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HUD Rule Renews Fair-Lending Fears
American Banker (02/13/13) Wack, Kevin

The Department of Housing and Urban Development (HUD) issued a long anticipated rule that likely will make it easier for borrowers to win fair-lending disputes. The new rule adopts a theory that has been used in practice for many years that fair-lending cases may be brought when lending policies have a "disparate impact" on minority groups, even without evidence of an intent to discriminate. Lenders argue that merely arguing that certain loan products have slightly different impacts then others is not justification enough for penalties under a rule. "It's as extreme as it could be in adopting the disparate impact approach," said Paul Hancock, a partner at K&L Gates.

The new rule establishes a long used three-part test to determine the affects of disparate impact. The test splits the responsibility and burden of proof between the defendant and plaintiff. However, opponents of the rule argue that the test as written makes it much easier to proceed with a disparate impact case.

The Supreme Court is set to hear a separate case  as to whether disparate impact theory can be applied in terms of fair lending. Many bank lawyers and opponents of the new HUD rule argue that the regulation itself is written in such a way to assure that the Supreme Court rules in the federal agency’s favor.

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AFSA Attends Panel on Information Sharing between CFPB, FTC and AGs

AFSA staff attended a Feb. 13 panel organized by Washington law firm Dickstein Shapiro on information sharing between the Consumer Financial Protection Bureau (CFPB), Federal Trade Commission (FTC), and state attorneys general.

Panel participants included Kent Markus, CFPB Assistant Director for Enforcement; Reilly Dolan, FTC Assistant Director, Division of Financial Practices; Doug Gansler, Maryland’s Attorney General and President of the National Association of Attorneys General (NAAG); and John Suthers, Colorado’s Attorney General.

Among the issues discussed were efforts undertaken between Colorado, the CFPB and the FTC to regulate payday lending. Gansler mentioned that last year’s multistate settlement with mortgage servicers has provided millions of dollars to expand the National Attorneys General Training and Research Institute. He also discussed NAAG’s project regarding privacy in the digital age.

Marcus explained that the CFPB is cooperating with state and local entities to build systems to capture and share trends that otherwise might not be identified by law enforcement. Panelists agreed that it is important for companies to fix internal problems before they are approached by examiners.

The CFPB is considering inviting staff from state AG offices to perform temporary details at the Bureau to learn about its methods and enhance information sharing. The FTC’s Dolan discussed how the CFPB has progressed on handling consumer complaints, revealing that the FTC will share complaints with the CFPB in a similar manner to how the Bureau refers complaints to the FTC.

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Inside the Beltway
CFPB Launches Plan to Help Lenders Comply with New Rules
American Banker (02/13/13) Witkowski, Rachel

The Consumer Financial Protection Bureau announced on Feb. 13 that it will launch a new strategy to help lenders understand and implement new rules mandated by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. "Our plan is to work with the mortgage industry to ensure that the CFPB's new rules are implemented accurately and expeditiously," said CFPB Director Richard Cordray. "Both consumers and industry will win when the new rules are understood, applied, and carried out evenly and effectively."

The industry has remained concerned with ambiguities in the many rules promulgated by the bureau, as well as the looming deadlines they face to fully implement them. The CFPB has promised easy to read summaries, compliance checklists and other tools to help mortgage lenders and mortgage loan originators with the transition, but little has been released thus far.

The Federal Financial Institutions Examination Council is expected to release a more robust examination process later this year. The CFPB is also slated to release consumer-focused training materials, including plain English explanations of rights and video tutorials of the mortgage process, sometime in 2014.

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CFPB to Patrol Risks from Mortgage Servicing Handoffs
American Banker (02/11/13) Adler, Joe

Mortgage servicers received new guidance on Feb. 11 from the Consumer Financial Protection Bureau (CFPB) regarding how they plan and document the exchange of rights to manage a portfolio. The bureau stated it had received numerous consumer complaints that the companies were not honoring loan modifications and other key aspects after a loan was sold to a new company. "Consumers should not be collateral damage in the mortgage servicing transfer process," said CFPB Director Richard Cordray. "This guidance directs all mortgage servicers, both banks and nonbanks, to follow the laws protecting borrowers from the risks of such transfers, and makes clear that we will be monitoring them for compliance."

The bureau will begin a supervisory process in order to establish when a company has responsibility for a given loan during the transfer process and ensure that loan servicers have enough trained staff to answer consumer’s questions about the transfer process. "During the course of supervision, examiners are assessing the policies, procedures, systems, and controls that servicers have established to address the risks to consumers in connection with servicing transfers," the CFPB said.

