Banking and Finance
Webinar
July 31, 2014
New Rules for Consumer Mortgage Loan Servicing/
Loss Mitigation and 2014 Iowa Legislative Update
Presenters:
Lynn W. Hartman
Travis M. Cavanaugh
(319) 896-4083
lhartman@simmonsperrine.com
(319) 896-4133
tcavanaugh@simmonsperrine.com
CLE Notice: This webinar is an accredited program under the regulations of the Iowa
Supreme Court Commission on Continuing Legal Education. This program will provide
a maximum of 1 hour of regular credit toward the mandatory continuing legal
education requirements established by Rules 41.3 and 42.2. This webinar is also
approved for 1 hour of Federal continuing legal education. [Activity # 151469]
-1-
New Rules for Consumer Mortgage Loan
Servicing and Loss Mitigation
-2-
New Regulations
 Pursuant to the Dodd-Frank Act, the Consumer Financial
Protection Bureau (CFPB) has promulgated new rules
governing the servicing of existing consumer mortgage loans.
 Some changes in the rules impact all mortgage servicers and
other exclude certain small servicers (servicers serving fewer
than 5,000 mortgage loans as of January 1 of the applicable
year).
 The new rules have gone in to effect as of January 10, 2014.
-3-
Notice and Contract Requirements
 Where a borrower has fallen behind on his/her mortgage
payments, the servicer must contact, or at minimum make a
good faith effort to contact, the borrower within 36 days with
information about loss mitigation options and within 45 days
must provide a letter to the borrower outlining loss mitigation
options and additional information including:
 A statement encouraging borrower to contact servicer;
 The telephone number to access servicer personnel assigned pursuant
to §1024.40(a) and the servicer's mailing address;
 If applicable, a statement providing a brief description of examples of
loss mitigation options that may be available from the servicer;
-4-
Notice and Contract Requirements, continued
 Letter must also include:
 If applicable, either application instructions or a statement informing
the borrower how to obtain more information about loss mitigation
options from the servicer; and
 The Web site to access either the Bureau list or the HUD list of
homeownership counselors or counseling organizations, and the HUD
toll-free telephone number to access homeownership counselors or
counseling organizations.
 The new rules forbid servicers, other than small servicers,
from dual tracking whereby the servicer continues to pursue a
foreclosure while considering a borrower’s loss mitigation
application.
-5-
Notice and Contract Requirements, continued
 Exemptions. Servicers are not required to provide the notice
and communications discussed if:
 The borrower is in bankruptcy;
 The bank has received from the consumer a written notice pursuant to
the Fair Debt Collections Practices Act (FDCPA) section 805(c) which
requires the bank to cease communications.
 Small Servicers are not subject to these notice requirements.
-6-
Limitations on Foreclosure
 Foreclosure is prohibited until the mortgage loan obligation is
more than 120 days delinquent.
 The good news is that notices required to be given before
filing foreclosure can be sent during this 120 day period.
-7-
Limitations on Foreclosure, continued
 Determining the date of delinquency may be difficult.
 Delinquency begins on the day a payment sufficient to cover
principal, interest, and, if applicable, escrow for a given billing
cycle is due and unpaid.
 If the borrower makes partial payments accepted by the
lender, then the date of delinquency may change since the
partial payments made are applied to the most delinquent
payment first.
-8-
Limitations on Foreclosure, continued
 To illustrate, imagine a mortgage requiring payment of $1,500
at the first of each month. Starting January 1, borrower begins
making partial payment of $500 which is accepted by lender.
 January 1 is the initial delinquency date, and the lender is
required to wait 120 days prior to initiating foreclosure
proceedings (i.e. until about May 1 to initiate foreclosure).
 However, the continued $500 a month payment will likely push
the date of delinquency out by at least one month (i.e. to
February 1, pushing the date for initiating foreclosure even
further back– to about June 1 if delinquency date is February 1).
-9-
Limitations on Foreclosure - Takeaway
 The updated rule imposes a 120 day delay to pursuing
foreclosure action from the date of delinquency.
 The date of delinquency may change if borrower is making
partial payments accepted by the lender.
 Partial payments may impose administrative burdens and cause
complications and difficulty in filing foreclosure.
-10-
2014 Iowa Legislative Update
-11-
Overview
 The Iowa Legislature’s 2014 Session saw a number of changes
that may impact bank business.
