Foreclosure Fairness Act — Recent Legislation Adds a New Mediation Step to the Foreclosure Process

As of July 22, Washington state’s new foreclosure mediation program, established by the Foreclosure Fairness Act (“FFA”), provides a mechanism for borrowers facing foreclosure to pursue modified loan agreements with the help of a professional advocate and a neutral mediator. For beneficiaries, trustees and their agents, the mediation program is an opportunity to further explore alternatives to foreclosure, but it also establishes additional requirements that must be fulfilled before a foreclosure can be completed.

Washington Supreme Court Holds Federal Privacy Rights Can Prevail Over State Public Records Act Disclosures

On November 4, the Washington Supreme Court issued a decision holding that federal banking privacy rules will apply to prevent release of documents otherwise disclosable under the Washington Public Records Act (“PRA”). In Ameriquest Mortgage Company vs. Washington State Office of the Attorney General, a unanimous Court, for the first time, addressed the circumstances of when a federal banking privacy statute might overcome the state PRA’s presumption of disclosure. The result is a broadening of the potential avenues for protecting information and documents from disclosure.

Ninth Circuit Holds That Allegedly Excessive Underwriting Fees Cannot Be the Basis for a RESPA Section 8(b) Claim and the National Bank Act Preempts State Consumer Protection Claims

On March 8, the Ninth Circuit Court of Appeals held that the National Bank Act preempts unfair and fraudulent conduct claims under California’s unfair competition statute and that allegedly excessive underwriting fees cannot serve as the basis for claims under Section 8(b) of the Real Estate Settlement Procedures Act (“RESPA”). The Martinez v. Wells Fargo Home Mortgage, Inc. decision will make it more difficult for plaintiffs suing federally-chartered national banks to assert state law unfair competition claims based on the bank’s lending activities.

New Law Targets Broker Deceit

The Fraud Enforcement and Recovery Act (FERA), which President Barack Obama signed into law this past May, aims to enhance, strengthen and rebuild the government’s ability to investigate and prosecute mortgage and corporate fraud. To do so, FERA provides the U.S. Department of Justice with $165 million per year for fiscal years 2010 and 2011.

Federal Reserve Board Proposes More Changes to Truth-in-Lending

On July 23, 2009, the Federal Reserve Board (the “Board”) published proposed rules that will make more sweeping changes to Truth-in-Lending’s (“TILA”) closed-end residential loan and dwelling-secured open-end credit plan rules. The changes would impact the disclosures given at all stages of the loan process. Comments are due by November 27, 2009.

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Federal Reserve Board Issues First Interim Final Rule Under the Credit Card Act of 2009

On July 15, 2008, the Federal Reserve Board (“FRB”) issued the first installment of rules amending Regulation Z and implementing the Credit Card Accountability, Responsibility and Disclosure Act of 2009. The interim final rule is effective on August 20, 2009; 90 days after President Obama signed the Credit Card Act of 2009 (“the Act”) into law. Lenders beware: some of the changes apply to all open-end consumer credit plans, not just to credit card accounts.

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Update on Changes to Washington’s Financial Services Law

Although they may not have received as much press as their federal counterparts in Washington, D.C., the Washington Legislature has also been busy addressing the financial crisis.  This past season, the Legislature passed several statutes that will impact the Washington financial services community to various degrees.  What follows is a short synopsis of each of these laws.  A recent interpretation by the Washington Department of Financial Institutions (“DFI”) on the applicability of state law to loan modification activities is also included.  Lane Powell’s Mortgage and Consumer Finance attorneys are available to assist clients with interpreting these new laws and preparing and implementing needed compliance programs.

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Helping Families Save Their Homes Act of 2009

On May 20, 2009, President Obama signed into law the Helping Families Stay in Their Homes Act (“the Act”).  Much of the new Act, which became effective immediately, is designed to revitalize the Federal Housing Administration’s Hope for Homeowners Program (i.e., loan modification) and to provide more assistance to attack the problems of mortgage fraud and homelessness.  However, two other provisions of the Act will also be of keen interest to mortgage lenders and servicers.  First, the Truth in Lending Act (“TIL”) is being amended to require mortgage holders to notify a borrower when the ownership of their loan is transferred to another party.  Today, borrowers are only notified when the servicing of their loan is transferred. It remains to be seen whether borrowers will truly find the new disclosure helpful or just confusing.

