tag:blogger.com,1999:blog-81736650231079445602024-03-08T19:13:37.991-05:00Dodd-Frank ForumJonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-8173665023107944560.post-29980078777297475262013-07-22T08:00:00.000-04:002013-07-22T08:57:18.589-04:00CFPB: Spying to Protect the ConsumerIt all began with a Bloomberg article. Although the CFPB spying on the financial habits of at least 10 million consumers seems to be a far cry from NSA's spying on the telephone calls, emails, snail mails, website usage, and many other communication media used by hundreds of millions of US citizens, the timing of the Bloomberg article comes at, shall we say, a rather sensitive time - given its publication just shortly prior to the recent revelations regarding the NSA's rather unique way of interpreting the Fourth Amendment of the US Constitution regarding search and seizure. <br />
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<b>Probable Cause Conundrum</b> </div>
I call it the "probable cause conundrum," because (1) the Fourth Amendment expressly states that "the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized," yet (2) a warrant to spy on Americans these days, at least with respect to probable cause and the requirement that a warrant to spy must be limited in scope according to specific information, has been hugely expanded. At least one of the Supremes has interpreted "probable cause" to mean "reasonable." For some reason, I really don't think that point of view was ever the way the Framers considered it, based on the law extant at the time the Constitution was actually drafted. But I digress. <br />
As a result of Tennessee v. Garner [471 U.S. 1 (1985)], <i>inter alia</i>, we all learned that the "reasonableness requirement" applies not just to a search in combination with a seizure, but also to a search without a seizure, as well as to a seizure without a search. But, again, I digress. So not to go too far afield, let us return to that Bloomberg article which, by the way, was published back in April of this year. <br />
<a href="http://www.bloomberg.com/news/2013-04-17/u-s-amasses-data-on-10-million-consumers-as-banks-object.html">To quote the very first paragraph of the article</a>, its author, Carter Dougherty, writes that "the new U.S. consumer finance watchdog is gearing up to monitor how millions of Americans use credit cards, take out mortgages and overdraw their checking accounts. Their bankers aren’t happy about it." And Mr. Dougherty later on states that "Director Richard Cordray has said that the consumer bureau needs raw material to make 'data-driven', decisions based on how financial products and services are used or abused. Research will improve regulation as well as the marketplace." <br />
We don't like to think that our federal agencies are spying on us, watching our communications, perhaps especially our financial habits, determining therefrom how best to "serve" the public interest. Sure, we know that Google and other web giants are constantly monitoring our financial habits - presumably with our permission to do so. Somehow, it's acceptable if private corporations do it, but when the government does it - not so much! <br />
It all becomes rather weird when the NSA (backed by, say, the DOJ) orders private corporations to spy on us, but the latter are not permitted to admit that the former ordered them to do so - with or without our permission - on the basis of what appears to be a new meaning of "probable cause." <br />
What I find interesting is the similarity between the NSA's and the CFPB's reasons for the need to collect, respectively, virtually all communication data on American citizens and also the financial data on millions of American consumers. It seems that spying has an underlying positive cause, one that apparently we citizens simply don't fully appreciate. For if we did appreciate the workings of these agencies that are just trying to protect us, watch over us to make sure we are safe, and do what they can to mitigate our worst fears, we would overwhelmingly and clearly express our gratitude to the NSA and CFPB for their commitment to our protection - and some Americans certainly seem very grateful. <br />
The Fourth Amendment - how quaint it has become! <br />
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<b>Justifying Spying</b> </div>
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<b>NSA and CFPB – Two Peas in a Pod</b> </div>
But let's look at some of these justifications that both the NSA and the CFPB have in common for spying on us. Or, if you find that phrase to be nettlesome, perhaps the phrase ‘conducting surveillance on us’ is easier to accept. <br />
<b>First Justification:</b> We need a bogeyman, whom we shall call El Coco, its Spanish version, as when a Spanish-speaking parent tells a child 'si no te portas bien vendrá el coco' ("if you're not good the bogeyman will come and get you"). Almost every civilization has had some version of the bogeyman, that amorphous, unpredictable, malevolent being whose primary role is to scare the living daylights out of us and make us willingly compliant and malleable victims. <br />
