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CFPB May Offend Both Sides in QM Compromise
American Banker (10/16/12) Davidson, Kate

The Consumer Financial Protection Bureau (CFPB) appears close to a compromise on qualified mortgages (QM) that meet an ability to repay standard for mortgage borrowers, but neither banks nor consumer groups could be satisfied. The industry is in favor of a clear safe harbor for lenders that follow the standard, while consumer advocates want the option to challenge some QM loans in court. CFPB officials reportedly are considering a tiered approach that would provide a safe harbor for the highest quality loans and a rebuttable presumption for higher-rate subprime loans. The rebuttable presumption means borrowers would still be able to argue in court that a lender failed to meet proper underwriting requirements. Sources also report that the Bureau is considering a maximum debt-to-income ratio of 43 percent for the QM definition.

"It's indicative of a bureau that has aimed for the ideological center in its rulemaking to date, in which it doesn't want the aggregate impact to be off-kilter toward one side of the spectrum or the other," said Isaac Boltansky, an analyst with Compass Point Trading & Research. "But I don't think either side will be particularly overjoyed by the rulemaking, however the rulemaking will finally be complete, which will allow the market to move forward."
Mike Calhoun, the president of the Center for Responsible Lending, said a rebuttable presumption for the whole market could be workable. "The safe harbor is a very blunt tool, and while we want to encourage lending, there is a real risk of providing immunity to a lot of unaffordable loans, and actually taking a step back from what the statute was trying to do," Calhoun said. "Everybody wants to see more lending, but they also don't want to see a return to the predatory lending that got us into this whole mess to start with."

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New AFSA Chair Installed at Annual Meeting

During AFSA’s 96th Annual Meeting in Chicago, Timothy Stanley, president & CEO, Heights Finance Corporation, was installed as the association’s 2012-2013 chairman. 

During his one-year term, Stanley will preside over the AFSA Board of Directors and Executive Committee meetings, serve as an ex-officio member of all AFSA committees, and represent AFSA at industry and association-sponsored conferences and meetings.

Stanley has been involved in the association’s leadership since 2004, when he joined AFSA’s Board of Directors and Independents Section Advisory Board. From 2007-2009, he chaired the Independents Section Advisory Board. Currently, he chairs the Advisory Board for the AFSA Education Foundation’s EDGE professional development program.

Stanley joined Heights Finance Corporation in April 2003 as its President, and in August 2004 was named President and Chief Executive Officer. Before Heights, Stanley worked with Wells Fargo Financial, Inc., for 23 years, starting in various branch office positions and progressing to Corporate Vice President of Global Learning and Development.

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AFSA Files Joint Amicus Brief in Insurance Obligations Case

On Oct. 12, AFSA filed an amicus brief with the Mortgage Bankers Association in the Kolbe v. BAC Home Loans Servicing case in front of the 1st Circuit Court of Appeals. The trade associations asked the entire court rather than a panel to rehear this appeal due to its nationwide significance.  “One would not think much would turn on the meaning of a single paragraph in a mortgage securing a single family home. But it does,” the brief stated. “Whether the third sentence of a [Federal Housing Administration] mortgage’s insurance clause caps the borrower’s obligation to maintain flood insurance at the minimum HUD-required coverage has immense significance – for borrowers, loan servicers, insurers, the FHA and FEMA.” The issues raised in the case are important for a large and growing number of putative class actions against loan servicers challenging flood insurance requirements and force-placed flood insurance premiums.

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Two Executives Honored with AFSA’s Distinguished Service Award

In recognition of their significant contributions to AFSA and the consumer finance industry, two members were presented with the Distinguished Service Award, the association’s highest honor, during AFSA’s 96th Annual Meeting. The recipients were Mary McDowell, president and chief executive officer of OneMain Financial/CitiFinancial, and Mark Roland, president & chief operating officer of World Acceptance Corporation.

As 2010-2011 AFSA chair, McDowell helped shape the association’s policies on a number of critical industry issues, including overseeing a task force to help the industry anticipate, respond to, and prepare for regulatory changes under the Dodd-Frank Wall Street Reform and Consumer Protection Act. McDowell has been a member of AFSA’s Board of Directors and Executive Committee since 2007. Currently, she serves on the Investment Policy Committee and AFSA Education Foundation Board.

