Mortgage Banking and
Consumer Financial Products Group
Highlight of 2009 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 2009.
Webinars:
Indentured Servicertude: Treasury Introduces
Servicer Participation Agreement, presented
by Laurence E. Platt, Jonathan D. Jaffe,
Nanci L. Weissgold and Melanie H. Brody.
April 30, 2009.
Mortgage Reform and Anti-Predatory Lending Act of 2009, presented by Laurence E.
Platt. May 14, 2009.
Do Your Fees Comply with RESPA? What You
Need to Know About the Recent Busby Case
and Section 8(b) of RESPA, presented by
Phillip L. Schulman and Holly Spencer Bunting.
May, 27, 2009.
How to Avoid FHA Penalties, presented
by Phillip L. Schulman and Krista Cooley.
June 25, 2009.
New GFE/HUD-1, You Really Need to Know
This Stuff, presented by Phillip L. Schulman and
Holly Spencer Bunting. September 22, 2009.
Beware Multi-State Mortgage Examinations,
presented by Steven M. Kaplan, Costas A.
Avrakotos, Nanci L. Weissgold and Phillip L.
Schulman. November 2, 2009.
New GFE/HUD-1, Mortgage Brokers Really
Need to Know This Stuff, presented by Phillip
L. Schulman. Sponsored by United Wholesale
Mortgage. November 18, 2009.
New RESPA Rules Affect Every Mortgage
Broker, presented by Phillip L. Schulman.
Sponsored by Security Atlantic Mortgage
Company and the Real Estate Mortgage
Network. December 1, 2009.
Alerts:
FTC Imposes $2.9 Million Fair Lending
Judgment on Mortgage Lender
by Melanie H. Brody, Paul F. Hancock and
Stephanie C. Robinson. Mortgage Banking
& Consumer Financial Products Alert,
January 7, 2009.
The Federal Trade Commission and a mortgage
lender have settled allegations that the lender
charged Hispanic and African-American borrowers
higher prices for residential mortgage loans than
similarly situated non-Hispanic white borrowers.
The settlement requires the lender to implement a
comprehensive fair lending program that includes
monitoring for potential price discrimination in its
overall retail lending, overall wholesale lending,
retail lending by branch, and retail lending by
loan originator.
Federal Preemption: 2008 Recap and
Guide to 2009 by David L. Beam. Mortgage
Banking & Consumer Financial Products Alert,
January 8, 2009.
Pop culture aficionados may remember 2008 for
Heath Ledger’s swan song as the Joker or Tina
Fey’s Sarah Palin impression. Politicos will recall
the groundbreaking 2008 election. And federal
preemption devotees will look back on 2008
as the year that courts clarified the standards
governing preemption of state laws for federallyregulated lenders (hereinafter “Federal Lenders”)
in a number of important areas, including with
respect to agents and other parties associated with
those institutions.
This Client Alert will focus on the last of the
preceding three items, and also discuss some of the
major preemption issues to watch for in 2009.
The Clock is Ticking: Two Lawsuits Seek to
Enjoin Final RESPA Rule by Phillip L. Schulman
and Holly Spencer Bunting. Mortgage
Banking & Consumer Financial Products Alert,
January 9, 2009.
two groups appeared to fare the worst based
on the Department’s RESPA changes—mortgage
brokers and home builders. Accordingly, on
December 19, 2008, the National Association
of Mortgage Brokers (“NAMB”) filed suit against
HUD in the U.S. District Court for the District of
Columbia for permanent injunctive relief to prevent
the Department from enforcing the final RESPA rule.
Three days later, on December 22, 2008, the
National Association of Home Builders (“NAHB”)
sued HUD in the U.S. District Court for the Eastern
District of Virginia in search of both a preliminary
and permanent injunction against the Department’s
enforcement of the “required use” provision. While
the NAMB and the NAHB have different reasons
to block the final RESPA rule, both have similar
arguments—that is, the Department acted arbitrarily
and capriciously in its decision making and failed
to state adequate reasons for the restrictions it
created in the rule. The NAHB suit, at least, has
HUD’s attention since the Department agreed to
extend the effective date of the “required use”
provision until April 16, 2009. This Client Alert
summarizes the arguments made in these two
lawsuits, as well as the effects these suits may have
on the future of the final RESPA rule.
New York Opens the New Year by Targeting
Mortgage Brokers for Fair Lending Violations
by Melanie H. Brody, Paul F. Hancock and
David G. McDonough, Jr. Mortgage Banking &
Consumer Financial Products Alert,
January 13, 2009.
New York financial services regulators recently
announced the results of a “landmark” fair lending
investigation of mortgage brokers, charging one
broker with violating the federal Fair Housing Act
and the New York Human Rights Law and settling
with two other brokers. In addition to forecasting
potential increased fair lending scrutiny of
mortgage brokers, the investigation and settlements
provide interesting insights into how at least one
state analyzes broker compensation under fair
lending laws. As detailed in the attached client
alert, the settlement agreements impose a standard
fee schedule that the brokers must follow unless
certain conditions are met (e.g., a borrower
presents a written offer from another broker with
lower up-front fees or the loan requires additional
work that is documented in detail in the loan file)
and include detailed price monitoring requirements.
After the U.S. Department of Housing and Urban
Development (“HUD” or “Department”) issued its
final rule on November 17, 2008 to reform the
Real Estate Settlement Procedures Act (“RESPA”),
Mortgage Banking and Consumer Financial Products Group
Highlight of 2009 Activities
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Appraisal Industry Remains Intact: FHFA
Announces Revised Home Valuation Code
of Conduct by Phillip L. Schulman and Holly
Spencer Bunting. Mortgage Banking &
Consumer Financial Products Alert,
January 13, 2009.
On December 23, 2008, the Federal Housing
Finance Agency (“FHFA”) released a revised
final Home Valuation Code of Conduct (“Code”)
applicable to mortgage lenders that sell residential
mortgage loans to Fannie Mae and Freddie Mac.
