Mortgage Banking &
Consumer Financial Products Group
Highlight of 2010 Activities
K&L Gates maintains one of the most prominent financial services practices in the United States
—with more than 150 U.S.-based lawyers representing diversified financial services institutions
and their affiliated service providers. Our practice is at once regional, national, and international
in scope, cutting edge, complex, and dynamic. Amidst the constant stream of negotiating
transactions, providing regulatory counseling, defending clients in litigation or government
enforcement actions or advocating on the policy side, our lawyers try to find time to educate
and train clients on the major industry issues of the day. We do it through webinars, seminars,
client alerts, and we remain available to do on-site training. Below is a sample of the types of
educational endeavors the Mortgage Banking & Consumer Financial Products lawyers have
undertaken in 2010.
high-profile,
complex and important cases in the
“A go-to firm for the most
consumer area.” -
Chambers 2010
The New Fannie Mae, Freddie Mac, and
FHLB Whistleblower Rule, by Kristie D. Kully.
Mortgage Banking & Consumer Financial Products
Alert, February 1, 2010.
The new Federal Housing Finance Agency, which
regulates Fannie Mae, Freddie Mac, and the
Federal Home Loan Banks, issued its final rule to
require those entities to report to the Agency loan
fraud or possible fraud in connection with all their
products and programs. The rule implements a
provision in the Housing and Economic Recovery
Act of 2008, which provides that those government
sponsored entities (and their officers, directors,
attorneys, and accountants) are protected from
liability when they report such mortgage fraud in
good faith. This client alert describes the rule,
which becomes effective February 26, 2010.
HUD’s Adventures in Wonderland, by Costas
A. Avrakotos and Kerri M. Smith. Mortgage
Banking & Consumer Financial Products Alert,
February 8, 2010.
Webinars:
Alerts:
Top Takeaways From the New GFE and
HUD-1, presented by Phillip L. Schulman and
Holly Spencer Bunting. January 26, 2010.
Opening the Fair Lending Enforcement
Floodgates?, Obama Administration
Announces New Fair Lending Unit at DOJ;
Vows Vigorous Investigation of Mortgage
Lending and Servicing Practices, by Paul
Wholesale Price Monitoring in the Age of
Tough Enforcement, presented by Melanie H.
Brody. April 8, 2010.
Complying With the New Gift Card Rules,
presented by David L. Beam and Steven M.
Kaplan. April 13, 2010.
New FHA Regs Cause Acid Indigestion,
presented by Phillip L. Schulman and Krista
Cooley. May 13, 2010.
HUD Interpretive Rule - Are Marketing
Agreements Under Siege?, presented by
Phillip L. Schulman and Holly Spencer
Bunting. September 14, 2010.
New Appraisal Requirements Affect
Lenders and Their AMCs, presented by
Phillip L. Schulman, Nanci L. Weissgold,
Holly Spencer Bunting, and Kerri M. Smith.
November 30, 2010.
F. Hancock, Melanie H. Brody, and David G.
McDonough, Jr. Mortgage Banking & Consumer
Financial Products Alert,
January 27, 2010.
After three months in office, Assistant Attorney
General for Civil Rights Tom Perez recently
announced an aggressive push by the Department
of Justice into combating discriminatory and
fraudulent lending and servicing practices. With
the symbol of the newly created Fair Lending Unit
standing forefront, mortgage lenders and servicers
can expect to be on the receiving end of more
numerous and forceful reviews by the Department,
including investigations that appear to merge
fair lending and consumer protection principles.
Indeed, overlaying the DOJ’s initiative appears to
be the belief that they will now be able to shed the
constraints that hindered fair lending investigations
during the George W. Bush Administration, as
well as partner more closely with state and local
enforcement officials for joint reviews of lenders
and servicers.
You’re late, you’re late, for a very important
date; But wait, but wait, there’s time for you to
state—Your thoughts, your views on HUD’s rule
in the SAFE Act debate. The comment period for
HUD’s Proposed Rule on SAFE Act compliance
ends February 16, 2010. The Proposed Rule
sets out HUD’s criteria for determining the states’
compliance with the SAFE Act. If, in the rush of
year-end festivities, you missed HUD’s proposal
when it was published in the Federal Register in
December, or should you be planning to submit
comments to HUD’s latest adventures in rulemaking
by the due date, we offer some highlights and
thoughts for your consideration.
Mortgage Tax under Fire in New York, by
Eli R. Mattioli and Sarah P. Kenney. Mortgage
Banking & Consumer Products Alert,
February 19, 2010.
For many years, the New York State Department of
Taxation and Finance has levied recording taxes
on mortgages granted to secure loans made by
federal credit unions (“FCUs”) to their members.
New York has done so despite wide recognition
that FCUs, as federal instrumentalities, are immune
from state taxation under both the Supremacy
Clause of the United States Constitution and the
Federal Credit Union Act of 1934, as amended
(the “FCU Act”). However, until recently, this New
York tax has gone unchallenged in the courts.
This alert discusses the tax, FCUs’ exemption from
taxation, and pending litigation which challenges
Mortgage Banking & Consumer Financial Products Group
Highlight of 2010 Activities
2
the constitutionality and legality of the tax as
applied to FCUs.
Federal Reserve Board Finalizes Gift Card
Rules, by Steven M. Kaplan and David L. Beam.
Mortgage Banking & Consumer Financial Products
Alert, March 25, 2010.
If your company issues or sells gift cards or gift
certificates, then you might be subject to newlyissued Federal Reserve Board rules that go into
effect on August 22, 2010. These rules impose
a number of restrictions on gift cards and gift
certificates, and also require issuers and sellers to
provide certain disclosures. Violations can lead
to private civil liability (including in class actions)
and enforcement actions by the Federal Trade
Commission or federal banking regulators.
