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What GSE Reform Impasse Means for Other Bank Rules
American Banker (05/23/14) Adler, Joe

With congressional action over housing finance reform largely stalled, industry analysts note that it is increasingly unclear how long Fannie Mae and Freddie Mac loans will be exempt from the new mortgage rules released last and this year. The bulk of the loans in the market are backed by the two government-sponsored enterprises (GSEs). Analysts note that the delay in reforming the GSEs has put pressure on regulators to finish rules that would reestablish the struggling private securitization market and allow more participants that are not exempt from the rules to take advantage of programs that would allow them to complete with Fannie and Freddie.

While a bill to reform the securitization market is complete, backers in Congress and the administration are working closely with others to gain additional support for it. Without the backing of the more liberal wing of the Democratic caucus, the bill is unlikely to come to the floor of the Senate before presidential politics begins to distract politicians from congressional work. This means that Fannie and Freddie may remain under the auspices of the Federal Housing Finance Agency (FHFA) for many years.

Both the qualified mortgage (QM) rule – which creates an ultra-safe class of mortgages for those that meet certain requirements – and the risk retention rule – which requires securitizers to keep five percent of the loans sold on the market – have carve outs for Fannie Mae and Freddie Mac. The QM rule allows GSE-backed loans with higher debt-to-income ratios be considered a QM. The risk retention rule almost entirely exempts loans backed by the two GSEs as long as they are in conservatorship.

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New Member Welcome

AFSA welcomes new active members C&F Finance Company and MaryMae Financial, LLC, as well as new Business Partners Baker Donelson, Carma, Inc., RateGenius Inc. and STARS GPS.
C&F Finance Company is a regional finance company headquartered in Richmond, Virginia, that is focused on providing auto loans in 17 states. C&F Finance is a wholly owned subsidiary of C&F Bank, which was established in 1927.

Located in Gainesville, Florida, MaryMae Financial began operations in 2009 and is an HEOA compliant student lender, primarily lending in the trade, technology and IT industry. They provide tuition assistance exclusively to individuals who have been accepted for enrollment at approved vocational/training centers or technical trade schools within the United States.
Baker Donelson was founded in 1888.  With 20 offices, Baker Donelson gives clients access to a team of more than 650 attorneys and public policy advisors representing more than 30 practice areas.
Las-Vegas based CARMA designs robust compliance management functions and vendor management programs for CFPB-regulated entities.
Based in Austin, Texas, RateGenius is a multi-state, web-based loan brokerage company.
STARS GPS, located in Thomasville, North Carolina, STARS GPS provides technology with personal service, training and support for independent and franchise dealerships. STARS GPS offers the same personal on-site service for finance companies and their dealer clients and provides automated daily inventory management services that keep dealers constantly supplied with uninterrupted and seamless product flow based on their individual volume needs.

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Inside the Beltway
Why the CFPBs Position on Time-Barred Debt is Bad for Consumers
InsideARM (05/27/14) Narita, Tomio

The Consumer Financial Protection Bureau (CFPB), along with the Federal Trade Commission (FTC), has argued that debt collectors should make an affirmative disclosure to consumers if they are attempting to collect on a debt that cannot be judicially enforced. If they do not, the lack of a disclosure may violate the Fair Debt Collection Practices Act. In essence, the bureau wants consumers to know that their debts cannot be enforced by the law because the statute of limitations has expired, and thus, can choose not to repay them. Is this good consumer protection policy? No, writes Tomio Narita, partner of Simmonds & Narita LLP, in this opinion piece.

The cost of credit for all consumers will increase if the CFPB actively discourages consumers from paying debts that they actually owe, Narita contends. And this goes against what the CFPB and FTC have said in several reports issued in the last several years. “Consumer credit is a critical component of today’s economy,” stated a 2009 FTC report onCollecting Consumer Debts: The Challenges Of Change. “If consumers do not pay their debts, creditors may become less willing to lend money to consumers, or may increase the cost of borrowing money.” The CFPB and FTC have stated publicly that when consumers repay debts that they owe, everyone benefits.