Initially, the Code proposed to make sweeping
changes to the appraisal process, affecting both
the ways that most mortgage lenders handle
their appraisal processes and the sources from
which lenders obtain appraisals. Most notably,
the Code would have prevented lenders from
employing staff appraisers, operating their own
appraisal management companies, and using
vendor management companies owned by entities
that perform other settlement services (i.e., title
insurance). This would have required significant
changes in the business practices and structural
ownership of vendor management companies and
appraisal management companies throughout
the settlement service industry. However, after
providing an opportunity for public comment on
the proposed Code, the FHFA appears to have
listened to the wide spread industry concerns. As
long as mortgage bankers, appraisal management
companies, and vendor management companies
adhere to certain safeguards and increased quality
control under the final Code, the current appraisal
process remains largely intact. Accordingly, this
Client Alert summarizes the primary components of
the final appraisal Code.
FTC Consent Decree Alleges Mortgage
Lender Failed to Ensure the Protection of
Consumer Information Provided to a Third
Party by David A. Tallman. Mortgage
Banking & Consumer Financial Products Alert,
January 15, 2009.
On December 16, 2008, the Federal Trade
Commission (the “FTC”) issued a final consent
decree against a mortgage lender, alleging that
the lender failed to adequately protect non-public
personal financial information provided to a
third party. The FTC claimed that by permitting a
strategic partner to access consumer credit reports
without verifying the third party’s data security
policies and procedures, the lender failed to
comply with the FTC’s Safeguards Rule. The FTC
also alleged that the lender committed a deceptive
act in violation of the FTC Act, because boilerplate
language in its privacy policy contained “false or
misleading” statements regarding its information
security practices. In the current market environment,
mortgage companies are increasingly permitting
third parties to access borrower information. In light
of the FTC’s enforcement activity, every mortgage
company should understand how it and its strategic
partners collect, use, and protect non-public
personal information.
Jordan v. Paul Financial Option ARM Class
Action Victory by Irene C. Freidel and David
D. Christensen. Mortgage Banking & Consumer
Financial Products Alert, January 28, 2009.
In the first decision on a motion for class
certification out of the more than forty “Option ARM
class actions” pending nationwide, the United
States District Court for the Northern District of
California yesterday denied plaintiff’s motions for
class certification and for a preliminary injunction.
Tennessee Supreme Court Holds That
Commencement of Foreclosure Doesn’t
Foreclose Hazard Insurance Claim by Philip
H. Hecht. Insurance Coverage and Mortgage
Banking Alert, February 4, 2009.
The Tennessee Supreme Court recently held that
a mortgage lender is not required to give notice
to a hazard insurer when the lender commences
foreclosure proceedings, reversing a Tennessee
Court of Appeals’ decision holding that initiation
of foreclosure proceedings constitutes an “increase
in hazard”under the standard mortgage clause in
hazard insurance policies. The Tennessee Supreme
Court decision offers potential relief from further
administrative burdens to already burdened
loan servicers.
Putting the Rigor in Rigorous: The Third
Circuit Clarifies Plaintiffs’ Burden of Proof
in Seeking Class Certification by R. B.
Allensworth, Andrew C. Glass and David D.
Christensen. Commercial Disputes Class Action
Defense Alert, February 13, 2009.
Federal courts have long cited United States
Supreme Court precedent for the proposition that
they must conduct a “rigorous analysis” of class
certification motions brought pursuant to Fed. R.
Civ. P. 23 (“Rule 23”). But, to date, courts have
provided little guidance as to the burden of proof
plaintiffs must meet in supporting such motions.
Recently, however, the Third Circuit Court of
Appeals issued an opinion that sheds significant
light on the matter. For class action defendants, the
In re Hydrogen Peroxide Antitrust Litigation decision
heralds a welcomed bolstering of the standard of
proof that plaintiffs must satisfy. The Third Circuit’s
emphasis for courts to understand how the merits
of class claims intersect with class certification
will also benefit class action defendants. And
defendants can make use of the decision’s
rekindling of the role that expert testimony can
play in defeating class certification. Because In re
Hydrogen Peroxide was authored by Third Circuit
Chief Judge Anthony J. Scirica, who as chair of
the Standing Committee on Rules of Practice and
Procedure oversaw extensive revisions to Rule 23,
the decision is likely to impact federal courts’ class
action jurisprudence nationwide.
RESPA’s New Average Charge Provisions
–Available for Some by Phillip L. Schulman,
Nanci L. Weissgold and Holly Spencer
Bunting. Mortgage Banking & Consumer
Financial Products Alert, February 19, 2009.
Effective January 16, 2009, the Real Estate
Settlement Procedures Act (“RESPA”) allows
settlement service providers – including lenders
and mortgage brokers – to use an alternative
means of calculating and disclosing settlement
charges on the HUD-1 or HUD-1A Settlement
Statements. That means that lenders and brokers
do not have to charge the borrower the exact
cost of a settlement service in every circumstance. According to the U.S. Department of Housing and
Urban Development, this approach “balances the
settlement service provider’s interest in flexibility in
calculating the average charge with the borrower’s
interest in preventing excessive settlement
charges” . . . and “is intended to promote greater
efficiencies that ultimately lead to lower prices for
consumers.” Is that too lofty a goal? While RESPA
may permit the calculation and disclosure of the
average cost of certain typical third-party fees, such
as appraisal fees, credit report fees, and other
third-party fees conducive to an average charge,
state law may not. This Client Alert discusses
RESPA’s average charge rule, state law limits on
that rule, and the interplay of federal and state law
on lenders (including federally chartered entities)
and mortgage brokers.