And since everyone will be rushing to replace their
card inventories by the effective date, you might
want to get the order in to your vendor soon.
Wholesale Lender Held Responsible for
Broker Pricing in New DOJ Settlement,
by Melanie H. Brody and Rebecca Lobenherz.
Mortgage Banking & Consumer Financial Products
Alert, March 31, 2010.
Wholesale residential mortgage lenders should
be held responsible for broker fee disparities,
according to the first mortgage loan price
discrimination case against a wholesale mortgage
lender brought by the United States Department of
Justice (“DOJ”) in over a decade. The settlement,
between the DOJ and subsidiaries of American
International Group, Inc., is noteworthy because it
confirms that the Obama administration will seek to
hold wholesale mortgage lenders responsible for
broker fee differences across borrower groups.
Still Confused About The New RESPA Rules?
HUD Issues a New Round of Frequently
Asked Questions, by Phillip L. Schulman and
Holly Spencer Bunting. Mortgage Banking &
Consumer Financial Products Alert,
April 14, 2010.
Even though nearly 100 days have passed since
use of the new Good Faith Estimate (“GFE”) and
HUD-1 Settlement Statement (“HUD-1”) forms
became required under the Real Estate Settlement
Procedures Act (“RESPA”), the mortgage and title
industries continue to grapple with implementation
of the forms and HUD’s RESPA regulations. In
response, the U.S. Department of Housing and
Urban Development (“HUD” or “Department”)
continues to provide guidance to the settlement
service industries on the new RESPA regulations
and disclosure forms through a series of Frequently
Asked Questions (“FAQs”). In fact, on Monday,
April 5, 2010, HUD posted an updated version
of its FAQs to its RESPA website, which now
number into the hundreds of questions/answers
and comprise 62 pages. To HUD’s credit, these
updated FAQs suggest that the Department is
considering many of the practical problems that
have resulted from the forms and takes to heart
the issues raised by settlement service providers.
However, that means that HUD has changed its
interpretation of certain requirements and issued
new FAQs, which are sure to raise additional
questions. It, therefore, is imperative for the
mortgage and title industries to pay close attention
to this April 2010 version of HUD’s RESPA FAQs.
This client alert summarizes the highlights of this
round of updates to the RESPA FAQs.
compliance with federal and state consumer
protection laws. The violations that served as
the basis for the settlement involved federal
requirements (failing to report loans as required
by the Home Mortgage Disclosure Act (“HMDA”))
and the penalties imposed ($1.25 million) were
a wake-up call. This settlement is significant as
it represents one of the first joint actions of state
banking departments against a state regulated
mortgage lender.
Wrong Call on Call Reports, by Costas
A. Avrakotos. Mortgage Banking & Consumer
Financial Products Alert, May 14, 2010.
New FHA Approval Regulations: HUD
Weighs In On Risk Management, by Phillip
Based on an obscure and ambiguous provision
of the Federal Secure and Fair Enforcement for
Mortgage Licensing Act, the state mortgage finance
regulators will call for a new set of far-reaching
reporting obligations for large and small licenses.
The proposed NMLS Mortgage Call Report will
significantly increase the regulatory burden on
licensees and jeopardize license renewals. With
the NMLS still accepting comments until May 19th,
licensees should let the state regulators know that
they have dialed a wrong number on call reports.
L. Schulman, Krista Cooley. Mortgage Banking &
Consumer Financial Products Alert,
April 27, 2010.
Lind v. New Hope Property, LLC: No Hope
for Implausible Claims under Iqbal, by R.
The U.S. Department of Housing and Urban
Development (“HUD” or “Department”) has
finalized rules that significantly restrict small and
medium-sized lenders from participating in Federal
Housing Administration’s (“FHA”) mortgage
insurance programs. While few can argue with
the goal of strengthening the financial soundness
of the FHA programs, the method of achieving this
goal most certainly will limit the geographic access
of FHA lending and wreak havoc on the ability of
small businesses to provide FHA loans.
Multi-State Mortgage Examinations are
Coming. You Need to be Ready, by Costas
A. Avrakotos, Phillip L. Schulman, and Nanci
L. Weissgold. Mortgage Banking & Consumer
Financial Products Alert, April 30, 2010.
On March 24, 2010 the Conference of State
Bank Supervisors (“CSBS”) and the American
Association of Residential Mortgage Regulators
(“AARMR”) announced a 35 state settlement with
one mortgage company following an examination
led by the Massachusetts Division of Banks of
Bruce Allensworth, Andrew C. Glass, Ryan M.
Tosi, and Nicole D. Newman. Mortgage Banking
& Consumer Financial Products Alert,
May 18, 2010.
Following the United States Supreme Court’s
decision in Ashcroft v. Iqbal, legal commentators
queried how much protection against frivolous
lawsuits the decision would actually afford to
institutional defendants, including the financial
services industry. The Iqbal Court articulated a
more rigorous pleading standard that requires
plaintiffs to state both well-pleaded facts and a
plausible claim for relief. The results are now in:
the Iqbal standard has afforded meaningful relief
early on in litigation for defendants that are only
tangentially related to the core allegations in a
complaint. A recent decision in an action from the
United States District Court for the District of New
Jersey, Lind v. New Hope Property, LLC, arising
out of a mortgage foreclosure rescue program,
is an example of such a case. The Court held
that notwithstanding the plaintiffs’ lengthy and
detailed complaint, the conclusory and generalized
Mortgage Banking & Consumer Financial Products Group
Highlight of 2010 Activities
3
allegations against the mortgage banking
defendants failed to satisfy the Iqbal standard and
must be dismissed with respect to those defendants.