So, in the case of the NSA, El Coco comes in the form of terrorists and other malcontents; and, in the case of the CFPB, El Coco seems to be residential mortgage lenders and originators (RMLOs) and other members of the financial markets and sometimes even consumers themselves. In both instances, we can thank the government for protecting us from the mischievous schemes of El Coco. <br />
Fortunately, these federal agencies keep guard against El Coco and make sure that nothing physically or financially bad will happen to Americans. If you take the position, as did President Franklin Roosevelt, that "there is nothing to fear but fear itself," then you're really not showing much appreciation for the many protective efforts being done on your behalf, to protect you from the wrathful and heinous acts of El Coco. <br />
<b>Second Justification:</b> The euphemisms "data collection" and "data mining" have become virtually the same meaning, one giving way to the other, as surely as night follows the day. After all, what good is getting all that data about us if you can't mine it for something practical? And what could be more practical than mining data on Americans to catch terrorists hiding among them or non-Americans trying to harm Americans or demolishing supposedly deceptive RMLOs preying on the financial well-being of Americans? <br />
But there are those who resist such sound reasoning, using case law and the Constitution to argue that putting everybody into one massive group lacks the very specificity that the Fourth Amendment requires, with the hope of finding a few bad actors - like casting out large metal nets dragged along by trawling ships, hauling for a large plunder of fish, hoping for a big catch. <br />
As it has been recently reported, the NSA's perception of probable cause - <i>excuse me</i>, 'reasonable' cause - is that 51% passes, but 49% fails, when determining which ‘fish’ shall live and which 'fish' shall die; or, put otherwise, which Americans are bad, deserving of full-court press investigations and the impoverishment caused by litigation defending themselves, and which Americans are good, spared the invasiveness and poverty, but deserving to remain permanently ensconced in the Pool (that is, the deep and dark pool of collected data).<br />
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So, a cover story is needed to push back on these recalcitrant, defiant extremists who do not accept the new <i>status quo</i>. And in the case of the NSA, the cover story has been that the purpose of the immense electronic dragnet is this: information is power against El Coco, giving the US a policing and enforcement edge over its adversaries outside of the United States and, as we now know, even within it, by and between American citizens. <br />
The CFPB's cover story is a bit more nuanced, but essentially similar, using the American sense of commitment to a free enterprise system and expectations of market stability. Here's Director Cordray's statement, offered to explain the CFPB’s own dragnet: “The more information there is, the more innovation there can be and the more competition there is among the institutions around customer service. ... It’s something we want to encourage.” <br />
It's a good thing, too, that the CFPB is so concerned about encouraging innovation and competition, otherwise we might think it was not complying with the Dodd-Frank Act's restrictions that prohibit it from data collection "for purposes of gathering or analyzing the personally identifiable financial information of consumers.” <br />
I'm sure that the CFPB believes that the cost of $15 million for the outsourced data extraction and analytical work regarding credit cards will be well worth it. Whatever the expense for collecting data on other financial products under the CFPB's purview will surely also be worth the cost. After all, any information on consumers that the CFPB cannot get by the foregoing extraction process will hopefully be obtained by paying $8.4 million to Experian for data on 5 to 10 million Americans. And that is why the CFPB really must pay $443,260 to Clarity Services, Inc. for providing data on payday loans. And also why it is coordinating with the Federal Housing Finance Agency (FHFA) in building a database of mortgage originations that integrates consumer credit information with loan and property records, for which Core Logic will be paid $796,000 to provide loan-level data on mortgages. <br />
Given the selfless spirit in which these agencies seek to deploy data collection, it seems only fair that we give them the chance to use it in order to protect us not only from the nefarious, outsider El Coco (viz., non-Americans) but also from the nefarious insider El Coco in our midst and among ourselves (viz., Americans). Really, how else to ensure that more innovation and competition is made available to American consumers? Protecting us from others and even from ourselves surely must be a full time job and certainly costs a lot of money, but it's worth it! <br />
<b>Third Justification:</b> It may seem 'invasive' to take such liberties with our liberties, but by what other means might the NSA and CFPB execute their responsibilities, well, responsibly? One distinct difference between data mined by the NSA and that mined by the CFPB is that we do not get to know anything about the former, virtually forever, but we do get to know about the latter, eventually. Or, at least that is how it is supposed to happen. <br />