Mortgage Banking and Consumer Financial Products Group
Highlight of 2009 Activities
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Court Decision Confirms that State Agencies
are Subject to Gramm-Leach-Bliley Act
(“GLBA”) Reuse and Redisclosure Restrictions
and that the GLBA Preempts Inconsistent
State Law by Steven M. Kaplan, Melanie
H. Brody and David A. Tallman. Mortgage
Banking & Consumer Financial Products Alert,
February 23, 2009.
On January 6, 2009, a Washington state
appellate court held that the financial privacy
provisions in the Gramm-Leach-Bliley Act (“GLBA”)
apply to government entities that receive nonpublic
personal information from financial institutions.
Ameriquest Mortgage Company v. State Attorney
General, 2009 WL 26888 (Wash.App.Div.2).
The court also held that the GLBA preempts
state freedom of information laws that purport to
require the state government to publicly disclose
such information. The case is significant because
consumer financial services companies are often
required to provide loan-level information to
federal and state regulators. While the decision’s
immediate impact is limited to Washington state,
financial services companies may be able to rely
upon the principles articulated in this decision to
prevent sensitive information from being released to
the public in other jurisdictions.
SAFE Mortgage Licensing Act, HUD Blesses
the Model State Law, CSBS and AARMR
Petition for a Later Effective Date for Loss
Mitigation Specialists by Costas A. Avrakotos,
Kristie D. Kully and David L. Beam. Mortgage
Banking & Consumer Financial Products Alert,
February 25, 2009.
The states are scrambling to comply with the
Secure and Fair Enforcement for Mortgage
Licensing Act of 2008 (the “SAFE Act”), in a race
to enact a compliant mortgage loan originator
licensing law before being forced to hand that
authority over to the Department of Housing and
Urban Development (“HUD”). While there is a
HUD-blessed model law for the states to consider,
it is anyone’s guess whether the states will expand
upon the SAFE Act’s requirements, and whether the
goal of comprehensive and uniform supervision
of mortgage loan originators will (or can) be
achieved. The timing of the SAFE Act’s requirements
also is subject to conjecture - while the states are
up against a deadline to establish a compliant
licensing system, HUD has indicated a willingness
to extend the deadline by which individuals must
actually be licensed. Finally, questions continue to
circulate about the types of activities that will invoke
the licensing obligation in any given state. This
client alert describes the SAFE Act’s requirements,
HUD’s input, and the states’ initial efforts to
implement the Act.
Cram Downs: An End Run of Loan
Modifications? by Laurence E. Platt and John
H. Culver III. Mortgage Banking & Consumer
Financial Products Alert, March 3, 2009.
A funny thing happened on the way to the
amendment of the Bankruptcy Code to permit
cram downs. Many members of Congress
paused and reflected on the perverse incentives
that the bill provides to mortgagors to file for
bankruptcy. At least for now, they seem to have
concluded that more time is needed to think
through the consequences of cram downs--even
though the delay may be fleeting. Many still
believe cram down legislation may happen,
but at least the delay affords an opportunity to
contemplate the conflicts the proposal presents
with the Obama Administration’s ambitious housing
agenda. Whether the availability of a cram down
encourages a borrower to file for bankruptcy
instead of negotiating a loan modification is a key
part of the focus. Reasonable people may differ
on whether any borrower should have a statutory
right to a loan principal write down as a result
of a decline in property values; few persons who
study the details of the cram down bill, however,
believe that a distressed borrower should reap an
economic windfall beyond what a borrower could
achieve with a conventional modification.
That’s Unconscionable: An Update
Regarding The Enforceability Of Arbitration
Provisions In Form Contracts by R. B.
Allensworth, Irene C. Freidel, Phoebe Gallagher
Winder, William G. Potter and Robert W.
Sparkes, III. Commercial Disputes Class Action
Defense Alert, March 5, 2009.
A current hot topic in the ever-growing field of
consumer finance litigation is the enforceability
of arbitration provisions in lending contracts. The
enforceability of such provisions, however, has
become a thorny issue, and one that is increasingly
resolved in favor of the consumer. The importance
and fluidity of the enforceability issues surrounding
arbitration provisions in lending and other consumer
finance contracts are highlighted by recent
opinions out of the Third Circuit Court of Appeals
(Homa v. American Express Co., ---F.3d---, 2009
WL 440912 (3d Cir. Feb. 24, 2009)) and the
United States District Court for the Central District
of California (Guadagno v. E*Trade Bank, ---F.
Supp. 2d ---, 2008 WL 5479062 (C.D. Cal. Dec.
29, 2008)). These opinions exhibit the constantly
evolving nature of the debate surrounding the
enforceability of arbitration provisions in consumer
finance related contracts.
Déjà Vu All Over Again? California’s
Latest Foreclosure Prevention Legislation
by Jonathan D. Jaffe, Nanci L. Weissgold
and Morey E. Barnes. Mortgage Banking &
Consumer Financial Products Alert,
March 9, 2009.
To quote Yogi Berra, “It’s like déjà vu all over
again.” Just last July, we reported on SB 1137,
California legislation that requires lenders to
expend significant effort trying to notify borrowers
of the possibility of foreclosure and the options
that may be available to avoid foreclosure. The
net result for investors and loan servicers was an
extended time frame for nonjudicial foreclosures,
increased foreclosure and holding costs, and
arguably lower bids from third parties at the
foreclosure sale. In a Second Extraordinary
Session that ended February 19, 2009, the
California Legislature further expanded the time
frame and costs for certain loans by passing a pair
of bills that are being referred to as a foreclosure
moratorium, but that are really backdoor attempts
to force (or at least coerce) loan servicers into
instituting loss mitigation programs. They do
so by imposing a 90-day delay on foreclosure
proceedings unless the loan servicer is willing to
implement a loss mitigation program acceptable
to the state. The bills were purportedly modeled
after the approach the Federal Deposit Insurance
Corporation took to help IndyMac borrowers. Similar legislation is cropping up in other states.