 The following slides provide an overview of some of the more
substantial changes and the impact they will have on banks.
-12-
Duty to Deliver Financial Statements
and Application of Discounts to Bank
and Bank Holding Stock
-13-
Duty to Deliver Annual Financial Statements
to Shareholders
 Senate File – 2200; Effective 7-1-2014.
 In 2013, the Iowa Legislature amended the Iowa Business
Corporation Act to require Iowa corporations to provide a copy of
its annual financial statement to its shareholders within 120 days
of each fiscal year close.
 The Act updated the Code to exclude corporations with 100 or
fewer shareholders from having to automatically send out its
annual financial statement. Corporations with 100 or fewer
shareholder are still required to prepare annual financial statements
and provide them to any shareholders that request a copy.
-14-
Duty to Deliver Annual Financial Statements
to Shareholders, continued
 Corporations with more than a 100 shareholders are deemed to
have satisfied this shareholder delivery requirement if the
corporation is required to file its annual financial statements
(consisting of at least a balance sheet and income statement) with a
state or federal agency and the following conditions are met 1) the
statements are filed with the agency within 120 days after the fiscal
year close; 2) the filing is made to comply with state or federal law;
and 3) the financial statements are made available to the public at
no cost.
 Typically, call reports filed with federal regulatory agencies will qualify a bank
to meet this exception.
-15-
Removal of Discounts for Appraised Stock
 House File – 2130; Effective 7-1-2014.
 Repealed an Iowa Code provisions that permitted the use of
discounts for minority status and lack of marketability in
determining the fair value of shares of banks and bank holding
companies in transactions that provide appraisal rights for
dissenting shareholders.
 This was the law in Iowa prior to 2001 and is the law in most
other states.
 After this change, the valuation method of bank and bank holding
stock is similar to that of other Iowa business corporations.
-16-
Allowable Mortgage Loan Fees
-17-
Loan or Credit Transactions
 House File – 2324; Effective 7-1-2014.
 This Act makes changes related to consumer lending transactions
by modifying provisions applicable to residential real estate loan
charges and monetary limits specified in the Iowa Consumer
Credit Code (Iowa Code chapter 537).
 This legislation was spearheaded by the Iowa Bankers Association
to better conform Iowa law to federal law due to the recent
federal regulatory changes resulting from the Dodd-Frank Wall
Street Financial Reform and Consumer Protection Act.
-18-
Loan or Credit Transactions – Allowable
Mortgage Loan Fees
 Act revises the allowable fees, enumerated in Iowa Code
§ 535.8, a state-charted bank may charge in connection with
financing the purchase or refinance of a single or two family
dwelling residential real estate loan.
 This Iowa Code provision has been problematic for years as
its list of “allowable fees” was not kept current with fees
typically associated with modern-day mortgage loans (ex:
flood determination fee, tax transcript fee or MERS are fees
not enumerated as an “allowable fee” under the code).
-19-
Loan or Credit Transactions – Allowable
Mortgage Loan Fees, continued
 If a financial institution makes a loan in which the points and
fees calculated pursuant to Regulation Z’s Ability to Repay (ATR)
rule is at or below the threshold for a “Qualified Mortgage” the
lender is permitted to charge any fee, whether or not that fee is
an enumerated allowable fee.
 This exemption applies in instances where the loan itself is not a
Qualified Mortgage, but the points and fees calculation is still
under the Qualified Mortgage limits.
 If a loan exceeds the points and fees threshold for a Qualified
Mortgage, then the fees charged are limited to the enumerated
allowable fees listed in Iowa Code § 535.8.
-20-
Loan or Credit Transactions – Allowable
Mortgage Loan Fees, continued
Qualified Mortgage Points-and-Fees Caps
 3 % of the total loan amount for a loan greater than $100k
 $3k for a loan greater than or equal to $60k but less than $100k
 5% of the total loan amount for a loan greater than or equal to $20k but
less than $60k
 $1k for a loan greater than or equal to $12,500 but less than $20k.
 8% of the total loan amount for a loan less than $12,500
-21-
Loan or Credit Transactions – Allowable
Mortgage Loan Fees, continued
 Very few loans originated by state-chartered banks are
likely to exceed the Qualified Mortgage points and fees
limits.
 The change made should simplify compliance and reduce
legal risk of charging fees outside of the enumerated state
law limits.
-22-
Consumer Credit Transactions
