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CFPB Eases Mortgage Servicing Rules
American Banker (10/15/13) Witkowski, Rachel

The Consumer Financial Protection Bureau (CFPB) issued a bulletin and interim final rule on Oct. 15 to clarifying its mortgage servicing rules. The clarifications will make a number of changes to how servicers interact with borrowers and how they can best assist struggling homeowners.

“As servicing implementation enters its final phases, we heard from many sources that it was important to address these remaining issues to ensure a smooth transition and provide certainty to the market,” said CFPB Director Richard Cordray. “When mortgage servicers better understand the rules they have to follow, that is better for consumers.”
The modifications are meant to address significant concerns brought to the bureau by lenders. One of the main issues was how lenders should interact with borrowers who fall under bankruptcy protection. The modified rules do not require lenders to send additional notices and statements to consumers who are in bankruptcy.
However, the CFPB noted that servicers will still be required to send certain notices that are required under the Fair Debt Collections Act (FDCA), even if that borrower has opted out of receiving correspondence from the company. The modified rules also lay out how servicers should interact with next of kin if a borrower dies and requires servicers to intervene early with borrowers who are delinquent in their payments. The rules, including the qualified mortgage rule, go into effect Jan. 10.

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AFSA Shares Concerns with Proposed N.Y. Debt Collection Regulation

On Oct. 11, AFSA submitted a comment letter to the N.Y. Department of Financial Services regarding its proposed debt collection regulations, which would impose significant and unusual requirements on creditors collecting their own debts or the debts of their affiliates, or taking assignment of current obligations prior to default. AFSA expressed several concerns with the broad definitions in the proposal, which would apply the new notification, disclosure and verification of debt requirements to creditors that generally are not subject to the Fair Debt Collection Practices Act (FDCPA) in addition to third-party debt collectors and debt buyers (who are the stated focus of the rule). The requirements would impose undue burdens on creditors and are unnecessary because of the ongoing relationship a creditor has with a consumer and the additional information about a debtor and accounts a creditor operates with. AFSA recommended the department make several amendments to clarify the regulation, highlighting the important distinctions between creditors and debt buyers and debt collectors. 

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Inside the Beltway
CFPB Pushing for Overhaul of Student Loan Servicers
American Banker (10/16/13) Witkowski, Rachel

The Consumer Financial Protection Bureau (CFPB) is urging an overhaul of private student loan servicing, similar to changes already implemented in the mortgage industry. The bureau issued a report on Oct. 16 based on student loan complaints it received between October 2012 and September 2013.

Many of the 3,800 private student loan complaints that the CFPB reviewed were related to payment processing issues and nearly half were from struggling borrowers faced with additional fees to get a modification or reduce monthly payments. According to Rohit Chopra, the CFPB's student loan ombudsman, these complaints point to systemic issues throughout the entire servicing process. "I'm concerned that the same chaos and confusion we saw in the mortgage market may be repeating itself in the student loan market," Chopra said. "Recent reforms to credit cards and mortgage servicing may provide clues on how to make student loan servicing work better."
While the student loan servicing market overall has been reduced dramatically, with the majority of loans federal rather than private, the CFPB argues that private loans typically come at a greater cost with higher and variable interest rates. The agency previously issued a proposal to expand its authority under its larger participant rulemaking to supervise nonbank student loan servicers.
The CFPB report said servicers should be required to issue more transparent and timely disclosures. As part of the report, the CFPB issued a consumer advisory with a template for borrowers who feel they are getting the runaround from a servicer. In addition, Chopra said the bureau would monitor what servicers affiliated with banks under its jurisdiction are doing to work with struggling student loan borrowers.

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Regulators Must Stop Policymaking-by-Enforcement
American Banker (10/16/13) Maarec, Adam