The Mod Squad: Modifications, Refinancings
and Cram Downs by Laurence E. Platt and
Kerri M. Smith. Mortgage Banking & Consumer
Financial Products Alert, March 12, 2009.
Using a trio of tools to triage those whom
it realistically can seek to help, the federal
government has stepped up its efforts to fight
foreclosures. With the announcement of the
details of the Obama Administration’s Making
Home Affordable Program (“the Plan”) on March
4, 2009, it is clear that the federal government
will rely on loan modifications, refinancings and
cram downs to try to keep borrowers in their
homes. In addition, the recent passage of H.R.
1106, Helping Families Save Their Homes Act of
2009 (“H.R. 1106” or “the Bill”), by the House
of Representatives, bolsters the Plan’s agenda by
Mortgage Banking and Consumer Financial Products Group
Highlight of 2009 Activities
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allowing bankruptcy judges unilaterally to modify
mortgage loans, and providing a safe harbor
against investor liability for servicers that make
loan modifications subject to the Plan. While
most of the Plan does not need Congressional
approval, the Bill must be passed by the Senate
to become law. No one can tell in advance
whether the anti-foreclosure lifeline will work in
an increasingly deteriorating economy. While an
individual consumer who ultimately saves his or her
home from foreclosure certainly will appreciate the
effort, there are lots of investors and unemployed
borrowers who are less hopeful about the Mod
Squad’s efforts.
“With Reasonable Probability:” The
First Circuit Defines Defendants’ CAFA
Jurisdictional Burden by R. B. Allensworth,
Andrew C. Glass and David D. Christensen.
, Commercial Disputes Class Action Defense
Alert, March 17, 2009.
In its recent decision, Amoche v. Guarantee
Trust Life Insurance Co., the First Circuit Court of
Appeals joined the growing number of federal
courts to have articulated defendants’ jurisdictional
burden under the Class Action Fairness Act
(“CAFA”). Eight federal circuits have now ruled
that defendants must establish CAFA jurisdiction,
at the very least, by a “reasonable probability” or
by a preponderance of the evidence. The Amoche
opinion highlights potential pitfalls that defendants
may face in the CAFA removal process, particularly
in meeting CAFA’s amount-in-controversy threshold
of $5,000,000. The federal circuits warn that
speculative assertions, unsupported by evidence,
will not suffice to meet defendants’ jurisdictional
burden. Rather, courts exhort defendants to carefully
develop the evidentiary support necessary to
sustain removal of an action.
HUD Delays Effective Date and Solicits
Comments on “Required Use” by Phillip
L. Schulman and Holly Spencer Bunting.
Mortgage Banking & Consumer Financial
Products Alert, March 19, 2009.
On Friday, March 6, 2009, the U.S. Department
of Housing and Urban Development (“HUD” or
“Department”) took a step closer to withdrawing
the new definition of “required use,” which HUD
promulgated as a part of its final rule to the Real
Estate Settlement Procedures Act (“RESPA”) in
November 2008. This definition has proved to
be one of the more controversial aspects of the
final rule, as the definition allows only settlement
service providers (i.e., mortgage companies, real
estate brokers, and title providers) to offer customer
discounts and link the receipt of those discounts
to a customer’s use of an affiliate company. As a
result, home builders may no longer offer discounts
or rebates to their customers to encourage them
to use the builders’ affiliate mortgage or title
companies, which would substantially alter the
way home builders and their affiliate companies
currently operate across the country.
Legacy Loans Program: The Government
Offers Bridge Over Troubled Assets by Eric
J. Edwardson, Phillip J. Kardis II and J. Eric
Holland. Mortgage Banking & Consumer
Financial Products Alert, March 31, 2009.
The federal government finally has turned to the
task of assisting financial institutions with disposing
of their toxic mortgage assets to clean up their
balance sheets and stop the drain on capital. On
March 23, 2009, the United States Department of
the Treasury (the “Treasury”) announced a new plan
for the sale of financial institutions’ “legacy loans”
and “legacy securities” pursuant to its Public-Private
Investment Program. Rather than use the statutory
authority that Congress delegated to Treasury last
year to be a direct buyer of troubled assets, the
government now is proposing to effect such sales
through public-private partnerships, where the
government will share in the risks and rewards of
loan purchases.
Public-Private Investment Partnerships To
Tackle Legacy Toxic Assets by Anthony
R.G. Nolan, Daniel F. C. Crowley, Gordon
F. Peery, David H. Jones and Anthony J.
Barwick. Distressed Real Estate and Investment
Management Alert, March 31, 2009.
On Monday, March 23, 2009, the U.S.
Department of Treasury (“Treasury”) announced the
expansion of the Troubled Assets Relief Program
(“TARP”) to facilitate removal of “distressed real
estate-related assets” from the balance sheets of
financial institutions. The announcement described
the framework for two public-private investment
programs (collectively, “PPIP”) under which the
United States will make equity co-investments
in, and provide leverage to, investment vehicles
that will be established to acquire from financial
institutions existing whole loans, commercial
mortgage-backed securities (“CMBS”) and
private-label residential mortgage-backed
securities (“RMBS”).
Fifty Ways to Need a Lawyer: Congress
Proposes to Establish Financial Services
Watchdog Agency by Melanie H. Brody
and Stephanie C. Robinson. Mortgage
Banking & Consumer Financial Products Alert,
April 15, 2009.
The federal government is looking at multiple ways
to regulate similar issues, using different laws,
different agencies, and different remedies. The
creation of a Financial Products Safety Commission
is another proposal by Congress to regulate
consumer financial products. If created, the entity
would have broad rulemaking authority to regulate
a wide range of products and services. How this
new federal agency and its rules would fit together
within the existing financial services regulatory
structure remains to be seen, but it is clear that
if the bill is enacted, financial services providers
will have to contend with a complex web
of requirements.