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President Obama Signs Credit Card Act of 2009

On May 27, 2009, President Obama signed into law the Credit Card Act of 2009 (“Act”). This Act amends the Truth-in-Lending Act to make sweeping changes to the terms offered and disclosures provided by consumer credit card issuers. The Act also contains new federal restrictions on gift cards, gift certificates and some pre-paid cards. The provisions of the Act regarding advance notice of rate increases and other changes in account terms, as well as the provisions regarding the timing of periodic statements, take effect in 90 days. The provisions on interest rate reductions, reasonable and proportionate fees, and restrictions on gift cards and pre-paid cards become effective in 15 months. The remaining provisions become effective in nine months. The Act charges the Federal Reserve Board (“FRB”) with drafting the implementing regulations. To some extent, the Act modifies and expedites the FRB’s credit card rule changes that were to take effect on July 1, 2010.

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New Washington Rule Finalizes the Mortgage Loan Disclosure Requirement

The Washington Department of Financial Institutions (“DFI”) has issued a final rule regarding the new one-page mortgage disclosure form. The new rule completes implementation of one of the principal recommendations of Governor Gregoire’s Homeownership Security Task Force and is designed to provide Washington’s mortgage applicants with clearer information about key loan terms. The final rule takes effect on December 5, 2008, and contains the final requirements for the disclosure. (The statutory requirement took effect in June but the DFI will now examine based on the final rule.) Lenders and brokers should review their disclosures very carefully to ensure that they are in compliance with the final rule. Also, since the new rule does not amend any existing requirements, lenders and brokers must continue to provide all other mandated federal and state disclosures. View full article (PDF).

Congress Passes Largest Financial Bailout Bill Since the Great Depression

Following two weeks of hand-wringing in Washington, D.C., and market tremors on Wall Street, Congress reversed course and passed a historic $700 billion government bailout of the disintegrating financial industry on October 3, 2008 by a vote of 263 to 171. The Emergency Economic Stabilization Act of 2008 (“EESA”), spearheaded by Treasury Secretary Henry Paulson, went from a three-page proposal to a 450-page catalog, augmented by a long list of tax incentives and spending earmarks. Most importantly, the legislation gives the Treasury Department blanket authority to use the designated funds to purchase, manage and sell “toxic” assets held by financial institutions in order to address the worst credit and liquidity problems in the United States since the Great Depression. View full article (PDF).

Justice Department takes on ‘malicious’ mortgage lenders

In times of national economic upheaval, the criminal justice system often seems to be the janitorial squad of emergency management. View full article (PDF).

This article first appeared in the Portland Business Journal.

Bush Enacts Watershed Housing Bill Providing New Funding and Regulation for Mortgage Industry

On July 30, 2008, President Bush quietly signed one of the largest housing bills in decades to shore up struggling financial markets and a housing industry slump that is second only to that of the Great Depression. The Housing Assistance Act of 2008, signed after months of contentious negotiations, creates a $300 billion program to refinance troubled mortgages and creates new regulatory oversight of Fannie Mae (“Fannie”) and Freddie Mac (“Freddie”), which finance almost half of the country’s $12 trillion in home mortgage debt. View full article (PDF).

Federal Reserve’s New Mortgage Lending Rules to Take Effect October 2009

Following months of criticism that federal regulators have been slow to address the subprime mortgage crisis, the Federal Reserve Board (“the Fed”) unanimously approved new rules to curb misleading and deceptive practices in mortgage lending, especially subprime loans. The new rules will take effect October 1, 2009. View full article (PDF).

Washington Court of Appeals Affirms Preemption of State Law Claims In Connection With Lending Practices

In McCurry v. Chevy Chase Bank, an appeal of a dismissal of a nationwide class action filed against Chevy Chase Bank, F.S.B., a three-judge panel of the Washington Court of Appeals, Division One, recently affirmed a ruling that “regulations issued by the federal Office of Thrift Supervision (“OTS”) … expressly preempt state statutes and judicial decisions that purport to regulate ‘loan related fees.’” In other words, federally licensed savings banks are subject only to OTS regulation regarding lending operations. View full article (PDF).

The Subprime Crisis: Will the Feds Show Up at Your Doorstep?

The subprime mortgage crisis is unique in America’s array of economic downturns. There have been banking crises on Wall Street (most recently, the Savings and Loan scandal) and real estate and mortgage crises on Main Street, but this crisis is on both. It spans the entire mortgage industry and reaches across the globe. View full article (PDF).

Federal Legislation Update – New Mortgage Rescue Proposal Leverages Federal Housing Administration Guarantees to Refinance Loans

On March 13, 2008, House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Chris Dodd announced proposed legislation designed to further combat the rising tide of mortgage foreclosures by allowing the Federal Housing Administration (“FHA”) to insure and guarantee refinanced mortgages in exchange for significant write-downs by mortgage holders and lenders. View full article (PDF).