-23-
Loan or Credit Transactions – Home
Equity Loans
 Iowa Law prior to amendment provided for a limited number
of allowable fees to be charged for home equity loans
(permitted include charges for title opinions, abstracting,
third party document preparation, escrow deposits and
notary services, but not permitted include appraisal fees,
recording fees, flood determination fees, etc.).
 Iowa Code § 537.2501(1) was added permitting home equity
loans to charge the same fees as those permitted in a firstlien mortgage to purchase a single/two family residence.
-24-
Loan or Credit Transactions – Home
Equity Loans, continued
 Allowable fees now also include:
 Loan origination and/or processing fee (and/or broker fee) not
exceeding 2% of outstanding principal (1% in refinances);
 Commitment fee and/or closing fee;
 Credit report fee;
 Appraisal fees;
 Attorney opinion fees;
 Abstract fees
 County Recorder’s fee;
 Inspection fees;
 Mortgage guarantee insurance charge;
 Property survey fee;
-25-
Loan or Credit Transactions – Home
Equity Loans, continued
 Allowable fees now also include:
 Termite inspection fee;
 Cost of a Iowa Finance Authority title guaranty;
 Bona fide and reasonable settlement or closing fee paid to a third
party.
 The complete list of permitted fees are enumerated in Iowa
Code § 535.8(2)(a)-(b).
-26-
Loan or Credit Transactions – Home
Equity Loans, continued
 In instances where the home equity loan is in a first-lien
position (i.e. borrower owns his/her home outright), the
home equity loan is not covered by the Iowa Consumer
Credit Code, as of July 1, 2014.
 These loans are also not governed by Iowa Code 535.8 which
limits the allowable fees on mortgages to purchase
single/two-family residence.
 Therefore, fees on these first-lien home equity loans may be
assessed per the terms of the contractual agreement
between the lender and borrower.
-27-
Loan or Credit Transactions – Application
of the Iowa Consumer Credit Code
 The Act also changes the definition of a consumer loan under
the Iowa Consumer Credit Code.
 The effect of the change is that the jurisdictional limit of the
Iowa Consumer Credit Code has increased from $25,000 to
$53,500 (indexed for inflation and adjusted annual as of
January 1).
 The increase in the jurisdictional limit will cause a higher
number of loans to be subject to the Iowa Consumer Credit
Code.
-28-
Loan or Credit Transactions – Application
of the Iowa Consumer Credit Code
 The only aspect of the Consumer Credit Code that was not
updated to reflect this higher jurisdictional limitation was with
regard to charging reasonable attorney fees for loans secured by
land.
 For consumer loans secured by land and exceeding $25K, the lender may
require the customer to pay attorney fees.
 Consumer Loan is a loan in which 1) the lender is regularly engaged in the
business of making loans; 2) the debtor is a natural person, partnership,
or individual; 3) the debt is incurred primarily for a personal, family, or
household purpose; 4) the debt is payable in installments or a finance
charge is made; the loan amount does not exceed the threshold amount.
See Iowa Code § 537.1301(15).
-29-
Loan or Credit Transactions – Updated
Definition of a Finance Charge
 The Act also updated the definition of a “finance charge”
under the Iowa Consumer Credit Code to expressly exclude
overdraft fees.
 This change was enacted in response to a class action law suit
alleging electronic overdrafts as usurious. This provision is
applicable to charges assessed on or after July 1, 2014.
-30-
Uniform Power of Attorney Act and
Elder Abuse Act
-31-
Uniform Power of Attorney Act
 Overview - Iowa adopted the Uniform Power of Attorney Act
in Iowa Code Chapter 633B.
 16 states (including Iowa) have adopted this Uniform Act.
-32-
Uniform Power of Attorney Act, continued
 Statutory Form - The Act provides a statutory form that may
be used by individuals to execute a power-of-attorney (POA)
without the assistance of an attorney.
 Although a statutory form is provided under the Act, it is not the only
form for a valid power of attorney.
 Power of attorney is defined under the Act as a writing granting
authority to an agent to act in place of the principal, whether or not
the term “power of attorney” is used.
 Valid executed POA must:
 Be signed by the Principal or in the principal’s conscious presence be signed by
another individual, other than the agent, at the direction of the principal;
 Be acknowledged before a notary or other individual authorized to take
acknowledgements under the law, other than the agent.
-33-
Uniform Power of Attorney Act, continued
 Validity of Old POAs – Any POA that was executed in
compliance with Iowa law as it was at the time of execution,
remains valid and enforceable after enactment of this Act.