FTC Asks Congress to Expand Consumer
Protections under the Fair Debt Collection
Practices Act by Steven M. Kaplan and
David G. McDonough, Jr. Mortgage
Banking & Consumer Financial Products Alert,
April 22, 2009.
Amid the flurry of legislative activity surrounding
the financial services industry, the Federal Trade
Commission (“FTC” or “Commission”) largely
flew below the radar when it recently called on
Congress to make some significant consumer
protection oriented modifications to the federal Fair
Debt Collection Practices Act (“FDCPA” or “Act”).
In this client alert, we summarize the changes
recommended by the FTC in its workshop report
titled “Collecting Consumer Debts: The Challenges
of Change” and review other areas where the
FTC clarified current provisions or hinted at future
Commission action.
Court Rejects Bar Association’s Attempt to
Restrict the Issuance of Title Insurance in
Massachusetts by Phillip L. Schulman, Irene C.
Freidel and Holly Spencer Bunting. Mortgage
Banking & Consumer Financial Products Alert,
by April 23, 2009.
On April 13, 2009, the United States District Court
for the District of Massachusetts entered summary
judgment for Defendants National Real Estate
Information Services and National Information
Services, Inc. (collectively “NREIS”) in The Real
Mortgage Banking and Consumer Financial Products Group
Highlight of 2009 Activities
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Estate Bar Association For Massachusetts, Inc.
v. National Real Estate Information Services, et
al., Civil Action No. 07-10224-JLT (D. Mass.)
(Tauro, J.). The federal district court dismissed all
claims brought by Massachusetts’s Real Estate
Bar Association (“REBA”) alleging that NREIS, a
Pittsburgh, Pennsylvania-based multi-state real estate
settlement service provider (or “vendor manager”)
was engaged in the unauthorized practice of law
in Massachusetts. The Court also granted summary
judgment to NREIS on its Dormant Commerce
Clause counterclaim and issued a permanent
injunction enjoining REBA from enforcing its
unconstitutional interpretation of the Massachusetts
state unauthorized practice of law provisions
against NREIS. As a result, the Court’s decision
rejects REBA’s attempt to prevent non-lawyers from
participating in the business of title insurance and
closing-related services and allows non-attorneyowned title insurance agencies and vendor
management companies to continue to deliver title
insurance services in Massachusetts.
Recent Third Circuit Decision Explores Scope
of CAFA’s Local Controversy Exception
by R. B. Allensworth, Andrew C. Glass and
David D. Christensen. Commercial Disputes
Class Action Defense Alert, April 28, 2009.
In Kaufman v. Allstate New Jersey Insurance
Company, a decision of first impression among
the federal circuit courts, the Third Circuit Court of
Appeals recently explored the scope of the local
controversy exception to the Class Action Fairness
Act (“CAFA”). Under CAFA’s local controversy
exception, a district court must remand a class
action, which otherwise satisfies the requirements
for federal court jurisdiction, where at least one
“significant” defendant and more than two-thirds
of the members of the putative class are citizens
of the forum state. A significant defendant is, in
pertinent part, one “whose alleged conduct forms
a significant basis for the claims asserted by the
proposed plaintiff class.” In Kaufman, the Third
Circuit held that this exception applies if a local
defendant’s alleged conduct is a significant part
of the alleged conduct of all the defendants, even
though not all the putative class members could
assert a claim against the local defendant. The
decision may tempt class plaintiffs to join a local
defendant as a means of trying to evade federal
court jurisdiction. Accordingly, when unrelated
defendants are named in a single class action, they
may wish to undertake an early analysis of whether
they have been properly joined in the suit.
New Disclosure Obligation Imposed on
Assignees by Laurence E. Platt and Kerri
M. Smith. Mortgage Banking & Consumer
Financial Products Alert, May 21, 2009.
Purchasers (including hedge funds and other
investment funds) of residential mortgage loans
will have affirmative disclosure obligations to
consumers under The Helping Families Save Their
Homes Act of 2009 (the “Act”), which Congress
passed this week and sent to President Obama for
his signature. While most have focused attention
on the Act’s “safe harbor” for servicers and
amendments to the FHA Hope for Homeowners
Program, this new statutory obligation will subject
purchasers of mortgage loans to civil liability if they
fail to make the required disclosures. This provision
does not require regulations first to be promulgated
and is effective upon the President’s signature.
The Gift That Keeps on Giving (to the
Lawyers): Congress Passes a Federal Gift
Card Law by Steven M. Kaplan and David
L. Beam. Mortgage Banking & Consumer
Financial Products Alert, June 1, 2009.
You have probably heard about the Credit Card
Accountability Responsibility and Disclosure Act of
2009 (the “Act”), which President Obama signed
into law just before the Memorial Day weekend. But you might not have heard about provisions in
the Act that impose new federal rules for gift cards.
If you issue or sell gift cards (or plan to do so), then
you should familiarize yourself with these provisions
of the Act.
Discretionary Pricing Authority Remains In
the Crosshairs; FDIC Settles Fair Lending
Allegations against First Mariner Bank by
Melanie H. Brody and David G. McDonough,
Jr. Mortgage Banking & Consumer Financial
Products Alert, June 10, 2009.
Discretionary pricing by loan originators remains
the focus of banking regulators, as evidenced
by a recent fair lending settlement between the
Federal Deposit Insurance Corp. and a Marylandchartered bank. In addition to illustrating the
increasing prevalence of fair lending enforcement
actions based upon statistical analyses of mortgage
loan pricing, the settlement underscores that
lenders need to be aware of whether their loan
data shows pricing disparities across borrower
groups, and, if so, whether the disparities can be
explained. As detailed in the attached client alert,
the settlement allows the bank to preserve loan
officer discretionary pricing authority, but subject
to stringent monitoring and reporting requirements.