Earlier this year, the N.Y. Department of Financial Services (NYDFS) sued insurance companies that offer lender-placed insurance and began a trend that should be disturbing to many in the financial services industry, writes attorney Adam Maarec in this opinion piece. Immediately following the NYDFS’ actions, the agency sought and obtained consent orders from other insurers in the state. Instead of following a standard process, which usually includes draft rules and an open comment period, the NYDFS made new rules by suing insurers. The NYDFS policy has created doubts about how to comply among many in the industry.
Other states are following New York’s lead. Florida recently rejected several rate filings by lender-placed insurers. While the states have the right to review rates filed by insurers, the lack of a specific and defined rulemaking process leaves insurers guessing.
The Consumer Financial Protection Bureau (CFPB) has operated in a similar manner. “When the CFPB was formed in 2010, many skeptics feared it would set policy by enforcement. Two years later, they have been proven right,” Maarec asserts. The CFPB has taken five enforcement actions related to ancillary products and issued two bulletins – all of which contain significant policy statements and specific requirements for compliance. However, the CFPB failed to put these specific policies out for public notice and comment, leaving the industry dealing with uncertainty.
If states want to regulate the lender-placed insurance industry and the CFPB wants to take a harder look at ancillary products, they should closely follow the established paths of drafting rules, allowing for comment by industry and then issuing finalized rules, the opinion article states. Clear rules will permit the financial services industry to better serve the consumers of all states.  

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National and State News
Fed Beige Book Tells a Modest to Moderate Growth Story
The Wall Street Journal (10/16/13) Portlock, Sarah

The Federal Reserve released its beige book of economic indicators that combines economic data from the 12 Federal Reserve banks across the country and provides indicators to analysts. Generally, the report was optimistic and noted that the U.S. economy is growing “modestly to moderately.” The Fed noted during its last meeting that the economy still needed support and that it will continue its $85 billion bond buying program.
Many of the Fed’s districts reported increases in construction and higher consumer and tourism spending, which points to a slowly strengthening economy. The report noted that auto sales were strong in a number of districts – particularly New York – and that employers were cautious with growing their workforce because of concerns over the requirements of the Affordable Care Act. Bright spots in the report included increased hiring in construction, particularly in the Boston area, and increased overall loan growth.

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Shutdown Affecting Job and Loan Applications
The Hill (10/15/13) Knott, Jeffrey

The federal government shutdown has had far reaching unintended consequences. This opinion piece from an assistant vice president at Equifax points out that new loan and job applications have stagnated because Internal Revenue Service (IRS) service center employees are furloughed and thus cannot provide the tax transcripts and wage statements that companies rely upon to verify income and employment status.
The IRS receives tens of thousands requests a day from individual employers and loan officers as well as large companies that offer verification services. Once the government reopens, it could be some time before the process returns to normal. The IRS will have to determine the best way to work through the backlog, which may include hiring temporary staff, extending working hours and offering overtime. The author points out the inefficiency of the IRS’ process, which still relies upon faxes, and recommends implementing a private sector system for securely accessing transcript information.

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FHA Urges Mortgage Forbearance during D.C. Shutdown
American Banker (10/11/13) Berry, Kate

The Federal Housing Administration (FHA) called for lenders to work closely with borrowers who may be affected by the federal government shutdown and, if necessary, offer temporary forbearance. FHA Commissioner Carol Galante stated that lenders should "make every effort to communicate with and assist affected borrowers."
With the announcement, the FHA joined Fannie Mae and Freddie Mac in calling for temporary forbearance for struggling borrowers. The FHA outlined that forbearance could be informal and that while participation is voluntary, lenders could waive fees, suspend credit reporting and evaluate borrowers for loss mitigation earlier than the companies normally would do so. Several companies have announced that they will take similar measures.

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Why Bankers Need to Know North Dakota's Freshman Senator
American Banker (10/15/13) Finkle, Victoria

Sen. Heidi Heitkamp (D-ND) has made a quick name for herself on Capitol Hill and has emerged as a key figure on the Senate Banking Committee. Since she beat out Republican incumbent Rick Berg in 2012, she has worked on the bipartisan housing refinance bill and led the charge for legislation that would provide monetary relief for smaller banks.
Heitkamp’s real strength is her ability to quickly form alliances in a Congress that seems more divided and polarized than in any other time in history. "I think a lot of people will look at Sen. Heitkamp as someone who they can work with on either side, because she's not coming to the committee with a preset agenda," said Edward Mills, a policy analyst at FBR Capital Markets. She continues work on landmark legislation that would overhaul the mortgage finance system with Sens. Bob Corker (R-TN) and Mark Warner (D-VA). Heitkamp also worked closely with Sen. Sherrod Brown (D-OH) on a bill that would permit student loan borrowers to refinance their private loans. She has argued that the current generation’s student loan burden is choking off innovation.
Heitkamp also has expressed concerns with many of the regulations resulting from implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. She remarked that the law does not "take into consideration long-term relationship banking," adding that the industry "isn't just about numbers."

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October 17, 2013

Forward To A Colleague

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AFSA Newsbriefs

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