Class Arbitration Waivers: Silence Reigns In
Stolt-Nielsen, But The Courts Have More To
Say, by R. Bruce Allensworth, Andrew C. Glass,
The Senate Moves to Reform Mortgage Loan
Origination and Underwriting Practices, by
Robert W. Sparkes, III and Roger L. Smerage.
Mortgage Banking & Consumer Financial Products
Alert, June 15, 2010.
Laurence E. Platt, Kristie D. Kully, and Kerri M.
Smith. Mortgage Banking & Consumer Financial
Products Alert, May 19, 2010.
The effort of Congress to revise the way in
which residential mortgage loan originators are
compensated and loans are underwritten is close to
fruition as a result of a recently enacted amendment
to the Senates large, proposed financial reform
bill, the Restoring American Financial Stability Act
of 2010. While it appears that tighter restrictions
on loan originator compensation and underwriting
standards may be on their way, it is unclear
whether those restrictions will solve the nations
financial crisis and foreclosure problems or instead
will impose steep obstacles to consumers obtaining
mortgage loans and will discourage vigorous,
private participation in the residential finance
industry.
Mistaken Legal Judgment No Longer a
Defense to FDCPA Claims, by Steven M.
Kaplan, Brian M. Forbes, Gregory N. Blase, and
David G. McDonough, Jr.. Mortgage Banking &
Consumer Financial Products, May 21, 2010.
In a decision that has largely flown under the
radar screens, the United States Supreme Court
recently ruled that the bona fide error defense in
the Fair Debt Collection Practices Act may not be
relied upon to excuse an error in legal judgment.
The decision in Jerman v. Carlisle, McNellie,
Rini, Kramer & Ulrich LPA, reversed a decision of
the Sixth Circuit Court of Appeals and overruled
similar holdings in two other circuits. In reaching
its decision, the Court resolved a circuit split and
offered its first opinion on the interpretation of the
FDCPA in several years.
The United States Supreme Court’s recent opinion
in Stolt-Nielsen S.A. v. AnimalFeeds International
Corp., 559 U.S. ---, No. 08-1198 (issued April
27, 2010), decided “whether imposing class
arbitration on parties whose arbitration clauses
are ‘silent’ on that issue is consistent with the
Federal Arbitration Act (FAA), 9 U.S.C. § 1 et
seq.” Slip op. at 1. In a five to three decision,
the Court held that “a party may not be compelled
under the FAA to submit to class arbitration unless
there is a contractual basis for concluding that
the party agreed to do so.” Id. at 20 (emphasis
in original). Although the Court found that an
agreement which is silent on the issue of class
arbitration is not sufficient evidence that the parties
intended to submit to class arbitration, the Court
is not through examining class arbitration waiver
issues. This article discusses Stolt-Nielsen and future
developments that are likely to follow.
HUD’s RESPA Interpretive Rule: It’s Time to
Reevaluate Your Marketing Arrangements,
by Phillip L. Schulman and Holly Spencer Bunting.
Mortgage Banking & Consumer Financial Products
Alert, July 1, 2010.
The payment of transactionally-based marketing
fees by home warranty companies to real estate
brokers and agents has been attacked by the U.S.
Department of Housing and Urban Development
(“HUD” or “Department”) pursuant to an interpretive
rule published on June 25, 2010 under the
Real Estate Settlement Procedures Act. By its
terms, the interpretive rule appears to be limited
to service arrangements where home warranty
companies pay real estate brokers and agents
on a per-transaction basis for the performance
U.S. News “Best Law Firms” Rankings of administrative and marketing services related
to the sale of home warranty products. But, in
crafting its interpretation, HUD fails to identify the
particular facts upon which it relies, which raises
questions about the scope of the rule and whether
HUD is trying to send a message about its view
of marketing agreements across settlement service
industries. Accordingly, this client alert summarizes
HUD’s interpretive rule and identifies some of the
issues that could have significant implications for
real estate brokers and agents, home warranty
companies, and, if HUD seeks to extend the
interpretive rule’s principles beyond transactionallybased marketing arrangements, other settlement
service providers.
Assignee Liability Is Extended by
Massachusetts: Will Others Follow Suit?, by
Philip M. Cedar, Jonathan D. Jaffe, and Laurence
E. Platt. Mortgage Banking & Consumer Financial
Products Alert, July 27, 2010.
From the people that brought us assignee and
servicer responsibility for “presumptively unfair”
residential mortgage loans, the Massachusetts
Attorney General (the “Attorney General”) has
relied on the common law of “aiding and
abetting” to settle a dispute with Morgan Stanley
& Company, Incorporated (“Morgan Stanley”)
arising out of the origination of presumptively
unfair subprime mortgage loans by New Century
Financial Corporation (“New Century”). The
settlement with the Attorney General, which it
announced on June 24, 2010, calls for the
payment of $102 million to Massachusetts
borrowers, the State Treasury and two of the state’s
investment funds. It also requires Morgan Stanley to
adopt certain practices in its financing, purchasing
and securitizing of subprime loans in the future.
The allegations and remedial relief in the settlement
are likely to give heartburn to warehouse lenders,
loan purchasers, conduit sponsors and securitizers.
Nevertheless, the settlement is reflective of the
current regulatory climate and consistent with the
sections of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (“Dodd-Frank” or the “Act”)
which extend liability to non-primary actors who
knowingly or recklessly participate in a violation of
many consumer finance and securities laws.