The settlement also requires that the bank pay up
to $950,000 in restitution to minority borrowers
whom the government alleged were charged
higher overages than similarly situated
non-minority borrowers.
Downpayment Mirage: FHA Reworks
First-Time Homebuyer Tax Credit by Phillip
L. Schulman and Krista Cooley. Mortgage
Banking & Consumer Financial Products Alert,
June 17, 2009.
After a false start in early May, the U.S. Department
of Housing and Urban Development (“HUD” or
“Department”) has reissued guidance on the use
of the first-time homebuyer tax credit provided
in the recently enacted American Recovery and
Reinvestment Act (“ARRA” or “Recovery Act”) in
connection with Federal Housing Administration
(“FHA”) insured mortgage loans. Unfortunately, the
reworked guidance includes significant limitations
on the ability of an eligible borrower to utilize
anticipated tax credit funds toward downpayment
costs and provides little information to FHAapproved lenders on how to structure the process
of “monetizing” the borrower’s tax credit. The
Department’s guidelines also place considerable
responsibility on FHA-approved lenders to ensure
that borrowers qualify for the first-time homebuyer
credit under current tax law and that any costs
associated with the use of the tax credit in the
FHA-insured transaction are reasonable. As a
result, lenders may wonder whether the reissued
guidelines are nothing more than an illusion. Lenders are not likely to front the tax credit
proceeds to borrowers on an unsecured promise
to be repaid.
While HUD estimates that thousands of families
will be able to utilize the FHA’s tax credit program
to purchase a house, it is unclear how many
FHA-approved lenders and other entities approved
to offer tax credit “monetization” will do so given
the lack of clear guidance on several aspects of
HUD’s tax credit program. That said, even those
lenders that choose not to “monetize” tax credits
must monitor their FHA-insured loan portfolios for
mortgages involving monetization or advances
and provide HUD with information regarding
these activities. This Client Alert summarizes the
Department’s revised guidance regarding use of
the first-time homebuyer tax credits in FHA-insured
transactions, as well as informal guidance HUD
regulators have provided to the mortgage industry
about the tax credit program.
Mortgage Banking and Consumer Financial Products Group
Highlight of 2009 Activities
6
Will a Deluge of Disclosures Lead to a “Do
Not Send” Law? by Kristie D. Kully. Mortgage
Banking & Consumer Financial Products Alert,
June 24, 2009.
Like the consumers who have insisted on being
added to the “Do Not Call” list after one too
many telemarketing calls at dinner time, consumers
may soon become overwhelmed with disclosures
when attempting to obtain a mortgage loan.
Congress and the Federal Reserve Board have
enacted or are considering a myriad of disclosure
requirements, assured that if only borrowers under
troubled mortgages had received more information,
they would have made different choices about
the mortgage loans into which they entered.
In this client alert, we describe new disclosure
requirements Congress has enacted, as well as
the numerous disclosure requirements proposed
under the Mortgage Reform and Anti-Predatory
Lending Act (H.R. 1728) (passed by the U.S.
House of Representatives and under consideration
in the Senate). Whether H.R. 1728 is enacted or
its disclosure requirements get tacked on to other
legislation, consumers may actually start clamoring
for the creation of a “Do Not Send” list to escape
the deluge of well-meaning mortgage disclosures.
Singularity of Purpose: Is Looking Out for
Consumers Too Narrow a Mission? by
Melanie H. Brody and Stephanie C. Robinson.
Mortgage Banking & Consumer Financial
Products Alert, June 25, 2009.
The Obama Administration’s financial regulatory
reform proposal recommends the creation of a
new federal agency responsible for protecting
consumers in the financial products and services
markets. The new Consumer Financial Protection
Agency would have broad rulemaking, supervisory,
examination, and enforcement authority over
providers of financial products and services.
More Questions Raised Than Answered by
Proposed Regulations to Register Federally
Regulated Mortgage Loan Originators Under
the SAFE Act by Costas A. Avrakotos and
Collins R. Clark. Mortgage Banking
& Consumer Financial Products Alert,
July 2, 2009.
Regulations proposed June 9, 2009 by six
federal agencies would implement the registration
requirements that apply to mortgage loan
originator employees of federally regulated lending
institutions under the Secure and Fair Enforcement
for Mortgage Licensing Act of 2008 (the “SAFE
Act”). Although the proposed regulations provide
guidance as to the manner in which the SAFE
Act may be implemented by these agencies,
they also raise a number of questions that are
left unanswered. This alert summarizes the key
provisions of these proposed regulations, and
discusses certain issues that may arise from
their implementation.
Third Party Loan Modification Companies
and Foreclosure Consultants Subject to
MARS’ Orbit by Nanci L. Weissgold and Kerri
M. Smith. Mortgage Banking & Consumer
Financial Products Alert, July 7, 2009.
Comments are due by July 15, 2009 on the
Federal Trade Commission (“FTC”) proposed
rulemaking that may subject third party loan
modification companies and foreclosure consultants
to new substantive requirements. This proposal,
known as the Mortgage Assistance Relief Services
rulemaking (“MARS”), would not likely grant the
FTC any expansive pull over those third party
entities helping borrowers avoid foreclosure beyond
those powers which the FTC currently holds.
However, state attorneys general may benefit
from expanded enforcement authority. What other
activities the FTC may address in its rulemaking
is yet to be seen. In order to discern the rule’s
interplay with existing law, and what its impact will
be on servicers, or those entities assisting servicers,
in loss mitigation efforts, servicers should keep
MARS’ on their radar screen.
New Jersey’s Latest Anti-Foreclosure Efforts
Continue to Complicate Modifications by
Nanci L. Weissgold and Morey E. Barnes.
Mortgage Banking & Consumer Financial
Products Alert, July 16, 2009.
On July 2, 2009, New Jersey Governor Jon
Corzine signed Assembly Bill 3821 (P.L. 2009 ch.