Director Cordray has opined that the research developed from the data collection will be made available to the public. Maybe. But to what benefit? I translate the proposition that the developed research will be made public, as follows: 'based on our selection criteria, we will make available the results of our selection criteria." This kind of circular reasoning is endemic and pervasive among the bureaucratic wonks that torment data into a statistically useless condition. It is the same kind of reasoning that evoked the confirmation bias leading up to the great market meltdown a few years ago. <br />
I see virtually no difference between being deprived of mined data on Americans by the NSA and useless data being mined and then provided by the CFPB. My concern is that people are falling into the same kind of conceptual trap that caused the last combustible financial disaster: everybody becomes conditioned to looking at and for a concocted El Coco in one area, thereby confirming one another's biases, while the authentic El Coco is getting ready to launch its new brand of terror. <br />
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<b>Congress Takes Notice</b> </div>
And now, just a few days ago, on Tuesday, July 9th, we were treated to a sequel to that first Bloomberg article. This second report, published by Housing Wire, is provided by reporter Megan Hopkins. <a href="http://www.housingwire.com/news/2013/07/09/cfpb-official-grilled-over-consumer-data-collection-practices">According to the news report</a>, Mike Crapo (R-ID) "recently asked the Government Accountability Office to investigate the 'big data' collection efforts underway on consumer habits at the CFPB." <br />
On that Tuesday, the House Financial Services Committee expressed considerable concern about the CFPB's data collection initiative. Ms. Hopkins editorially surmises: "The bureau is in a Catch-22: it collects data to inform opinions on how to help borrowers, but this data also remains a privacy concern for government officials and the general public." <br />
One member of the Committee (David Scott, D-GA) said this: "The CFPB was put in with Dodd-Frank to protect consumers. You cannot protect consumers without the capacity of gathering information" ... "If you limit that capacity of the CFPB, it’s like cutting the legs out from under them and then condemning them for being a cripple." (<b>See Second Justification</b>) <br />
To the CFPB’s defense at this hearing came its Acting Director Steven Antonakes, who offered some creative, bureaucratic newspeak by saying that the collected data will be "desensitized." As reported, he said: "We're looking at individual loan-level account information, but we’re not seeking to determine who that particular consumer is. ... We have no interest whatsoever in trying to determine who that specific individual is." <br />
Sure you do! It's El Coco - if you can catch him!<br />
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<span style="font-size: xx-small;">*Jonathan Foxx is the President & Managing Director of Lenders Compliance Group</span></div>
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<br />Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.com0tag:blogger.com,1999:blog-8173665023107944560.post-68440287293599424652012-10-23T11:04:00.000-04:002012-10-23T11:04:06.432-04:00CFPB's Five Year Strategic Plan<div align="justify">
Recently, the Consumer Financial Protection Bureau (CFPB) published for comment on its website its draft <span style="color: #c0504d;">Strategic Plan for 2013 - 2018</span> (Plan). </div>
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According to the CFPB, the plan includes the following four goals: </div>
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(1) Prevent financial harm to consumers while promoting good practices that benefit them.</div>
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(2) Empower consumers to live better financial lives.</div>
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(3) Inform the public, policymakers, and the CFPB’s own policymaking with data-driven analysis of consumer finance markets and consumer behavior.</div>
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(4) Advance the CFPB’s performance by maximizing resource productivity and enhancing impact. For each goal, the plan identifies outcomes to be achieved and how progress will be measured.</div>
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Submit comments to <a href="http://www.blogger.com/StrategyPlanComments@cfpb.gov">StrategyPlanComments@cfpb.gov</a> before October 25, 2012. </div>
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<span style="color: red;">IN THIS ARTICLE</span></div>
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<span style="color: #c0504d;">Goals, Strategies, and Metrics</span></div>
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<span style="color: #c0504d;">Goal 1: Prevent Financial Harm to Consumers </span></div>
