potential shifts in legislative party control; governor races; and a summary of questions that will be on state ballots.

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Joint Trade Letter to CFPB Addresses Mortgage Servicing

AFSA and several other trade associations sent a joint letter on July 11 to the Consumer Financial Protection Bureau (CFPB) regarding mortgage servicing. The letter was in response to the CFPB’s outline of proposals under consideration and alternatives considered for a small business review panel for mortgage servicing rulemaking. In the outline, the CFPB stated that it recognized a one-size-fits-all approach may not be optimal with regard to either the mortgage servicing requirements mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act or additional mortgage servicing requirements imposed by the CFPB. The CFPB asked for input to help it determine to what extent it may be appropriate to consider adjusting these standards for small servicers.
In addition to responding in detail to specific provisions of the outline, the joint trade letter asked the CFPB to consider several principles when drafting its Notice of Proposed Rulemaking and Final Rule. For example, the letter noted that the outline appears to be inconsistent with some regulatory guidelines that have become industry practice. The trades asked that the CFPB avoid changing long-standing policy or business practices without weighing existing practices and the costs of changing them. The letter also asked that the CFPB “avoid creating overlapping laws by preempting state law, and expressly provide that compliance with the CFPB’s rules will not create a state [Unfair or Deceptive Acts or Practice or] UDAP violation, state law violation, or violation under other federal laws…” In addition, the letter stated that “it is important that the CFPB indicate how servicers are to comply when there are competing, but not conflicting, requirements on the same subject.” Another principle the trades advocated was for the CFPB to develop rules that indicate an outcome rather than issue prescriptive operational requirements, to better allow mortgage services to evolve with the changing needs of the market. Lastly, the trades asked that the CFPB consider providing smaller servicers additional time to comply with some requirements.

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Inside the Beltway
Lawmakers Back Strong Lawsuit Protection for Mortgage Lenders
Bloomberg (07/11/12) Dougherty, Carter

Rep. Shelley Moore Capito, (R-WV) called for the Consumer Financial Protection Bureau (CFPB) to provide a “safe harbor” for mortgage lenders under the “qualified mortgage” rule at a July 11 House Financial Services subcommittee hearing. The regulation, which must be issued by Jan. 21, 2013, aims to discourage lenders from making risky home loans and provide guidelines for banks to verify borrowers’ finances, that if followed, protect them from being held liable for borrower defaults. Capito is one of 90 lawmakers, including 13 Democrats, planning to send a letter to the CFPB pressing them to provide the strongest possible legal protections to mortgage lenders that follow the rules. “We must ensure that reforms do not increase the cost of mortgage credit and therefore restrict credit-worthy borrowers from receiving mortgage loans,” Capito said. “If there is not sufficient legal certainty for these loans, the cost of credit for borrowers could rise as well as fewer mortgages being issued.”
The Bureau is considering two options for the level of legal protection afforded to mortgage lenders. In the initial rule in 2011, the Federal Reserve suggested either a “safe harbor” standard, which would offer lenders complete protection from liability; or a “presumption” that loans issued according to the standards were non-abusive – a standard that could be rebutted by a borrower in court. Industry has said that without a safe harbor the lending environment will become far more restrictive, particularly for vulnerable borrowers, because of lender fear of provoking extensive litigation. Richard Cordray, director of the CFPB, said the agency does not want the question to be decided in the courts, and emphasized that a clearly written standard is more important than which standard is chosen.

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How Specter of Regulatory Capture Shaped CFPBs First Year
American Banker (07/09/12) Blackwell, Rob

Since it began operations on July 21, 2011, the Consumer Financial Protection Bureau (CFPB) has taken steps to avoid the label attributed to other federal banking agencies after the financial crisis – becoming too soft on the banks they oversee because they became too close to them. For instance, the CFPB has limited hiring existing federal bank regulators, with only 28 percent of its 920-person staff coming from federal agencies as of June 2. According to CFPB director Richard Cordray, this stems in part from the Bureau’s focus on consumer protection rather than safety and soundness. "We have a somewhat different approach here," he said. "We are now examining institutions for how they treat consumers. It's not about the institution itself. It's about the impact on consumers."
But the CFPB’s hiring practices have led to complaints about inexperienced examiners. "They made a decision – a conscious choice – to avoid importing large chunks of the other agencies, because they didn't want to import their cultures," said Jo Ann Barefoot, co-chair of Treliant Risk Advisors. "Therefore, they've had more start-up challenges than they would if they brought in existing examiners." CFPB officials say they have hired examiners ranging from the highly experienced to relative novices. CFPB enforcement chief Steve Antonakes estimates that half of his supervision staff came from banking regulators and half came from the states and private sector.
Another staffing concern is their practice of bringing enforcement lawyers into the exam process at the onset, which underscores the industry fear that the CFPB will become an agency that regulates by enforcement. Banking regulators typically do not bring attorneys into the process unless an enforcement order is imminent. "From the beginning, this bureau integrated enforcement and supervision,” Cordray said. “We want supervision examiners to understand the role of enforcement. But we also – and this is important and the banks miss this – we want the enforcement attorneys to understand the role of examination and supervision."