84; the “Amendments”) modifying the Mortgage
Stabilization and Relief Act (the “Act”), a measure
that took effect April 1, under which certain
distressed borrowers may obtain a six-month
forbearance after a foreclosure action is filed.
Among other changes, the Amendments provide
that a borrower is not required to pay anything
during that forbearance period. Default is looking
like a smart economic move in New Jersey.
A View of TILA’s July 30 Horizon by Jonathan
D. Jaffe, Steven M. Kaplan and David A.
Tallman. Mortgage Banking & Consumer
Financial Products Alert, July 24, 2009.
The Board of Governors of the Federal Reserve (the
“Board”) recently issued regulations to implement
the amendments to the federal Truth-in-Lending
Act (“TILA”) made by the Mortgage Disclosure
Improvement Act of 2008 (the “MDIA”). These
regulations will soon become effective, and while
the new requirements appear straightforward, we
have found that lenders and brokers are facing
challenging issues as they attempt to put the
new rules into practice. In light of the significant
operational changes that residential mortgage
lenders, brokers, and other parties may face,
financial institutions might want to review how they
have factored the new rules into their closing and
due diligence processes.
Million Dollar Baby: The Consumer Financial
Protection Agency Act of 2009 by Melanie
H. Brody, Steven M. Kaplan, David L. Beam
and Stephanie C. Robinson. Mortgage Banking
& Consumer Financial Products, July 27, 2009.
Among the many recent efforts of Congress and
the Administration to pass new financial reforms is
House Bill 3126, a bill that would create a new
federal regulator with the mission of protecting
consumers. The new Consumer Financial Protection
Agency would be endowed with broad regulatory
and enforcement authority over all sorts of
consumer financial products and services providers,
and would fundamentally change how financial
products and services are regulated in the
United States.
HUD Hinders HAMP by Laurence E. Platt,
Kristie D. Kully and Kerri M. Smith. Mortgage
Banking & Consumer Financial Products Alert,
August 5, 2009.
At the same time that the Obama Administration
is cajoling loan servicers to modify more loans
under the Home Affordable Modification Program
(“HAMP”) by hiring more staff to meet the
demand, the Department of Housing and Urban
Development (“HUD”) is erecting barriers that
undermine this objective. By threatening to require
state licensure of loan servicer employees engaged
in loss mitigation activities, HUD could effectively
halt or at least slow down the pace of efforts of
state licensed loan servicers to modify mortgage
loans at the pace required in order to prevent those
Mortgage Banking and Consumer Financial Products Group
Highlight of 2009 Activities
7
loans from going into foreclosure. HAMP will be
in a heap of trouble if HUD’s threatened action
is finalized and the states follow suit. This alert
discusses the efforts of HUD and state government
to require loss mitigation employees to be licensed.
Analysis of Consumer Financial Protection
Agency Legislation: Top Ten Issues by
Stephanie C. Robinson. Mortgage Banking
& Consumer Financial Products Alert,
October 26, 2009.
The Obama Administration’s Financial Regulatory
Reform plan is progressing through Congress. Last
week, the House Financial Services Committee
voted to approve H.R. 3126, the bill that would
create a Consumer Financial Protection Agency
(“CFPA”). As we reported in a prior publication,
the agency would have extremely broad regulatory
and enforcement authority over providers of
consumer financial products and services, with
the power to impose high penalties. See our
Mortgage Banking & Consumer Financial Products
Alert, Million Dollar Baby: The Consumer Financial
Protection Agency Act of 2009, for a complete
discussion of the bill as introduced.
the borrower not later than thirty days after the date
on which the loan is sold or otherwise transferred
or assigned. Because Section 404 was enacted
without substantial (or indeed any) industry input,
there are a number of significant ambiguities in the
statute that have led to uncertainty for institutions
implementing the disclosure requirement. The
Interim Rule attempts to clarify the scope of the
disclosure requirement and addresses many, but not
all, of the industry’s concerns.
Proposed Gift Card Rules: Act Now, or Terms
and Conditions May Apply by Steven M.
Kaplan and David L. Beam. Mortgage Banking
& Consumer Financial Products Alert,
December 7, 2009.
Does the new proposal from the Federal Reserve
Board (the “Board”) to regulate gift card issuers and
sellers make the Board more like Santa Claus or the
Grinch? Consumer advocates may liken the Board
to Old Saint Nick, although they might complain
that it didn’t leave quite enough toys under the
tree. But retailers and banks that issue or sell gift
cards might be more inclined to think that, like the
Grinch, the Board’s heart is two sizes too small.
Discretionary Pricing Remains in the
Crosshairs by Melanie H. Brody and
Stephanie C. Robinson. Mortgage Banking
& Consumer Financial Products Alert,
November 9, 2009.
Increased Net Worth and Lender Liability
Shake Up FHA Landscape by Phillip L.
Schulman and Krista Cooley. Mortgage
Banking & Consumer Financial Products Alert,
December 8, 2009.
Two fair lending settlements between the
Department of Justice and a pair of banks are the
first to be filed under the Obama administration.
The banks denied any allegations of discrimination
in their respective auto lending and mortgage
lending activities, but agreed to the settlements to
avoid litigation. The terms of the settlements reveal
a more aggressive stance on pricing discrimination
than we have seen in a while and are likely to be
a harbinger of things to come.
Last week, the U.S. Department of Housing and
Urban Development (“HUD” or “Department”)
issued proposed regulations to the Federal
Housing Administration (“FHA”) loan program that
will have an enormous impact on the delivery of
FHA-insured loans to the public. These changes
would remove approval requirements for loan
correspondents, increase lender liability, and create
a tenfold increase in the net worth requirement
for FHA-approved mortgagees. HUD claims the
modifications will not have a significant economic
impact on program participants. But, in fact,
these changes will alter the FHA landscape for
both FHA-approved lenders and former loan
correspondents for years to come. Comments
regarding the proposed regulation are due on
December 30, 2009.