Recognize K&L Gates with Most
First-Tier Rankings
of Any Firm
(2010)
Mortgage Banking & Consumer Financial Products Group
Highlight of 2010 Activities
4
Federal Banking Agencies Issue Final SAFE
Act Rule, by Kristie D. Kully, Costas A. Avrakotos,
and Kerri M. Smith. Mortgage Banking &
Consumer Financial Products Alert
July 30, 2010.
Within a week of officially learning that their
authority to issue regulations to implement the
Secure and Fair Enforcement for Mortgage
Licensing Act of 2008 (“SAFE Act”) will be
transferred to the new Bureau of Consumer
Financial Protection (“Bureau”), the federal banking
agencies released their final rule implementing
the registration requirement for mortgage loan
originators employed by financial institutions
and the owned-and-controlled subsidiaries those
agencies regulate.
No April Fools’: April 1 Effective Date for
Federal Reserve Board’s Rules on Loan
Originator Compensation, by Kristie D. Kully
and Jonathan D. Jaffe. Mortgage Banking &
Consumer Financial Products Alert,
September 8, 2010.
In spite of the new statutory restrictions on mortgage
loan originator compensation in the Dodd-Frank
Wall Street Reform and Consumer Protection Act,
or perhaps because of them, the Federal Reserve
Board issued a final rule on the topic, with an April
Fools effective date. In August 2010, the Board
released several rules in its race with Congress to
turn the Truth in Lending Act and Regulation Z into
a powerhouse of residential mortgage regulation.
Among those releases was the Board’s final rule
prohibiting certain mortgage loan originator
compensation practices. The final rule (and the
compensation restrictions in the Dodd-Frank Act) will
result in a sea change in the way that loan officers
and mortgage brokers will be compensated,
and likely a similar sea change in the mortgage
brokering and banking businesses. The prospects
of implementing the new provisions by April 1,
2011 are daunting. Unfortunately, as much as we
might like to think otherwise, the loan originator
compensation final rule is no April Fools’ joke.
The New Rules of the Road: New York
Banking Department Finalizes Regulations on
Mortgage Loan Servicer Business Conduct,
by Nanci L. Weissgold and Morey E. Barnes Yost.
Mortgage Banking & Consumer Financial Products
Alert, October 4, 2010.
The rules of the road have changed for mortgage
loan servicers doing business in New York state.
Several months after their initial introduction,
the New York State Banking Department (the
“Department”) has issued significant and substantial
business conduct rules for servicers. Part 419
of the Superintendent’s Regulations (“Part 419”
or the “Rules”), addressing topics from fees to
disclosures to loss mitigation, become effective on
an emergency basis on October 1, 2010.
The FTC Pursues Its Own Seat at the Table of
Fair Lending Enforcement, by Paul F. Hancock,
Melanie H. Brody, and Melissa S. Malpass.
Mortgage Banking & Consumer Financial Products
Alert, October 5, 2010.
The Federal Trade Commission’s (“FTC” or
“Commission”) recent mortgage loan pricing
settlements reveal a new, aggressive approach
to fair lending enforcement, thus creating an
even greater lack of analytical continuity across
government agencies and making it more difficult
for even the most well-intentioned lenders to
properly analyze loan pricing for fair lending
compliance. On September 17, 2010, the
Commission announced a settlement with
California-based regional mortgage lender Golden
Empire Mortgage, Inc. (the “company”) and its
owner in his individual status. The settlement
involved a $1.5 million payment for consumer
redress to resolve claims that the company and
its owner violated the Equal Credit Opportunity
Act (“ECOA”) by discriminating against Hispanic
borrowers in the pricing of home mortgage loans.
Loan Holders are from Venus and Plaintiffs
are from MERS, by R. Bruce Allensworth, Brian
M. Forbes, and Gregory N. Blase. Mortgage
Banking & Consumer Financial Products Alert,
October 15, 2010.
Among the many tools now being used by the antihome foreclosure advocates is an attack on the role
of Mortgage Electronic Registration Systems, Inc.
(“MERS”) in the residential mortgage market in the
United States. They question the ability of MERS to
act as a nominee of the lender and any assignee
on a mortgage or deed of trust, yet a substantial
body of law upholding MERS’s role as nominee has
already developed. Allegations that the formation
and/or operation of the MERS system is somehow
unlawful and/or fraudulent have been rejected by
virtually every court to have considered the issue,
including in a multidistrict litigation proceeding
established to adjudicate claims challenging the
formation and operation of the MERS system. And
for the loan holders and loan servicers that have
utilized MERS over the years as an innovation
in the real estate finance industry to reduce
unnecessary paperwork, these allegations sound
like they are coming from a different planet.
DC AG Seeks to Stop Home Loan
Foreclosures Based on Incomplete Legal
Analysis, by Laurence E. Platt and Kerri M. Smith.
Mortgage Banking & Consumer Financial Products
Alert, November 1, 2010.
The latest attack on the role of Mortgage Electronic
Registration Systems, Inc. (MERS) in the residential
mortgage market has been levied by the District
of Columbias Attorney General (AG), Peter
Nickles, in a Statement of Enforcement Intent (the
Statement) dated October 27, 2010. Claiming
that commencing a home loan foreclosure is a
deceptive trade practice if the security interest of
the current noteholder is not recorded in the land
records, the AG threatened to enjoin foreclosure
proceedings, to secure restitution for injured
homeowners and to seek appropriate civil penalties
against noteholders. The use of the MERS private
registry to track transfers of mortgage interests is
insufficient, he claims. As we detail below, we
believe the Statement provides an incomplete
recitation of the District of Columbia (DC) laws
pertaining to foreclosure and a more fulsome
review of such laws should result in a different
conclusion.
