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A Detailed Look at CFPB's Tough New Servicing Rules
American Banker (01/17/13) Witkowski, Rachel and Kate Berry

New mortgage servicing rules released by the Consumer Financial Protection Bureau (CFPB) on Jan. 17 were much tougher than the qualified mortgage rule released last week and far harsher than the industry expected.  The new rules, which will go into effect Jan. 10, 2014, have a number of critical provisions for the mortgage industry. Dual-tracking, or the process of moving forward with a foreclosure while simultaneously working with a borrower on a loan modification, is prohibited. Nor can servicers initiate a foreclosure if a modification application has been filed, and if the foreclosure process has begun, a borrower may still file an application for a modification, at which point the servicer must halt the foreclosure. The rule also forces servicers to wait until a loan is at least 120 days delinquent before initiating a foreclosure, a requirement that supersedes state laws that permit shorter timetables.

Under the rule, force-placed insurance cannot be required on a mortgage unless numerous requirements are met; the servicer has a “reasonable basis” to believe such insurance is necessary, and the borrower has been adequately informed of the terms of the insurance policy. Servicers must notify customers at least 45 days before charging for force-placed insurance and send a second notice at least 15 days prior to charging any fee. Also, they must cancel any force-placed insurance within 15 days and refund all premiums if the borrower provides proof of hazard insurance coverage.

Servicers are required to inform borrowers of their loss mitigation options, make a good faith effort to establish live contact with a distressed borrower who may be behind on payments and provide written notice of loss mitigation options if an account is 45 days delinquent.

New disclosure rules also require a myriad of requirements for servicers. Billing statements must include more information about payments due and made, fees incurred and contact information for housing assistance organizations. Borrowers with adjustable-rate mortgages must be informed within 120-140 days before their first adjustment occurs. Servicers have five days to acknowledge that an error has occurred and have 30-45 days to correct the error.

Smaller institutions that service less than 5,000 mortgage loans and that only service mortgages that they or an affiliate originated or own are exempt from a number of the new regulations.

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Montana Retail Installment Sales Bill Amended to Address AFSA Concerns

After a Jan. 10 hearing, the Montana House Business and Labor Committee amended Montana House Bill 63, a bill that makes several changes to the Retail Installment Sales Act, to address concerns raised by AFSA and other industry trades. On Jan. 7, AFSA submitted a letter to Montana Banking and Financial Institutions Commissioner Melanie Hall recommending several changes to HB 63, which as drafted would have resulted in an unnecessary burden on financial institutions that purchase retail installment sales contracts. At the hearing, the committee and Commissioner Hall agreed to several revisions proposed by AFSA and other trade associations, including the removal of a proposed section that would have subjected the holder of a retail installment sales contract to all claims and defenses of the buyer.

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Inside the Beltway
FDIC Approves Home Appraisal Rule
Politico PRO (01/15/13) Davidson, Kate

The Federal Deposit Insurance Corp. (FDIC) approved a joint rule on Jan. 15 that would impose new appraisal requirements for high-priced mortgages, as part of a slew of new rules stemming from the continued implementation of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

The joint rule will require a lender to obtain a written appraisal for a high-priced mortgage loan from a licensed appraiser who has visited the property in person. In a move to prevent fraudulent home flipping, a lender must also pay for and submit a second appraisal if the home has been sold at a lower price within the last six months. A high-priced mortgage under the rule is considered one that is not a “qualified mortgage,” is secured by a primary dwelling and has an interest rate that exceeds the average prime offer rate by 1.5 percentage points, or 2.5 points for jumbo loans.

The rule, which will take effect Jan. 18, 2014, was issued jointly by the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency, Federal Reserve Board, National Credit Union Administration and Federal Housing Finance Agency.

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FDIC's Longtime Head of Supervision to Leave
American Banker (01/14/13) Adler, Joe

The Federal Deposit Insurance Corporation’s (FDIC) supervision chief is stepping down to take a job at the Federal Housing Finance Agency (FHFA). Sandra Thompson, who has been with the FDIC's Division of Supervision and Consumer Protection since 2006, will be replaced by Doreen Eberly.

Eberly has been with the FDIC since 1987 and has served in a wide variety of roles, including the New York regional director, the acting deputy to former FDIC Chairman Sheila Bair and senior deputy director for Risk Management Supervision.

Sandra Thompson has held numerous positions at the FDIC, including deputy to the FDIC vice chairman and deputy director for special projects in the Division of Depositor and Consumer Protection.

At the FHFA, Thompson will be the agency's deputy director of housing mission and goals. Her last day at the FDIC will be Feb. 1.