The 411 on 404 by Steven M. Kaplan,
Jonathan D. Jaffe and David A. Tallman.
Mortgage Banking & Consumer Financial
Products Alert, November 20, 2009.
On November 16, 2009, the Board of Governors
of the Federal Reserve (the “Board”) released an
interim final rule (the “Interim Rule”) to implement
Section 404 of the Helping Families Save Their
Homes Act of 2009 (“Section 404”). Section
404 requires any assignee of a residential
mortgage loan to provide a written disclosure to
America’s Next (Privacy) Model: Federal
Agencies Release Model GLBA and FCRA
Privacy Notice by Jonathan D. Jaffe, Melanie
H. Brody, and David A. Tallman. Mortgage
Banking & Consumer Financial Products Alert,
December 28, 2009.
After a multi-year process of consumer testing and
public comment, the federal banking agencies
recently released a two-page model form that
financial institutions may use to satisfy their privacy
disclosure obligations under the Gramm-LeachBliley Act and the Fair Credit Reporting Act. The
central feature of the Model Form is a table that is
intended to enable consumers to quickly assess a
financial institution’s information sharing practices
and compare those practices to those of other
institutions. While financial institutions are not
required to use the new Model Form, those who
do will be deemed to have complied with stated
sections of the Acts, provided the form accurately
describes the institution’s actual practices.
The safe harbor from liability only applies if the
financial institution uses the Model Form exactly as
written. Because the Model Form covers only the
most common types of information sharing, smaller
institutions or institutions that limit the way in which
they share information may find it useful. The same
may not be true for larger institutions with numerous
and diverse affiliates that want to share one policy,
or that offer more complicated privacy choices.
Articles:
Navigating the Foreclosure Process: Here
Are Some Tips That Could Help Protect
Lenders Faced With Foreclosing on
Condominium Projects
by Scott B. Osborne and Brian L. Lewis.
Mortgage Banking, April 2009.
This article provides an overview of the protections
afforded lenders under the laws governing
condominiums, how to identify risks in acquiring
title to condominium development and alternative
ways to structure the foreclosure transaction to
minimize risk and maximize protection. Posted
with permission.
In this client alert, we summarize the proposed
regulatory changes and discuss some of the
implications for FHA-approved loan correspondents
and mortgagees if adopted.
Mortgage Banking and Consumer Financial Products Group
Highlight of 2009 Activities
8
Obama Order on Preemption Could Expose
Banks to State Regulation by David L. Beam.
BNA Banking Report, June 2009.
On May 20, President Obama ordered federal
agencies to review their preemption regulations
and take “appropriate action” if the rules do
not meet certain requirements (92 BBR 1195,
5/26/09). This order could affect almost every
segment of the consumer finance industry. National
banks, federal savings associations, and the
operating subsidiaries of both could be most
affected. This article was originally published
and reproduced with permission from BNA’s
Banking Report.
Press:
Insurance Networking News
ABA Banking Journal
AMB Blog
American Banker
American Banker’s Bank Think Blog
BankInvestmentConsultant.com
Bankruptcy Law360
BNA Daily Report
The New Good Faith Estimate by Phillip
L. Schulman and Holly Spencer Bunting.
Mortgage Banking, December 2009.
BrokerUniverse.com
For most people, Jan. 1, 2010, will mark the
optimistic start of a new year, with resolutions and
new resolve to make 2010 better than the year
before. But for mortgage lenders and mortgage
brokers, Jan. 1, 2010, brings a new challenge.
It is the date that the Department of Housing and
Urban Development (HUD) will implement the
final segment of its rule to reform the Real Estate
Settlement Procedures Act—the new Good Faith
Estimate (GFE) and HUD—1 Settlement Statement.
With less than one month remaining before the
GFE form becomes effective, mortgage lenders
are scrambling to update their software and train
their employees to use the new form. The attached
article, published in Mortgage Banking magazine,
provides insight into compliance with the new GFE.
Posted with permission
Congressional Documents
CFO.com
Consumer Financial Services Law Report
CQ Congressional Testimony
Credit Union Journal
Daily Deal
DowJones Newswire
Distressed Marketplace.com
Finance.SharpNews.Info
Financial-Planning.com
Financial Services Law360
Florida Title Agent.com
Fulton County Daily Report
To view the complete text of any of the included
alerts or articles, please visit our Mortgage
Banking & Consumer Financial Products
Newsstand on our web site.
Home Equity Wire
Housing Wire.com
IDD Magazine.com
Law.com
Memphis Business Journal
Miami Today
Morningstar.com
Mortgage Banking
Mortgage Banking News
Mortgage Loan Compliance Blog
Mortgage Servicing News
Mutual Fund Directors Forum Blog
National Law Journal
National Mortgage News
OnWallStreet.com
Origination News
Puget Sound Business Journal
RESPA News.com
Reverse Mortgage Daily
RISMedia (Real Estate Information Systems)
Sarasota Herald-Tribune, HeraldTribune.com
Securities Law360
Stockton Record, RecordNet.com
The Am Law Daily
The American Lawyer
The Washington Daybook
Trading Markets.com
Inman News.com
Mortgage Banking and Consumer Financial Products Group
Highlight of 2009 Activities
9
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our practice includes traditional and e-commerce applications of current law governing the fields of mortgage banking and consumer finance.
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Costas A. Avrakotos costas.avrakotos@klgates.com +1.202.778.9075
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Kris D. Kully kris.kully@klgates.com +1.202.778.9301
Mortgage Banking and Consumer Financial Products Group
Highlight of 2009 Activities
10
Morey E. Barnes morey.barnes@klgates.com +1.202.778.9215
David L. Beam david.beam@klgates.com +1.202.778.9026
Emily J. Booth emily.booth@klgates.com +1.202.778.9112
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