 The Act applies to any power of attorney created before, on,
or after July 1, 2014.
-34-
Uniform Power of Attorney Act, continued
 Protect Third Parties - The Act also provides protection to
persons who in good faith accept and rely on an acknowledged
power of attorney without actual knowledge that the power of
attorney is void.
 This is available even when the bank does not require addition
validation (covered in the next slide).
-35-
Uniform Power of Attorney Act, continued
 Actions after Presentment of a POA - The Act specifies the
actions to be taken by a bank after being presented with an
acknowledged POA:
 When presented with an acknowledged power of attorney, a bank has
seven days to either 1) accept it; 2) request reassurance over an aspect
of the POA; or 3) if proper, refuse it.
 A bank when presented with an acknowledged power of attorney may
request 1) an agent’s certification over any factual matter related to
the principal, agent, or POA; 2) an English translation for the POA or
any portion of the POA if not in English, or 3) an opinion of agent’s
counsel as to any matter of law concerning the POA.
 The act provides a form for an agent’s certification.
-36-
Uniform Power of Attorney Act, continued
 Refusal - A bank may refuse a POA or require an additional or
different POA in place of the POA presented only if one of the
following limited circumstances exist:
 The bank is not otherwise required to engage in a transaction with the
principal (i.e. the individual granting authority to the agent to act on
his/her behalf) in the same circumstances;
 Engaging in a transaction with the agent or the principal in the same
circumstances would be inconsistent with federal law;
 The bank has actual knowledge of the termination of the agent’s
authority or of the POA before exercise of the power;
 A request for certification, translation, or opinion of counsel is refused;
-37-
Uniform Power of Attorney Act, continued
 Other occurrences in which a bank may refuse to accept an
acknowledged power of attorney:
 The bank in good faith believes that the POA is invalid, or the agent
does not have the authority to perform the act requested, or that the
POA does not comply with federal or state law or regulations, whether
or not a certificate, translation, or opinion of counsel has been
requested or provided;
 The bank makes, or has actual knowledge of another person who has
made, a report to the department of human services alleging a goodfaith belief that the principal may be subject to physical or financial
abuse, neglect, exploitation, or abandonment by the agent or a person
acting for or with the agent.
-38-
Uniform Power of Attorney Act, continued
 Wrongful Rejection - A bank that wrongfully refuses to accept
an acknowledged power of attorney, is subject to a court order
mandating acceptance of the power of attorney and is liable
for damages sustained by the principal and reasonable
attorney fees and costs.
 Such an action must be brought against the bank within one
year of the initial request for acceptance of the power of
attorney.
-39-
Uniform Power of Attorney Act, continued
 Since a bank may face potential liability for failure to timely
accept a presented power of attorney, it is important to train
bank employees regarding the time limits imposed under the
statute (i.e. the 7 days to accept the POA or request
reassurance of its validity; and the 5 days to accept the POA
after reassurances are given)
 Bank will also want to communicate to employees in what
circumstances is it appropriate to require an agent to provide
the bank with an agent’s certification, translation, or opinion
of counsel.
-40-
Elder Abuse Act
 Iowa Code Chapter 235F; Effective 7/1/2014.
 A new act that implemented severe penalties for financial
exploitation conducted by persons that stand in a position of
trust or confidence of a vulnerable elder.
 Banks are exempt under the Act.
 A confidential relationship is required to find a financial institution
stands in a position of trust or confidence.
 The Act specifically indicates in its definition of a confidential
relationship that it does not include legal, fiduciary, or ordinary
commercial or transactional relationship with financial institutions.
-41-
Citations
 LEGISLATIVE SERVICES AGENCY, 2014 SUMMARY OF LEGISLATION
ENACTED IN THE YEAR 2014 BY THE SECOND REGULAR SESSION OF THE
EIGHTY-FIFTH GENERAL ASSEMBLY (Kathleen Hanlon et al., 2014).
-42-
Enforcing Non-Compete / Non-Solicitation Agreements
Practical Strategies
Presenter:
Paul D. Gamez
(319) 896-4060
pgamez@simmonsperrine.com
-43-
Enforcing Non-Compete / Non-Solicitation
Agreements – Practical Strategies
The intangible assets of the 500
companies that make up the S&P
500 comprised 17 percent of these
companies’ total value in 1975