Roland serves on the Independents Section Advisory Board, which he chaired 2010-2011, and the AFSA Education Foundation Board of Directors. He has been a member of the Professional Development Committee since 2007 and teaches a course on consumer lending each summer at the EDGE, formerly known as the National Institute on Consumer Credit Management.

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Inside the Beltway
US Consumer Agency Eases Credit Rule for Stay-at-Home Spouses
Reuters (10/17/12)

The Consumer Financial Protection Bureau (CFPB) proposed an update to the Credit CARD Act to allow stay-at-home spouses to rely on shared income when applying for a credit card. Currently, the 2009 law requires companies to consider an applicant's ability to pay, not total household income, before issuing a credit card. The Federal Reserve’s interpretation led to applicants without their own source of outside income being denied card accounts.
"Today the CFPB is proposing common-sense changes that would facilitate credit access for spouses or partners who do not work outside the home," said CFPB Director Richard Cordray. Under the proposed revision, applicants who are 21 or older will be permitted to rely on third-party income to which they have a "reasonable expectation of access."

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Student Loan Servicing Problems Mimic Mortgage Market: CFPB
American Banker (10/16/12) Davidson, Kate

In a report to Congress, the Consumer Financial Protection Bureau’s (CFPB) student loan ombudsman Rohit Chopra drew parallels between recent problems in mortgage servicing and the private student loan market. According to Chopra, borrowers reported being caught off guard by loan terms and conditions, having trouble resolving issues with their servicers and being unable to modify repayment terms. "Student loan borrower stories of detours and dead-ends with their servicers bear an uncanny resemblance to problematic practices uncovered in the mortgage servicing business," he said.
The CFPB has handled received more than 2,900 complaints about private student loans in the past seven months, with the majority related to loan servicing and loan modifications. "I see these complaints in our report in some ways serving as an early warning," Chopra said, while acknowledging that the study is based on anecdotal information and not statistically relevant. "In order to understand a more specific policy solution, we really have more work to do to see how widespread these practices are."
The report recommended that the Treasury Department look into the possibility of applying new mortgage servicing standards to student loan servicing and exploring ways to make loan modifications and refinancing more readily available for borrowers. The report also asked Treasury to continue encouraging private lenders to adopt the federal student loan income-based repayment program. 

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National and State News
States Shift Foreclosure-Suit Funds
The Wall Street Journal (10/18/12) Timiraos, Nick

Despite expectations that most of the funds allocated to states as part of the $25 billion settlement with the nation's five largest mortgage lenders would be used to help struggling homeowners, that has not been the case. According to a report by housing nonprofit Enterprise Community Partners, less than half of the money has been designated to help homeowners. Of the $2.5 billion states received, only about $1 billion have been designated for homeowner aid, while $1 billion will help close state budget gaps. The agreement stated that the state money should be used "to the extent practicable…for purposes intended to avoid foreclosures."

Enterprise Community Partners reported that only 14 states plan to spend their entire allotment on housing relief, with another nine spending most of their funds for housing. However, many of the largest states allocated the money to their general fund. Calif. Governor Jerry Brown directed his state's $410 million payout to existing state obligations over the objections of his attorney general, Kamala Harris, who said the funds should provide counseling and legal aid for distressed homeowners. And S.C. Governor Nikki Haley’s veto against diverting $10 million of the state's $31 million fund to lure out-of-state businesses was overturned by the legislature. The remaining $21 million went to the state general fund.
U.S. Department of Housing and Urban Development Secretary Shaun Donovan, who was instrumental in reaching the agreement, has urged state officials not to divert the settlement funds from housing.

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Capital One Auto Finance Names New President
F&I and Showroom (10/16/12)

Capital One Auto Finance announced personnel changes in an Oct. 16 filing with the Securities and Exchange Commission. Current president Kevin Borgmann was promoted to deputy chief risk officer, effective Nov. 1. He will replace Peter Schnall, who will remain in the post until June 1, 2013. “Mr. Schnall’s responsibilities through the remainder of his tenure as chief risk officer will include working closely with Mr. Borgmann on a smooth and effective transition,” the filing stated. Senior vice president Sheldon “Trip” Hall will assume the role of president. Hall has been with the company since 1998. 

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October 18, 2012

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The American Financial Services Association has provided services to its members for over ninety years. The association's officers, board, and staff are dedicated to continuing this impressive legacy of commitment through the addition of new members and programs, and increasing the quality of existing services.