Reaching the Bottom of the Barrel – How the Securitization of Subprime Mortgages Ultimately Backfired

In the last decade, Wall Street used the process of securitization to revolutionize the financing of home mortgages, making credit available to millions of borrowers with less-than-stellar credit. But the failure to properly assess the credit risk associated with these loans led to well over $100 billion in losses at Wall Street firms. Who will be held responsible? View full article (PDF).

Not Your Father’s Banking Crisis: Confronting the Subprime Fallout

The so-called subprime mortgage crisis is the hottest topic around. Staggering bank losses related to defaulted or risky mortgages are being splashed daily across the news. View full article (PDF).

Federal Reserve Proposes New Mortgage Regulations — Public Comment Period Begins

Responding to increasing pressure from the financial sector and lawmakers, on December 18, 2007, the Federal Reserve released a lengthy proposal that is expected to significantly impact a wide array of mortgage lending practices. The new regulations are expected to be enacted largely as proposed, but a three-month public comment period may have some influence on the details. View full article (PDF).

Bush Announces Five-Year Interest Rate Freeze Agreement

Mortgage Reform Bill Passes the House – Sweeping Changes to Federal Regulation Are on the Horizon

On November 15, 2007, by a vote of 291-127, the House of Representatives passed the Mortgage Reform and Anti-Predatory Lending Act of 2007 (“H.R. 3915”). Broad bipartisan support for the bill — 100 percent of Democrats and 67 percent of Republicans — ensures that sweeping changes to federal regulation in this area are a virtual certainty. The Senate is also expected to introduce a mortgage reform bill in the coming weeks. While the impending Senate bill and negotiations with the White House will likely produce some changes to this pending legislation, the key features of the House bill, outlined below, indicate the direction that it will take.  View full article (PDF).

Federal Regulators and Prosecutors Ramp Up Resources in the Mortgage Fraud Arena

Continuing its aggressive post-Enron investigation of white-collar crime, the federal government has trained its sites on the mortgage financing industry. For example, the FBI recently announced: “The FBI views mortgage fraud as a significant and growing crime problem. The mortgage lending and housing market have a considerable overall effect on the nation’s economy and combating mortgage fraud will remain a top priority for the FBI. … The FBI is proactively working with the mortgage industry in an effort to curb mortgage fraud crimes.” View full article (PDF).

New Details Emerge Regarding Congressman Barney Frank’s Proposed Amendments to Federal Mortgage Laws

On October 22, U.S. Representative Barney Frank (D.-Mass.), chairman of the U.S. House Financial Services Committee, announced new details of his proposed bill, H.R. 3915, which would make significant changes to the Truth in Lending Act and is designed to address what he claims are abusive lending practices responsible for the dramatic rise in mortgage foreclosures in some parts of the country. The bill calls for close federal supervision of mortgage brokers, who have become the predominant providers of sub-prime loans allegedly responsible for the foreclosure crisis. mcf_2007_View full article (PDF).

To WARN or Not to WARN? That is the Question for Companies in the Troubled Subprime Mortgage Industry

A lawsuit filed last week against subprime lender Aegis Mortgage Corp. alleges that the company laid off hundreds of employees without giving them adequate notice. The class action lawsuit has been brought in U.S. Bankruptcy Court for the District of Delaware by a group of former employees against Aegis Mortgage Corporation, Aegis Wholesale Corporation and Cerebrus Capital Management. The complaint alleges violations of the federal Worker Adjustment and Retraining Notification Act (“WARN Act”), 29 U.S.C. §§ 2101–2109. It alleges that Aegis and Cerebrus (who, the plaintiffs claim, comprise a single employer under the Act) laid off approximately 400 workers just prior to filing for Chapter 11 bankruptcy protection on August 13, 2007. The class representatives assert that they are owed back pay and fringe benefits. View full article (PDF).

The Washington Court of Appeals Has Foreclosed a Potential B&O Tax Deduction for Mortgage Lenders Who Sell Loans on the Secondary Market

In a unanimous decision in HomeStreet, Inc. v. Dep’t of Revenue, a three-judge panel of the Washington Court of Appeals, Division Two, refused to allow a residential mortgage lender to take a business and occupation (“B&O”) tax deduction based on the amounts the lender received as compensation for servicing the home loans it originated and subsequently sold on the secondary market. The Court expressly noted that the availability of this deduction was an issue of first impression. View full article (PDF).

The Case for National Reform

As the mortgage industry becomes more entangled in state regulations, it might be time for a strong federal stance. View full article (PDF).

This article first appeared in the Scotsman Guide.