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National and State News
Captives Gain Stature among Auto Execs
Automotive News (01/16/13) Henry, Jim

In KPMG’s latest Global Automotive Executive Survey of top auto executives, CEOs of captive finance companies received increasingly high marks. “Captive finance is becoming an increasingly important part of the value proposition for consumers and OEMs alike,” said Gary Silberg, Chicago-based national automotive industry leader for KPMG.

Two hundred auto executives, representing manufacturers, captive financers, suppliers and dealers, participated in the survey, which found that 54 percent of respondents rated captive financing and leasing either “extremely important” or “very important” as a key automotive trend. The figure is more than double last year’s 26 percent. In 2013, 71 percent of survey respondents rated operating a captive finance company as important to an OEM’s future success, up from 64 percent in 2012.

Also in 2013, 82 percent of survey respondents rated competitive financing options as either “extremely important” or “important” to consumer vehicle purchasing decisions, up from 60 percent in 2012.

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Eminent Domain Mortgage Plan Who Wants to Go First?
Politico PRO (01/14/13) Prior, John

Investor groups are poised for a lengthy legal battle, as numerous county and city governments have been exploring using their eminent domain powers to assist homeowners who may be underwater on their mortgages. The plan was devised by Wall Street firm Mortgage Resolution Partners (MR) and was brought to national attention last year when San Bernardino, Calif. developed a joint powers authority to consider the proposal. The city council will meet Jan. 24, and if they decide to move forward with a plan to use eminent domain, the jurisdiction will be the first to take such drastic action.

However, very few municipalities are moving ahead with plans to use eminent domain any time soon. Brockton, Mass., City Council President Tim Cruise said that his jurisdiction would not be a testing ground for such a plan. Wayne County, Mich., has dismissed using the eminent domain tool. Likewise, the city of Chicago, whose city council is still officially considering its use, has unofficially tossed the idea aside. All of the municipalities have cited the high cost of litigation as the main reason behind not pursuing the plan.

MRP would stand to make the most from a municipality’s use of eminent domain. The company would help determine which loans to select, handle writing down the appropriate principal and then refinance the mortgage into a new one backed by the Federal Housing Administration. Investors in MRP would profit off the difference between what is paid to seize the loan and the revenue gained from the new refinanced mortgage, plus a $4,500 advisory fee per loan charged to the local government.

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Prepaid Debit Card Marketers Settle Florida Case Over Disclosure of Fees
Orlando Sentinel (01/16/13) By Burnett, Richard

Several pre-paid debit card companies have reached a settlement with Florida state regulators after complaints surrounding their marketing practices surfaced. The companies will pay a combined $325,000 to the state for investigation costs and $115,000 in charitable donations to Orlando-based Junior Achievement of Central Florida for financial literacy programs. The deal also requires the companies to provide better disclosure of fees in their marketing, as well as stop advertising that claims the use of pre-paid debit cards helps increase a user’s credit rating.

Florida regulators noted that while prepaid cards may offer a convenient service for some consumers, consumers should be mindful that undisclosed or poorly disclosed fees can make the cards very costly.

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Santander, JAC Get Regulatory Approval for Car Lending Venture
Wall Street Journal (01/13/13) Bjork, Christopher

Banco Santander has been approved to operate a joint-financing company with Chinese automaker Anhui Jianghuai (JAC) by the Chinese Banking Regulatory Commission. Santander, which has operations in Europe and the United States, first began setting up Fortune Auto Finance Co. in December 2011.

The venture will offer financing for a number of automakers, including JAC, which sells cars in China through nearly 1,000 dealers. With approximately 19 million cars sold in the country in 2012, China is the world’s largest vehicle market. Santander and JAC will put up an initial 500 million yuan, or $80 million.  Santander will name Fortune Auto Finance’s chief executive and key management, while each company will have three board members apiece.

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MetLife Exits Banking with Sale to GE
Wall Street Journal (01/15/13) Holm, Eric

A deal to sell MetLife’s online-banking division to General Electric Co. has been finalized, receiving approval from the Office of the Comptroller of the Currency (OCC) after a lengthy approval process that began in December 2011. MetLife has been eager to shed its banking division and the Federal Reserve capital constraints that accompany it. However, MetLife likely will be regulated as a systemically important non-bank financial institution under the Dodd-Frank Wall Street Reform and Consumer Protection Act for its insurance business.

The sale process gained some urgency in March 2012, when MetLife failed the Fed's stress test, forcing the insurer to backtrack on a plan to return capital to shareholders. MetLife and GE were forced to restructure the transaction in September 2012 after waiting months for approval from the Federal Deposit Insurance Corporation (FDIC). As a result, MetLife sold its banking division to a different department at GE, allowing the OCC to approve the transaction and move the process forward.

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January 17, 2013

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AFSA Newsbriefs

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