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Home Lenders’ Fair-Lending Dilemma
American Banker (03/28/13) Vartanian, Thomas and Ledig, Robert

According to this opinion piece, the qualified mortgage (QM) and ability to repay rule recently released by the Consumer Financial Protection Bureau (CFPB) will put lenders in an awkward position when it goes into effect next January. They will need to develop mortgage underwriting standards that balance the financial risks of lending to customers who fall outside the new safe harbor mortgage rules with fair-lending laws.

This choice is a difficult and unfair one to force lenders to make and will result in a contraction of credit available to those who would not qualify under the QM rules requirements because lenders will want to avoid any loan that does not include a safe harbor provision. The text and intent of the Dodd-Frank Wall Street Reform and Consumer Protection Act pushes lenders to make QM loans; however, if they decide against extending a loan, and a proportion of those rejections were received by protected classes, federal agencies may charge lenders with fair-lending violations.

Agencies and the CFPB have been citing the disparate impact theory to charge lenders with discrimination. Under the theory, a lender may decide to issue only QM-loans in order to avoid loans that would have a higher probability of default or end in a lawsuit, but in doing so, would discriminate against those borrowers who do not qualify, even though they do not intentionally mean to do so.

As it stands, lenders do not have clear guidance on how to proceed and are being forced to make a choice between the possibility of bad loans or allegations of discrimination.

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Cordray to Speak at AFSA Independents Conference

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray is confirmed to speak at the AFSA Independents Conference on the afternoon of Wednesday, April 10. Cordray assumed the head role at the CFPB in early 2012 after previously serving as head of the bureau’s enforcement division. Before joining the CFPB, Cordray served as Ohio’s attorney general.

For conference updates, visit www.independentsconference.com.

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AFSA Comments on Impact of New Mexico Proposed Rule on Finance Companies

On March 7, AFSA submitted a letter to the New Mexico Attorney General’s Office outlining concerns about a proposed rule that imposes unnecessary and burdensome inspection requirements regarding the age and condition of a motor vehicle on finance companies involved in wholesale remarketing activities and/or the sale of off-lease vehicles to dealers and lessees. In the letter, AFSA highlights how the rule’s broad definition of “seller” unnecessarily includes finance companies engaging in these transactions, as the buyers described are not likely to derive significant benefits from the proposed rule. The buyer is either a dealer who is generally very skilled at assessing the age, condition and value of these vehicles, or a lessee who should already be aware of the age and condition of the leased vehicle as they have had possession of it for the term of the lease.

While the rule’s requirements provide little or no benefit to the purchasers, it places a significant burden on finance companies, which would have to enhance their pre-auction vehicle inspections, thus adding to the cost of remarketing values. In addition, the companies would have to hire more personnel to conduct end-of-lease transactions and meet the additional requirements. AFSA requested that the proposed rule be amended to expressly exempt finance companies engaging in wholesale remarketing activities and transactions in which a leased vehicle is sold to the lessee at the end of their lease term or to the dealer handling the return of the vehicle for the lessee.

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AFSA Article Appears in AARMR Newsletter

An article written by AFSA State Government Affairs’ senior vice president Danielle Fagre Arlowe appeared in the winter 2013 Newsletter of the American Association of Residential Mortgage Regulators. Entitled “Foreclosure Frictions Slows Housing Recovery,” the article points out that one of the main reasons the housing market is recovering at a “glacial pace” is because of the slow speed of many states’ foreclosure processes, particularly those that have judicial foreclosure. The piece highlights the speed with which many states are able to get properties back into the hands of qualified owners and borrowers and that most of these are non-judicial states.

The article may be found in the ARRMR Winter 2013 newsletter for members.

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Inside the Beltway
Fed Leaves Swipe Fee Cap Unchanged
American Banker (03/05/13) Witkowski, Rachel

The Federal Reserve Board announced on March 5 that it would keep its interchange fee cap at 21 cents per transaction after a new survey showed that 33 percent of debit card issuers averaged transaction fees over the cap. The rule, which took effect in 2011, does not place a cap on banks that have less than $10 billion in assets. Larger institutions also are permitted to charge an extra cent to offset the cost of certain fraud prevention activities.

Retailers who had pushed for a lower cap immediately were upset by the news that the fee would remain unchanged. "The Federal Reserve's unwillingness to revisit their flawed rules despite this compelling data is astounding and retailers will continue to use all means necessary to ensure the reforms are implemented as the law intended," said Bill Hughes, senior vice president of government affairs at the Retail Industry Leaders Association.