The bureau has used its amicus program to support class action attorneys who are suing collectors that offer to settle time-barred debt as misleading and deceptive. In light of these cases, it may be difficult to collect on time-barred debt once the statute of limitation has passed. If creditors know they cannot collect on a debt, should they then stop collecting on their accounts or start suing every consumer before the statute of limitations expires? By encouraging consumers not to pay debts they owe, the CFPB is making credit more expensive for everyone, Narita concludes.

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CFPB Charges Ala.'s Largest Realtor with RESPA Violations
American Banker (05/28/14) Witkowski, Rachel

In an order issued on May 28, the Consumer Financial Protection Bureau (CFPB) announced that it fined Alabama’s largest real estate firm, RealtySouth, $500,000 for allegedly pushing customers toward an affiliated title services company. According to the complaint, the CFPB alleges that RealtySouth did not disclose to the consumer that they could shop around for title services and instead, directed them to TitleSouth, LLC, which is a subsidiary of the same holding company that owns Realty. The bureau contends that the actions were a violation of the Real Estate Settlement Procedures Act (RESPA).

It is legal to make referrals to companies, but the complaint alleges that RealtySouth used preprinted forms that “either explicitly or suggested that” the consumer use TitleSouth’s services. The company immediately changed the forms after being contacted by the CFPB, has agreed to paid a civil penalty of $500,000 and has not admitted to or denied the claims against it.

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National and State News
Home Equity Loans Pick up, but Slowly
Davidson, Paul (05/26/14) USA Today

After a prolonged slump, Americans again are utilizing home equity loans. Home equity lines of credit (HELOCs) originated by lenders rose 20 percent in 2013 to $92.5 billion, marking the largest increase since volumes began rising in 2011. The resurgence is being driven by an increase in average home prices, which in February were up 23 percent in 20 large cities from their March 2012 low, according to the S&P/Case-Shiller index.

However, analysts do not expect HELOCs to drive consumer spending as they did prior to the recession. In the first quarter of 2014, outstanding balances on HELOCs decreased for the tenth straight quarter to $526 billion, according to Federal Reserve Bank of New York report. The reduced balances are due to homeowners shedding more debt, through repayments and defaults, on the home equity loans they took out prior to the housing bust than the amount of new loans being generated. In addition, borrowers have become more conservative, which may translate into a smaller boost for the economy. "Housing isn't providing the same juice to consumer spending," said Mark Zandi, chief economist of Moody's Analytics. Currently, each $1 increase in housing wealth is leading to approximately an 8 cent increase in consumer spending, which Zandi said is about half of the traditional impact.

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Consumers Are Back to Paying Mortgages ahead of Credit Cards
The Wall Street Journal (05/27/14)

During the financial crisis, many Americans began paying their credit cards ahead of their mortgages, an unusual trend noticed by economists at the height of the housing bust. According to a new report by TransUnion, this trend is beginning to reverse as mortgages once again take precedence over charge cards. The same data also showed that before, during and after the crisis, Americans were far more likely to pay their vehicle loan than any other bill. The TransUnion report found that borrowers who saw a greater drop in the value of their home and higher unemployment were far more likely to miss mortgage payments while staying current on card payments.

Los Angeles provides a prime example of this trend from 2006-2011. As home prices plummeted 42 percent, the spread between mortgage and credit card delinquencies grew sharply. Analysts noted that homeowners were willing to default on their mortgages because they had  no equity in their homes and foreclosure was not an immediate process. Missing credit card payments can cause necessary liquidity to dry up rapidly. Additionally, individuals chose to pay their vehicle loans because without vehicles they would be unable to get to and from work.

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May 29, 2014

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Carleton, Inc.
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ParaData Financial
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AFSA Newsbriefs

AFSA Newsbriefs is a weekly executive summary of AFSA initiatives and consumer credit articles. AFSA Newsbriefs is free for members. Send an email to newsbriefs@afsamail.org to subscribe.

The American Financial Services Association, or AFSA, is the national trade association for the consumer credit industry, protecting access to credit and consumer choice. The association encourages and maintains ethical business practices and supports financial education for consumers of all ages.