Don’t Touch That Technology, by Susan
P. Altman, Todd A. Fisher.Outsourcing and
Commercial Transactions Alert,
November 2, 2010.
If your client or customer asks you to input data into
its database, do you readily agree, or do you first
ask if you have the right to do the inputting? Most
service providers are more than happy to show
their responsiveness and helpfulness and sometimes
forget to check whether they have the right to use
the technology licensed by their client. The Fifth
Circuit in Compliance Source Inc. v. GreenPoint
MortgageFunding Inc. reminded us recently that
use of someone else’s technology, even if it is only
on behalf of and for the benefit of a licensee, may
require explicit permission of the owner (not just the
licensee) and failure to obtain that explicit permission
may result in a lawsuit.
Mortgage Banking & Consumer Financial Products Group
Highlight of 2010 Activities
5
The District of Foreclosure Limbo: New D.C.
Foreclosure Law Creates Confusion, by
Nanci L. Weissgold, and Morey E. Barnes Yost.
Mortgage Banking & Consumer Financial Products
Alert, November 23, 2010.
The loud sound heard in the District of Columbia
last week was not the result of Beltway traffic or
increased political bickering after this month’s
midterm elections. What was it? The sound of
foreclosures coming to a halt in the wake of a new
D.C. measure creating a quasi-judicial foreclosure
process – and some justifiable confusion for lenders
and servicers.
On November 17, District of Columbia Mayor
Adrian Fenty signed Bill 18-1067, the “Saving
D.C. Homes from Foreclosure Emergency
Amendment Act of 2010” (the “Emergency
Act”), which gives a borrower with a “residential
mortgage” the right to engage in mediation prior to
foreclosure, and effectively extends the timeline for
foreclosure in D.C. by at least 60 days. Although
the Emergency Act took effect immediately (and
is scheduled to remain in effect until February 15,
2011, unless extended), it obligates lenders to use
certain forms which are unavailable, as the Mayor
is to prescribe them by rule, and to participate
in mediation processes that have not yet been
announced. The D.C. Department of Insurance,
Securities, and Banking (the “DISB”) is expected to
issue guidance this week concerning the measure’s
implementation. In the meantime, it is unclear
how lenders can comply with the Emergency Act’s
requirements – or whether the DISB will enforce
available penalties against lenders who fail to do
so. As the Emergency Act provides that any sale
that does not comply with its requirements is void,
this issue is of utmost importance.
FHA Annual Certification Just Got More
Complicated, by Phillip L. Schulman and Rebecca
Lobenherz. Mortgage Banking & Consumer
Financial Products Alert, December 1, 2010.
As if lenders do not have enough to worry about
these days with the myriad of federal and state
mortgage reforms, on November 17, 2010,
the U.S. Department of Housing and Urban
Development (HUD) released Mortgagee Letter
2010-38 (ML 2010-38or the Mortgagee Letter),
which clarifies mortgagee eligibility requirements to
participate in Federal Housing Administration (FHA)
programs and provides information regarding the
FHA Annual Certification process. Just in time for
the end of many mortgagees fiscal years and the
start of the recertification process, ML 2010-38
makes it much harder for many, if not most, lenders
to cleanly certify their annual FHA renewals.
Trust But Verify: Claim That New York Trust
Law Voids Mortgage Transfers Does Not
Survive Legal Scrutiny, by Laurence E. Platt,
Phoebe Gallagher Winder, Andrew C. Glass.
Mortgage Banking & Consumer Financial Products
Alert, December 22, 2010.
Millions of mortgage notes may not have been
transferred to mortgage securitization trusts in
compliance with New York trust law, according
to Associate Professor Adam J. Levitin of the
Georgetown University Law Center in written
testimony to the House Financial Services
Committee’s Subcommittee on Housing and
Community Opportunity and in other recent
commentary. He contends that there “may be
additional requirements” imposed by New York
trust law which might act to void transfers to
mortgage securitization trusts.[i] Before you rush
to sell your mortgage-backed securities, however,
please note Professor Levitin’s use of conditional
language – that there may be additional
requirements under New York trust law. It is a
provocative theory, but one that must be verified to
be taken seriously; we were not able to do so.
Much has been made in recent weeks of the alleged
deficiencies in the transfer of mortgage loans
from originator to ultimate holder. Were the sales
consummated in accordance with the documentation
requirements of the applicable sales agreements,
such as a pooling and servicing agreement
(“PSA”)? Did the paper trail of note endorsements
and mortgage assignments satisfy the requirement
of the applicable state’s version of the Uniform
Commercial Code (“UCC”)? And if the answers to
either question are equivocal in any way, does the
holder have the unequivocal right to enforce the loan
documents against a borrower in default?
Financial Services
Reform Alerts:
On Wednesday, July 21, 2010, U.S. President
Barack Obama signed into law the Dodd-Frank
Wall Street Reform and Consumer Protection Act
(the “Dodd-Frank Act”), the most dramatic revision
of the U.S. financial regulatory framework since
the Great Depression. To assist our clients in better
understanding the impact of the Dodd-Frank Act,
K&L Gates lawyers from our Financial Services,
Corporate and Policy and Regulatory Practice
areas prepared a series of alerts which provided
information on substantive provisions in the Act that
were of interest to our clients. Below is a sample of
some of the alerts in the series discussing mortgage
banking and consumer financial products.
K&L Gates published these alerts prior to July
21, 2010, the date on which President Obama
signed the Dodd-Frank Wall Street Reform and
Consumer Protection Act into law. However, these
alerts discuss the final version of the bill that would
eventually be signed into law.
Approaching the Home Stretch: Senate
Passes “Restoring American Financial
Stability Act of 2010”, Financial Services
Reform Alert, June 2010.
