The SEC issued an order (the “SEC Order”) commencing administrative proceedings against a registered investment adviser (the “Adviser”), a registered broker-dealer affiliate of the Adviser (the “Distributor”), the Adviser’s portfolio manager (the “Portfolio Manager”) for seven affiliated bond funds sponsored by the Adviser (the “Funds”), and the Distributor’s Controller and Head of Fund Accounting (the “Controller”).  The SEC Order alleges that during the period between January 2007 and July 2007 (the “Relevant Period”) the daily net asset value (“NAV”) of each of the Funds, which consist of three open-end funds and four closed-end funds, was materially inflated as a result of fraudulent conduct relating to the pricing of securities backed by subprime mortgages (“Asset Backed Securities”) on the part of the Adviser, the Distributor, the Portfolio Manager and the Controller (collectively, the “SEC Respondents”).  This article summarizes the SEC’s allegations as included in the SEC Order.  The SEC Respondents have not yet filed an answer to the SEC Order nor has there yet been any finding with respect to the SEC’s allegations.  [Read more →]

On August 13th, HUD published FAQs on its 2008 amendment of Regulation X, the Real Estate Settlement Procedure Act’s implementing regulation. The FAQs cover many provisions of the amendment, including when a loan originator must provide a GFE, expiration of the GFE, providing a list of settlement service providers, the changed circumstances re-delivery rule, and completing the GFE and HUD-1/1A. HUD has issued revised FAQs three times: August 19, September 4, and September 18. Click here for the FAQs as of September 18th.

The OCC published a Consumer Advisory to help consumers better understand reverse mortgages. The publication provides basic information about reverse mortgages, the costs and benefits of this product, and “rules of thumb” for consumers. Click here for the publication.

The FDIC adopted a final rule which extends the increase in the standard maximum deposit insurance amount to $250,000 through December 31, 2013. The final rule also finalizes, without substantive change, the FDIC’s revisions to its mortgage servicing account and revocable trust account regulations made by interim rules in 2008 that were reported in the October 21, 2008 and October 7, 2008 Consumer Financial Services Alerts. The final rule is effective October 19, 2009. Click here for the final rule.

The FDIC began a program to help prevent unnecessary and fraudulent foreclosure rescue scams by (1) providing a telephone and Internet referral service via the FDIC’s call center or website which directs borrowers to legitimate counselors, mortgage servicers, and state and federal law enforcement agencies, and (2) creating a foreclosure information “tool kit” for borrowers. Click here for more information on the initiative, including access to the tool kit.

The FRB issued proposed rules to amend the home-secured provisions of Regulation Z. The proposal calls for significant changes in the timing, format and content of disclosures for closed-end mortgage loans and home equity lines of credit. The proposal contains new limits on originator compensation that would effectively ban yield spread premiums. The proposal would also require lenders to include fees in the annual percentage rate calculation that are currently excluded, resulting in more loans being considered high cost or higher priced under the Truth in Lending Act. Below is a summary of the major provisions of the proposal. [Read more →]

The Financial Crimes Enforcement Network issued an advance notice of proposed rulemaking to solicit public comment on the possible application of anti-money laundering program and suspicious activity report regulations to non-bank residential mortgage lenders and originators. FinCEN specifically seeks comment on (1) whether to follow an “incremental approach” to the issuance of such regulations that would initially affect only those “persons” engaged in non-bank residential mortgage lending or origination; (2) how the regulations should define these persons; (3) how AML programs for these persons should be structured, (4) whether these persons should be covered by other Bank Secrecy Act requirements in addition to the AML program requirement (e.g., SAR reporting); and (5) what exemptions, if any, should apply to any AML program or SAR reporting requirements. Comments are due by August 20, 2009. Click here for the proposal.

The Massachusetts Division of Banks (the “DOB”) issued a report entitled Compendium of Actions Taken Relative to Foreclosures and the Mortgage Industry (the “Report”), in which the DOB describes the administrative and legislative actions it has taken since 2006 to address foreclosure and mortgage lending issues in Massachusetts.  The Report describes: (i) improved standards within the mortgage industry; (ii) enhanced supervision and enforcement (the Report states that since 2006, the DOB has issued 230 informal and 147 formal enforcement actions against licensed mortgage lenders and brokers); (iii) assistance programs for homeowners and (iv) improved state and local cooperation in addressing foreclosure and related mortgage industry issues.  Click here for a copy of the Report.

The FTC announced that it is seeking public comment on two advance notices of proposed rulemaking concerning unfair and deceptive practices in the mortgage industry. The first rulemaking, the Mortgage Assistance Relief Services rulemaking, seeks to assess whether the FTC should adopt rules to protect consumers using loan modification and foreclosure rescue services. Specifically, the FTC seeks comment on whether it should restrict providers of loan modification and foreclosure rescue services from accepting advanced fees from consumers. The second rulemaking, the Mortgage Acts and Practices rulemaking, seeks to assess whether the FTC should adopt rules that would regulate the following mortgage lending activities: (1) advertising and marketing, (2) origination, including underwriting, loan terms and disclosures, (3) appraisals, and (4) servicing. The proposed rules would not apply to banks, which are not within the FTC’s jurisdiction. The comment period for the Mortgage Assistance Relief Services rulemaking ends July 15, 2009, and the comment period for the Mortgage Acts and Practices ends July 30, 2009. Click here for the Mortgage Assistance Relief Services notice and here for the Mortgage Acts and Practices notice.

President Obama signed the Helping Families Save Their Homes Act of 2009, which primarily amends the operation of the Hope for Home Owners Program. These amendments include putting a cap on upfront and annual fees and allowing payments to servicers and underwriters for successful modifications. The Act also amends Section 131 of the Truth in Lending Act, giving purchasers of residential mortgage loans (including investors, such as investment and hedge funds) affirmative disclosure obligations to consumers. Specifically, the Act provides that a “creditor” that purchases or is assigned a mortgage loan must notify the borrower in writing of a sale or transfer of his or her mortgage loan, not later than 30 days after the transaction’s completion. This disclosure would be in addition to any transfer of servicing notice required under the Real Estate Settlement Procedures Act. [Read more →]

The U.S. House of Representatives passed H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act, which is aimed at curbing abusive lending practices. The bill was covered in the May 5th Alert. Click here for a summary of the bill and here for a House press release on the bill.

Treasury and HUD announced a further expansion of the Making Home Affordable Program. In addition to incentivizing servicers to modify mortgages, the Program now offers incentives to services and borrowers for pursuing short sales and deeds-in-lieu of foreclosure in instances where a borrower cannot qualify for modification. In addition to this short-sale initiative, Treasury and HUD announced a new Home Price Decline Protection initiative aimed at providing creditors with additional incentives to modify loans in areas where home price declines are most severe. Under this new initiative, incentive payments are calculated by directly linking the payment amount to both the rate of home price declines in a local housing market and the average cost of a home in that market. Click here for a fact sheet on both new initiatives and here for an overall progress report produced by HUD and Treasury on the Making Home Affordable Program.

The FRB issued a final rule that revises the disclosure requirements for mortgage loans under Regulation Z. These revisions implement the Mortgage Disclosure Improvement Act, which was enacted as part of the Housing and Economic Recovery Act of 2008. [Read more →]

The March 3, 2009 Alert, Buyer Beware: Risks and Considerations in Purchasing Residential Mortgage Loans, discussed the legal risks and considerations associated with purchasing residential mortgage loans. This Article is intended to complement that discussion and focuses specifically on documentation risks in purchasing residential mortgage loans. [Read more →]