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National and State News
Does San Diego Need a Foreclosure Registry?
U-T San Diego (07/11/12) Leung, Lily

The San Diego city attorney’s office is drafting an ordinance requiring banks and servicers to register residential properties upon the filing of a notice of default and imposing fines for properties not maintained. The city’s Land Use & Housing Committee voted to pursue the ordinance during their July 11 hearing, stating it would help stabilize communities and protect property values. Seventy-five other cities in the state have similar laws. The councilwoman that opposed the ordinance stated that it is unnecessary because of other foreclosure prevention measures in place, such as the nationwide mortgage settlement with the nation’s largest banks. The ordinance would require a fee to register and would impose penalties of $100 a day for failure to register and up to $1,000 day for banks’ failure to properly maintain the properties. Much of the debate throughout the hearing focused on the notice of default as the triggering point for registration. Gabe del Rio with Community Housing Works, an affordable housing nonprofit, was concerned that fined lenders would bring lawsuits against the homeowners for the fees. Real estate agents who opposed the ordinance emphasized that the use of default notices as the trigger for registration is too early because not every default notice results in a foreclosure, as homeowners could be pursuing a loan modification or short sale.

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California Homeowner Bill of Rights Signed Into Law
DS News (07/11/12) Barringer, Tory

On July 11, California Governor Edmund Brown signed into law two provisions of the Homeowner Bill of Rights – a package of bills introduced by the state’s Attorney General, Kamala Harris, that apply many of the provisions included in the nationwide mortgage settlement with the five largest banks to all mortgage servicers. “These new rules make the foreclosure process more transparent so that loan servicers cannot promise one thing while doing the exact opposite,” Brown said.
The bills, which will go into effect Jan. 1, 2013, prohibit practices including robo-signing and dual-track foreclosure, and impose civil penalties for violators. They also require lenders to provide homeowners with a single point of contact with knowledge of their loan and direct access to decision makers. Borrowers will now be able to file private lawsuits against lenders that violate the provisions. “This legislation will make the mortgage and foreclosure process more fair and transparent, which will benefit homeowners, their community, and the housing market as a whole,” Harris stated. Other bills in the Homeowner’s Bill of Rights are still pending in the legislature outside of the conference committee process, and include provisions that enhance law enforcement powers with regard to mortgage fraud, increase protections for tenants in foreclosed homes and target blight resulting from foreclosures.

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Falling Residuals Threaten Leasing
Automotive News (07/11/12) Henry, Jim

After two years of increases, lower residual values – which are based on what used-car values are projected to be at the end of the lease – are predicted for most of the top U.S. auto brands, according to ALG. Lower residual values could hamper growth in leasing and result in higher monthly payments. The decline is mostly due to the economic recovery being slower than anticipated, said Eric Lyman, director of residual solutions for ALG, although the outlook for leasing is still much improved compared to the last recession. "We have seen a little bit of softening in used values. They're still very strong by historical levels,” he added. Automakers have been more conscious of the drivers of residual values and have been sparing in their use of lease incentives on new vehicles, which would drive down the price of used vehicles.
Lease penetration is also expected to hold flat overall this year, but could rise in 2013, said Thomas King with J.D. Power and Associates. King noted the ongoing growth in the subprime market and longer-term loans, which consists of customers that often do not qualify for great lease deals. There has also been a drop in returning lease customers, which is a big factor in the recovery. "When you've got a lease maturing, as a customer you've got to do something. Now without that, you don't really have the same motivation; it's a discretionary thing. There will be more lease customers coming back in 2013. That will provide a natural lift in leasing," King said.

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July 12, 2012

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