On May 20, 2010, the Senate passed the
“Restoring American Financial Stability Act of
2010” as amended (“Senate Bill”). Congressional
leadership has indicated that conference committee
proceedings will take place in June, making it likely
that the legislation will be passed by the House
and Senate before the July 4th Recess and signed
into law by the President shortly thereafter.
Financial Regulatory Reform - The Next
Chapter: Unprecedented Rulemaking and
Congressional Activity, by Daniel F. C. Crowley,
Bruce J. Heiman, Karishma Shah Page, Collins
R. Clark, Margo A. Dey, Akilah Green, Justin D.
Holman. Financial Services Reform Alert,
July 7, 2010.
On June 30, 2010, the House adopted the
conference report on H.R. 4173, the Dodd-Frank
Wall Street Reform and Consumer Protection Act
(“Dodd-Frank Bill” or “Bill”). The Senate is expected
to follow suit when it returns from recess later in
July. This alert provides a high-level summary and
analysis of the significant aspects of the Bill. In
Mortgage Banking & Consumer Financial Products Group
Highlight of 2010 Activities
6
the days ahead, K&L Gates will be issuing alerts
addressing in detail the various provisions of the Bill.
Consumer Financial Services Industry, Meet
Your New Regulator, by Melanie H. Brody and
Stephanie C. Robinson. Financial Services Reform
Alert, July 7, 2010.
While the 2,319-page, sixteen-title Dodd-Frank
Wall Street Reform and Consumer Protection
Act (“Dodd-Frank Act”) imposes new regulatory
requirements on virtually every sector of the
financial industry, the centerpiece of the DoddFrank Act from a consumer protection standpoint
is the creation of a consumer financial protection
watchdog. The new agency will be called the
Bureau of Consumer Financial Protection (“Bureau”)
and will be created pursuant to Title X of the
Dodd-Frank Act, entitled the Consumer Financial
Protection Act of 2010 (“CFPA” or “Act”). Its
main goal will be to protect consumers. Based
on an idea advocated by Harvard Law School
professor Elizabeth Warren, the Bureau will have
exceptionally wide-reaching powers over providers
of consumer financial products and services and
vast implications for the financial industry. As
we have reported in prior alerts, the creation of
this new agency will fundamentally change how
financial products and services are regulated in the
United States.
Preemption for National Banks and Federal
Thrifts After Dodd-Frank: Answers to the
Ten Most Asked Questions, by David L. Beam.
Financial Services Reform Alert, July 9, 2010.
The last ten years have been a period of consistent
expansion of federal preemption for national banks
and federal thrifts. That period of expansion will
come to a grinding halt if the Senate passes and
President Obama signs the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the “DoddFrank Act” or the “Act”), which most observers
expect to happen shortly after the Senators return
from recess on July 12.
Hope You Like Plain Vanilla!, Mortgage
Reform and Anti-Predatory Lending Act (Title
XIV), by Laurence E. Platt and Kristie D. Kully.
Financial Services Reform Alert, July 8, 2010.
The Mortgage Reform Act and Anti-Predatory
Lending Act, part of the comprehensive DoddFrank Wall Street Reform package under final
Hill consideration, will likely melt any hopes for
other than plain vanilla residential mortgage
loans. Makers of “strawberry” or “rocky road”
loans will likely face enhanced scrutiny, and may
face increased damages, extended exposure to
borrower claims, and risk retention requirements. In
this client alert, we summarize the hefty provisions
in the Mortgage Reform Act that would require
creditors to consider a borrower’s ability to
repay; the safe harbor for plain vanilla loans; the
restructuring of mortgage originator compensation;
and other amendments to TILA, HOEPA, FCRA,
HMDA, and the S.A.F.E. Act. In the end, as
consumers, the industry, and the federal regulatory
agencies work to implement these changes,
Supreme Court Justice Breyer may be the final
authority on plain vanilla mortgages and the
Mortgage Reform Act’s other ambiguous provisions.
Loan Servicing Déjà Vu, by Steven M. Kaplan,
Jonathan D. Jaffe and Kerri M. Smith. Financial
Services Reform Alert, July 14, 2010.
Loan servicers that are reeling from ever changing
state laws and HAMP requirements can breathe
a sigh of relief that the Dodd-Frank Wall Street
Reform and Consumer Protection Act (“Dodd-Frank
Act”) left most of its ammunition for other segments
of the financial services industry. Title XIV of the
Dodd-Frank Act, entitled Mortgage Reform and AntiPredatory Lending Act (the “Mortgage Reform Act”
or the “Act”), would impose new restrictions and
requirements on the residential mortgage industry,
but in many cases these changes piggyback the
regulations issued by the Federal Reserve Board
(“FRB” or “the Board”) in 2008. Nevertheless, there
are changes that could have a material impact on
loan servicers and open them up to a federal cause
of action with a private right of enforcement.
HVCC’s Sunset and Other Appraisal Reforms
on the Horizon, by Nanci L. Weissgold and Kerri
M. Smith. Financial Services Reform Alert,
July 19, 2010.
Congress is poised to eliminate the contentious
Home Valuation Code of Conduct, (the “HVCC”),
and with the HVCC set to sunset, more expansive
(and expensive) appraisal reforms are on the
horizon. Tucked within the massive Dodd-Frank
Wall Street Reform and Consumer Protection Act
(“Dodd-Frank Act”) are provisions that will strengthen
appraiser independence and enforcement, regulate
the use of broker price opinions (“BPOs”), set
standards for pricing of appraisals and appraiser
valuation model products (“AVMs”), and subject
appraisal management companies (“AMCs”) to
potential federal and state oversight.