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Fed IG to Examine CFPB Exam Structure
Politico Pro (03/07/13) Davidson, Kate

The Federal Reserve’s Office of the Inspector General (IG) is undertaking a number of projects this year aimed at ensuring that the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act is being appropriately handled. One action, announced on March 7, is to look closely at the presence of enforcement attorneys in the Consumer Financial Protection Bureau’s (CFPB) exams. The attorneys usually do not attend examinations held by other bank regulators, but the CFPB has integrated them into a number of their examinations. This practice has drawn criticism from industry, who argues that it may hinder the free-flow of information between the parties concerned.

“Our objectives are to assess (1) the potential risks associated with this examination approach and (2) the effectiveness of any safeguards that the CFPB has adopted to mitigate the potential risks associated with this examination approach,” stated the IG work plan. CFPB Director Richard Cordray has stated that the agency is open to feedback.

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National and State News
Judge Halts St. Louis Foreclosure Mediation Ordinance
St. Louis Public Radio (03/05/13) Lippman, Rachel

Judge Robert Dierker issued a temporary stay to the St. Louis mediation ordinance that was issued and enacted in February. The ordinance would have required lenders to provide mediation counseling for borrowers who are behind on their mortgage payments, and would fine them if they did not. Judge Dierker cited the fact that the harm to lenders for not complying far outweighs that harm for borrowers if they do not comply.

A hearing for a preliminary injunction is scheduled for March 20. The St. Louis ordinance is nearly identical to one that was enacted in St. Louis County, but blocked by the State Court of Appeals.

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Fix Found for New Car Tax
Atlanta Journal-Constitution (03/05/13) Gould Sheinin, Aaron and Torres, Kristina

A bill that would have caused a double tax on leased as opposed to purchased vehicles in Georgia has finally found a fix with the help of Governor Nathan Deal. As lawmakers rushed last year to overhaul the state’s tax code, they failed to account for nuances of car leases, creating the double tax. The compromise solves that problem, which is a big concern in a state where leases account for 33.8 percent of all new car transactions, according to Experian.

An early version of the bill levied a two percent tax on buy here pay, here dealers. However, that version’s definition of “buy here, pay here” included dealerships that have majority ownership in a finance company making loans to car buyers.

The new deal does not try to define buy here, pay here dealers or regulate them, but instead leaves the decision to the state Department of Revenue. If the department creates new regulations, it can  give those dealers a larger break — 2.5 percentage points — on the normal title tax.

The measure is expected to be quickly signed by the governor.

Editor’s Note: Governor Deal signed House Bill 266 on March 6.

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Help for Underwater Homes
The Wall Street Journal (03/05/13) Dougherty, Conor

The number of U.S. homes ending up in foreclosure has begun to decline, partly because of growing housing market, but also because of the rising incidents of short sales as a strategy to avoid the costly measure. Homeowners are beginning to turn to short sales, and lenders are becoming better able to handle the requirements associated with them.

Foreclosures accounted for 11.5 percent of total home sales in October, down from 17.3 percent in October 2011 and close to 30 percent during the depths of the recession, according to CoreLogic. However, short sales have climbed from eight percent to 10.4 percent in the same period, showing that the strategy is catching on. Short sales generally bring in more money than foreclosure, so lenders are able to recoup more losses. Alternatively, consumers are able to move out of the home quickly and without a protracted legal proceeding, allowing them to move on. "Short sales change hands much more quickly," said Sam Khater, senior economist at CoreLogic. "That's a good thing for the economy and society." Homes also tend to be in better shape after short sales than foreclosures because a homeowner is constantly in legal control of the property.

In response to the rising trend, banks and other mortgage lending institutions have become much more efficient in processing short sales in the last year. Many banks have cut the time it takes to make a decision on a short sale process by nearly 25 percent.

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HSBC Sells U.S. Loan Portfolio for $3.2 Billion
New York Times DealBook (03/05/13) Werdigier, Julia

HSBC, the British bank that has been systematically shrinking its holdings in the U.S. mortgage market citing a drag on earnings, has sold a portfolio of unsecured personal loans and mortgages to Springleaf Financial and Newcastle Investment Incorporated for $3.2 billion. HSBC’s loan servicing arm in London, Ky. is also being sold to Springleaf. The portfolio includes nearly 400,000 loans, which will be serviced by Springleaf.

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March 7, 2013

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AFSA Newsbriefs

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