32 percent in 1985
68 percent in 1995
80 percent in 2005
81 percent in 2009
 Seven Reasons Why Trade Secrets are Increasingly
Important, David S. Almeling (citing, 5 J. Marshall
Rev. Intell. Prop. L. 605, 611 (2006)). The Intellectual
Property Marketplace: Past, Present and Future.
-44-
Enforcing Non-Compete / Non-Solicitation
Agreements – Practical Strategies,
continued…
“The average worker stays at each
of his or her job for 4.4 years,
according to the most recent
available data from the Bureau of
Labor Statistics”
 Job Hopping is the ‘New Normal’ for Millenials: Three
Ways to Prevent a Human Resource Nightmare,
Forbes, August 14, 2012.
-45-
Enforcing Non-Compete / Non-Solicitation
Agreements – Practical Strategies,
continued…
Components
 Non - compete

Scope – Time, geographic and other business limits
 Non – solicitation

This is not a non-compete

Solicitation v. contact v. accepting business from
 Accompanied by trade secret/confidentiality protections

Statutory

Contractual
-46-
Enforcing Non-Compete / Non-Solicitation
Agreements – Practical Strategies
Current Case
Agreement Not to Compete with the Company
 I agree that for 90 days from and after termination of my employment
 I shall not solicit or accept business from . . . or provide any services
offered by my current employer . . .
 For any customers who I had business dealings in the year next
preceding the termination of my employment
-47-
Enforcing Non-Compete / Non-Solicitation
Agreements – Practical Strategies
Front End
 Rationale - What are we trying to
protect?
 Why is it necessary to protect?

What is truly confidential?

Economic Value?

Periodic Review
-48-
Enforcing Non-Compete / Non-Solicitation
Agreements – Practical Strategies
Front End




Multiple points of contact, etc.
Controlling critical information
Tracking critical information
Key employee retention strategies
-49-
Enforcing Non-Compete / Non-Solicitation
Agreements – Practical Strategies
Front End
 Documentation Customized?
 Is the protection narrowly tailored?
 Precise Language

Non-compete? Non-solicitation?

Definitions Used?
 Version Control? Securely Stored?
 Procedures Used to Obtain Consent

When signed?

Who controls dissemination?

Who was required to sign, etc.?

Uniformly signed? Enforced?
-50-
Enforcing Non-Compete / Non-Solicitation
Agreements – Practical Strategies
Current Case
 “I have been informed that you have recently taken
employment with a competitor . . . This is in direct violation
of the confidentiality and non-compete agreement.”
 “You should immediately notify all of your former customers
that you are no longer with your former employer and that
they should direct all future correspondence and e-mail to
your former employer.”
-51-
Enforcing Non-Compete / Non-Solicitation
Agreements – Practical Strategies
Back End
 Risk Assessment
 Identify the information at risk





Has the organization historically kept the information
reasonably confidential?
Shut off access to information
Reach out to critical customers
Conduct a technology review
All other sources of information
(exit interviews, sales feedback, etc.)
-52-
Enforcing Non-Compete / Non-Solicitation
Agreements – Practical Strategies
Back End
 Review restrictive covenant
 Possible responses

Letter to former employee?

New employer?
 Legal action

Necessary?

Viable?

Injunctive relief?

Irreparable harm

Likelihood of success
 Liability v. damages
 Damages v. proof of damages

Causation
 If an issue exists, address immediately-53-
Enforcing Non-Compete /
Non-Solicitation Agreements
Checklist Following
-54-
Questions?
Lynn W. Hartman
Travis M. Cavanaugh
-55-
Paul D. Gamez
This presentation is designed and intended for general
information purposes only and is not intended, nor should it
be construed or relied on, as legal advice. Please consult your
attorney if specific legal information is desired.