In some cases, companies will have to submit written plans to the CFPB to ensure that no loans fall through the cracks, leaving consumers with nowhere to turn. However, the CFPB made it clear that it would use the plans to assess the processes of mortgage servicers; they do not need approval from the bureau to engage in transfer actions.

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Dodd-Frank Implementation Defended by U.S. Regulators
Bloomberg News (02/14/13) Hopkins, Cheyenne

During testimony before the Senate Banking Finance Committee on Feb. 14, agency officials from the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. reported that they are making significant progress in avoiding another financial collapse. “Progress we have made so far is because of the reforms that we are putting in place, not in spite of them,” said Mary Miller, Treasury undersecretary of domestic finance, as she defended the department’s efforts to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act. Less than half the rules mandated by the 2010 law have yet to be implemented. The hearing was scheduled to monitor the implementation progress of the sweeping legislation.

Witnesses argued that the rules implemented thus far make the financial system for more stable and make huge strides toward protecting consumers. The director of the Consumer Financial Protection Bureau (CFPB), Richard Cordray, addressed the hearing regarding the progress of his agency’s progress in implementing a number of new rules, most notably the qualified mortgage rule.

Senator Michael Crapo (R-ID) raised concern over Cordray and other witnesses’ remarks, “I am concerned that the regulators do not understand the cumulative effect of the hundreds of proposed rules, and that there is a lack of coordination among them, both domestically and internationally,” he stated.

According to a tracking report issued by the law firm Davis Polk & Wardwell LLP, federal regulators have missed 279 rulemaking deadlines and have only successfully implemented 148 of the 398 Dodd-Frank rules.

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National and State News
Illinois Allows Lenders to Fast-Track Foreclosures for Abandoned Homes
DSNews.com (02/13/13) Brock, Krista Franks

A new Illinois law is taking an important step in speeding up the state’s stalled foreclosure process, by fast tracking the foreclosure process for homes that are vacant or abandoned. The new law will cut down foreclosure timelines from nearly two years to between 90 and 180 days. “This law will help restore neighborhoods and property values while fighting crime and blight by decreasing the time a home sits empty and getting it back on the market quickly,” said Illinois Governor Pat Quinn.

Lenders must comply with notice and vacant property requirements, and a judge must validate that the property is vacant, but the new law will help get homes back into the hands of responsible owners. Another bill, Senate bill 16, will establish the Foreclosure Prevention Fund and the Abandoned Property Municipality Relief Program from fees collected by banks beginning the foreclosure process. The funds will be dispersed to needy homeowners for housing counseling, as well as offset the cost of upkeep for abandoned properties.

The fees the banks owe depend on how many foreclosures they initiate each year, with high volume lenders paying more and lower volume lenders paying less. Governor Quinn estimated the new program will bring in approximately $120 million over the next three years.

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Eight More States to Join Suit against CFPB
American Banker (02/13/13) Witkowski, Rachel

The attorneys general of Alabama, Georgia, Kansas, Montana, Nebraska, Ohio, Texas and West Virginia are asking to join a lawsuit against the CFPB, stating that the bureau’s actions are unconstitutional and hurt community banking. "The state of Texas is challenging Dodd-Frank because it gives too much power to the federal government — and puts taxpayer dollars at risk," said Texas Attorney General Greg Abbott.

The lawsuit contends that the structure of the CFPB is unconstitutional and that the president did not have the authority to make the recess appointment of the bureau’s director.

Texas community bank, State National Bank of Big Spring, as well as the 60 Plus Association and the Competitive Enterprise Institute, were the original plaintiffs in the case. In September, three attorneys general from Oklahoma, South Carolina and Michigan joined the case.

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RealtyTrac: California Leads Sharp Drop in US Homes that Entered Foreclosure in January
Associated Press (02/13/13)

According to RealtyTrac, foreclosure starts – the countdown toward foreclosure that begins when mortgages go unpaid – fell by 28 percent in January, the best the housing market has seen since June 2006. The drop in starts is a result of new legislation that went into effect in California, a state that has seen a large volume of foreclosures and the largest drop in starts. A set of new consumer protection state laws allow consumers to avoid foreclosure, including providing for a single point of contact and prohibiting companies from continuing the foreclosure process while consumers are applying for alternatives.

“Unfortunately, down the road, we usually see a boomerang effect as some of those delayed foreclosures come back and actually end up being foreclosed-upon,” said Daren Blomquist, a vice president at RealtyTrac.  Similar laws in Nevada and Washington also have led to sharp declines in foreclosure starts.

In January, 64,773 homes nationwide were on the path to foreclosure,  with nearly 50,453 complete, down from five percent in December and 24 percent from the previous year.

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February 14, 2013

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