“Originate-to-Distribute” Lives on in
Securitizations of Plain Vanilla Residential
Mortgages: The Securitization Reform
Provisions of the Dodd-Frank Act, by Steven
M. Kaplan, Sean P. Mahoney, and Anthony R.G.
Nolan. Financial Services Reform Alert,
July 21, 2010.
The Dodd-Frank Wall Street Reform and Consumer
Protection Act (the “Dodd-Frank Act” or the “Act”)
constitutes the most sweeping financial reform
package since the 1930s. Title IX of the DoddFrank Act (“Title IX”), entitled the “Investor Protection
and Securities Reform Act of 2010” enacts
a grab bag of substantial changes to capital
markets regulation and practices in the hope of
putting back in their bottles the twin genies of
moral hazard and lax regulation that are widely
viewed as the tinder that sparked the great credit
conflagration of 2008. Subtitle D of Title IX, entitled
“Improvements to the Asset-Backed Securitization
Process” (“Subtitle D”), has been of particular
interest to capital markets participants both because
practices in securitization markets are widely
credited with contributing uniquely to the credit
crisis and because of the sense of many that the
resuscitation of robust securitization markets is one
of the key predicates to an economic recovery.
A New Era: Depository Institutions and
Their Holding Companies Face a Deluge
of Regulatory Changes, by Rebecca H. Laird,
Sean P. Mahoney and Collins R. Clark. Financial
Services Reform Alert, July 22, 2010
On July 21, 2010, President Barack Obama
signed into law the Dodd-Frank Wall Street Reform
and Consumer Protection Act (“Dodd-Frank Act” or
“Act”), which restructures the regulatory framework
for most banking organizations. Although the full
impact of the Dodd-Frank Act cannot be assessed
until implementing regulations are released,
depository institutions and their affiliates face
new regulators, increased activities restrictions
and capital requirements, and numerous other
fundamental changes in how they are regulated.
Mortgage Banking & Consumer Financial Products Group
Highlight of 2010 Activities
7
Articles:
CNBC.com
New York Times, NYTimes.com
Collections & Credit Risk
On Wall Street.com
Collections & Credit Risk Blog
Origination News
CQ Capital Transcripts
Palm Beach Daily Business Review
C-SPAN.org
Phil’s Stock World
Daily Finance
Press of Atlantic City
DelawareOnline.com
Real Estate Law360
Democratic Underground.com
RealDistressedDeals.com
Accouting Today
DowJones MarketWatch
RESPA News Monthly
AFX Asia Focus
FHA-Loan.org
Reuters
AFX Asia International Focus
Financial Services Law360
Reverse Mortgage Daily
AFX Asia International ProFeed
Finanical Markets Regulation Wire
Richmond Times-Dispatch
AFX Asia ProFeed
Gloucester County Times
Roll Call Political Transcripts
AFX UK Focus
High Yield Report
Sarasota Herald-Tribune
AFX UK ProFeed
HomeForeclosurePrevention.com
Seattle Times
American Banker
HousingWire.com
Securities Law360
American Banker BankThink Blog
IndustryNews.org
SNL Bank M&A Weekly
Bank Investment Consultant
Inman News
SNL Securities & Investments
Bank Investment Consultant.com
Insurance Network News
Structured Finance News
Bank Lawyer’s Blog
Investment Dealers Digest
The Am Law Daily
Bank Loan Report
Law Fuel.com
The Atlantic.com
Bank Technology News
Law.com
The BLT: The Blog of the Legal Times
Bear Market Investment.com
LawAdvice.com
The Bond Buyer
Bloomberg News
Los Angeles Times
The Legal Intelligencer Blog
BNA Banking Report
Market Ticker.com
The News Journal
Boston Herald
Miami Daily Business Review
The Post-Chronicle
BreakingLegalNews.com
Mortgage Banking
Total Securitization and Credit Investment
Broward Daily Business Review
Mortgage Servicing News
Washington Post, WashingtonPost.com
BusinessWeek.com
Naked Capitalism Blog
Chicago Daily Herald and DailyHerald.com
National Mortgage News
Class Action Law360
National Mortgage News Online
“Transfer and Assignment of Residential
Mortgage Loans in the Secondary Mortgage
Market” American Securitization Forum White
Paper, written on behalf of ASF by Laurence E. Platt
and Phoebe Gallagher Winder,
November 16, 2010.
Press:
Mortgage Banking & Consumer Financial Products Group
Highlight of 2010 Activities
8
Lawyers
Boston
R. Bruce Allensworth
bruce.allensworth@klgates.com +1.617.261.3119
Irene C. Freidel irene.freidel@klgates.com +1.617.951.9154
+1.617.951.9191
Stephen E. Moore stephen.moore@klgates.com Stanley V. Ragalevsky stan.ragalevsky@klgates.com +1.617.951.9203
Nadya N. Fitisenko nadya.fitisenko@klgates.com +1.617.261.3173
Brian M. Forbes brian.forbes@klgates.com +1.617.261.3152
Andrew Glass andrew.glass@klgates.com +1.617.261.3107
Phoebe Winder phoebe.winder@klgates.com +1.617.261.3196
Charlotte
John H. Culver III john.culver@klgates.com +1.704.331.7453
Amy Pritchard Williams amy.williams@klgates.com +1.704.331.7429
michael.hayes@klgates.com +1.312.807.4201
david.coale@klgates.com +1.214.939.5595
thomas.poletti@klgates.com +1.310.552.5045
paul.hancock@klgates.com +1.305.539.3378
Chicago
Michael J. Hayes Sr. Dallas
David Coale Los Angeles
Thomas J. Poletti Miami
Paul F. Hancock New York
Philip M. Cedar phil.cedar@klgates.com +1.212.536.4820
Elwood F. Collins elwood.collins@klgates.com +1.212.536.4005
Steve H. Epstein steve.epstein@klgates.com +1.212.536.4830
Drew A. Malakoff drew.malakoff@klgates.com +1.216.536.4034
San Francisco
Jonathan Jaffe jonathan.jaffe@klgates.com +1.415.249.1023
Elena Grigera Babinecz elena.babinecz@klgates.com +1.415.882.8079
holly.towle@klgates.com +1.206.370.8334
Seattle
Holly K. Towle Washington, D.C.
