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Friday, October 24, 2014

Mortgage Servicer Under Fire for Backdated Letters

By ABIA Outside Counsel, Chrys D. Lemon, McIntyre & Lemon, PLLC

New York’s top financial regulator, Benjamin Lawsky, is investigating a mortgage servicer for backdating thousands of letters to borrowers.

The Wall Street Journal reports: “In a toughly worded letter sent to [a mortgage servicer] on Tuesday, . . . [Mr.] Lawsky said that even after an employee at the firm discovered and reported instances of backdating, [the mortgage servicer] ignored them for months and still hasn’t corrected them, nearly a year after they were initially found. . . . ‘[The mortgage servicer's] indifference to such a serious matter demonstrates a troubling corporate culture that disregards the needs of struggling borrowers,’ Mr. Lawsky wrote.

“The . . . letters had been sent to borrowers who were behind on payments or in need of loan modifications providing easier terms, Mr. Lawsky said. Many went to borrowers who had been denied loan modifications, informing them they had 30 days to appeal the decision. But the deadline had passed by the time the backdated letters arrived.”

“[A] person close to the matter said the regulator was likely to demand a settlement or consent order that would require that [the mortgage servicer] find borrowers who had received backdated letters and give them an extended opportunity to correct loan delinquencies or other problems.”

Agencies Request Comment on Proposed Flood Insurance Rule

Five federal regulatory agencies today announced the approval of a joint notice of proposed rulemaking to amend regulations pertaining to loans secured by property located in special flood hazard areas. The proposed rule would implement provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) relating to escrowing flood insurance payments and the exemption of certain detached structures from the mandatory flood insurance purchase requirement. HFIAA amends the escrow provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (the Biggert-Waters Act).

In accordance with HFIAA, the proposed rule would require regulated lending institutions to escrow premiums and fees for flood insurance for loans secured by residential improved real estate or mobile homes that are made, increased, extended or renewed on or after January 1, 2016, unless the regulated lending institution or a loan qualifies for a statutory exception. In addition, the proposed rule would require institutions to provide borrowers of residential loans outstanding on January 1, 2016, the option to escrow flood insurance premiums and fees. The proposal includes new and revised sample notice forms and clauses concerning the escrow requirement and the option to escrow.

Finally, the proposal would eliminate the requirement to purchase flood insurance for a structure that is a part of a residential property located in a special flood hazard area if that structure is detached from the primary residential structure and does not also serve as a residence. However, under HFIAA, lenders may nevertheless require flood insurance on the detached structures to protect the collateral securing the mortgage.

In a separate rulemaking, the agencies will address other provisions of the Biggert-Waters Act for which the agencies have jurisdiction and that were not amended by HFIAA. The proposed rule is being issued by the Board of Governors of the Federal Reserve System, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency.

Comments will be due 60 days after the rule is published in the Federal Register, which is expected shortly.

Read joint notice of proposed rulemaking.

This Week at the CFPB

A summary of this week's news about the CFPB from the ABIA and ABA Dodd-Frank Tracker:

Thursday, October 23, 2014

Massachusetts Passes Bill Providing Liability Coverage in FAIR Plan Dwelling Policy

On October 9th, Massachusetts Governor Deval Patrick signed S-465, an Act Relative to Liability Coverage under the Massachusetts Property Insurance Underwriting Association, into law and is now Chapter 346 of the Acts of 2014. This law enables property owners to obtain both property and liability coverage in one policy, rather than paying more for two separate policies.

Once this new law goes into effect on January 8, 2015, the Massachusetts Property Insurance Underwriting Association (MPIUA) — also known as the Massachusetts FAIR Plan — is required to have liability, not just property, coverage included in its Non-Owner Occupied Dwelling policy for one-to-four residential units.

Currently, if a property owner of an investment dwelling with one-to-four residential units could not obtain the Non-Owner Occupied Dwelling policy in the standard voluntary market, they would have to obtain property coverage from the FAIR Plan and purchase separate liability coverage from the surplus lines market.

Now that the FAIR act allows for the combination of the two coverages, underwriting mortgages and validating insurance coverage in force will be significantly easier. However, there is some concern that expansion of MPIUA policy will create greater liability for the state, as liability risks that could not be underwritten in the voluntary market are now underwritten by the taxpayer.

Learn more.

ABIA Applauds Changes to CFPB Points and Fees Cure Provision

The Consumer Financial Protection Bureau yesterday finalized a limited “cure” provision for the Qualified Mortgage rule, allowing a lender that intends to originate a QM but that later finds that points and fees exceeded the 3 percent cap to refund the excess, plus interest, within 210 days and maintain the legal protections afforded to QMs.

The bureau made several ABA-advocated changes to the final rule. It increased the cure period by 90 days and eliminated the “good faith” requirement, which ABA said injected a subjective element that negates a cure provision’s legal protections. However, the bureau limited creditors’ ability to cure after legal action, a 60-day delinquency or when a borrower identifies a points and fees miscalculation.

The cure provision takes effect upon publication in the Federal Register and will last until Jan. 10, 2021, at which point “creditors should become less reliant on points and fees buffers,” the CFPB said. Other changes finalized apply to Section 501(c)(3) nonprofits that originate and service mortgages.

Read the final rule.

For more information, contact ABIA's Kevin McKechnie.