Costas A. Avrakotos costas.avrakotos@klgates.com +1.202.778.9075
David L. Beam david.beam@klgates.com +1.202.778.9026
Melanie Hibbs Brody melanie.brody@klgates.com +1.202.778.9203
Daniel F. C. Crowley dan.crowley@klgates.com +1.202.778.9447
Eric J. Edwardson eric.edwardson@klgates.com +1.202.778.9387
Steven M. Kaplan steven.kaplan@klgates.com +1.202.778.9204
Phillip John Kardis II phillip.kardis@klgates.com +1.202.778.9401
Rebecca H. Laird rebecca.laird@klgates.com +1.202.778.9038
Michael J Missal michael.missal@klgates.com +1.202.778.9302
Laurence E. Platt larry.platt@klgates.com +1.202.778.9034
Phillip L. Schulman phil.schulman@klgates.com +1.202.778.9027
Nanci L. Weissgold nanci.weissgold@klgates.com +1.202.778.9314
Kris D. Kully kris.kully@klgates.com +1.202.778.9301
Morey E. Barnes morey.barnes@klgates.com +1.202.778.9215
Emily J. Booth emily.booth@klgates.com +1.202.778.9112
Holly Spencer Bunting holly.bunting@klgates.com +1.202.778.9853
Krista Cooley krista.cooley@klgates.com +1.202.778.9257
Jessica M. Flathmann Sandler jessica.sandler@klgates.com +1.202.778.9488
Rebecca Lobenherz becky.lobenherz@klgates.com +1.202.778.9177
Mortgage Banking & Consumer Financial Products Group
Highlight of 2010 Activities
9
Washington, D.C. (continued)
Melissa S. Malpass
melissa.malpass@klgates.com
+1.202.778.9081
David G. McDonough, Jr.
david.mcdonough@klgates.com
+1.202.778.9207
Stephanie C. Robinson
stephanie.robinson@klgates.com
+1.202.778.9856
Kerri M. Smith
kerri.smith@klgates.com
+1.202.778.9445
David Tallman
david.tallman@klgates.com
+1.202.778.9046
Professionals
Government Affairs Advisor / Director of Licensing
Washington, D.C.
Stacey L. Riggin
stacey.riggin@klgates.com
+1.202.778.9202
dameian.buncum@klgates.com
+1.202.778.9093
Regulatory Compliance Analysts
Washington, D.C.
Dameian L. Buncum
Teresa Diaz
teresa.diaz@klgates.com
+1.202.778.9852
Robin L. Gieseke
robin.gieseke@klgates.com
+1.202.778.9481
Brenda R. Kittrell
brenda.kittrell@klgates.com
+1.202.778.9049
Dana L. Lopez
dana.lopez@klgates.com
+1.202.778.9383
Patricia E. Mesa
patty.mesa@klgates.com
+1.202.778.9199
Daniel B. Pearson
daniel.pearson@klgates.com
+1.202.778.9881
Jeffrey Prost
jeffrey.prost@klgates.com
+1.202.778.9364
Anchorage
Los Angeles
San Diego
Austin
Miami
Beijing
Berlin
Moscow
San Francisco
Boston
Newark
Seattle
Charlotte
New York
Shanghai
Chicago
Dallas
Orange County
Singapore
Dubai
Palo Alto
Fort Worth
Paris
Spokane/Coeur d’Alene
Frankfurt
Pittsburgh
Taipei
Tokyo
Harrisburg
Portland
Raleigh
Hong Kong
London
Research Triangle Park
Warsaw Washington, D.C.
K&L Gates comprises multiple affiliated entities: a limited liability partnership with the full name K&L Gates LLP qualified in Delaware and maintaining offices
throughout the United States, in Berlin and Frankfurt, Germany, in Beijing (K&L Gates LLP Beijing Representative Office), in Dubai, U.A.E., in Shanghai (K&L Gates
LLP Shanghai Representative Office), in Tokyo, and in Singapore; a limited liability partnership (also named K&L Gates LLP) incorporated in England and
maintaining offices in London and Paris; a Taiwan general partnership (K&L Gates) maintaining an office in Taipei; a Hong Kong general partnership (K&L Gates,
Solicitors) maintaining an office in Hong Kong; a Polish limited partnership (K&L Gates Jamka sp.k.) maintaining an office in Warsaw; and a Delaware limited
liability company (K&L Gates Holdings, LLC) maintaining an office in Moscow. K&L Gates maintains appropriate registrations in the jurisdictions in which its offices
are located. A list of the partners or members in each entity is available for inspection at any K&L Gates office.
This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to
any particular facts or circumstances without first consulting a lawyer.
©2011 K&L Gates LLP. All Rights Reserved.
110106_4919
K&L Gates includes lawyers practicing out of 36 offices located in North America, Europe, Asia and the Middle
East, and represents numerous GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth
and middle market companies, entrepreneurs, capital market participants and public sector entities. For more
information, visit www.klgates.com.