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<span style="color: #c0504d;">Goal 2: Empower Consumers to Live Better Financial Lives</span></div>
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<span style="color: #c0504d;">Goal 3: Inform The Public</span></div>
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<span style="color: #c0504d;">Chart: Data Sources and Data Outputs</span></div>
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<span style="color: #c0504d;">Goal 4: Maximizing Resources and Impact</span></div>
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<span style="color: #c0504d;">Library</span></div>
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<b><span style="color: #c0504d;">Goals, Strategies, and Metrics</span></b></div>
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The Plan outlines these goals, strategies, and metrics:</div>
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- Four strategic goals that outline what the CFPB aims to achieve.</div>
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- Desired outcomes in support of its goals.</div>
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- Strategies that state the actions the CFPB will take to accomplish our outcomes.</div>
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- Performance measures that CFPB will track against specific targets in order to assess its progress toward achieving its outcomes.</div>
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- Indicators that the CFPB will track and use to assess progress toward achieving our outcomes. </div>
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(Unlike performance measures, indicators do not reflect targets.)</div>
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<b><span style="color: #c0504d;">Goal 1</span></b></div>
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<span style="color: #c0504d;"><b>Prevent Financial Harm to Consumers while Promoting Good Practices</b></span></div>
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The CFPB stated that, prior to Congress enacting the Consumer Financial Protection Act (CFPA) as Title X of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203, dated July 21, 2010), consumer financial protection had not been the primary focus of any one Federal agency, and no agency had effective tools to set the rules for and oversee the whole market. </div>
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Per the CFPB, the result was a system without sufficiently effective rules or consistent enforcement of the law. The CFPB believes that the consequences can be seen both in the 2008 financial crisis and in its aftermath.</div>
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The CFPB increased accountability in government by consolidating consumer financial protection authorities that had existed across seven different federal agencies into one, the Consumer Financial Protection Bureau. In addition to establishing the CFPB's enforcement powers, the CFPA gives the CFPB the authority to supervise and examine many financial institutions that were not previously subject to Federal oversight, such as nonbank mortgage companies, payday lenders, and private education lenders. </div>
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With the consolidation of existing and new federal authorities under one roof, the CFPB seeks to be properly focused and equipped to prevent financial harm to consumers while promoting practices that benefit consumers across financial institutions. </div>
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<span style="color: #c0504d;"><b>Goal 2</b></span></div>
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<span style="color: #c0504d;"><b>Empower Consumers to Live Better Financial Lives</b></span></div>
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This second goal of the CFPB is "to arm consumers with the knowledge, tools, and capabilities they need in order to make better informed financial decisions by engaging them in the right moments of their financial lives, in moments when the consumer is most receptive to seeking out and acting on assistance." </div>
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The CFPB plans to develop and maintain a variety of tools, programs, and initiatives that provide targeted, meaningful, and accessible assistance and information to consumers at the moment they need it. </div>
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<span style="color: #c0504d;">To reify this goal, the CFPB has predicated two outcomes.</span></div>
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<span style="color: #c0504d;">Outcome # 1:</span></div>
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The first outcome will collect, monitor, respond to, and share data associated with consumer complaints and inquiries about consumer financial products or services.</div>
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The CFPB has asserted that the consumer response function is central to its mission. The CFPB would provide direct assistance to consumers, in real-time, through its <u>Consumer Response</u> team. (<a href="http://publications.lenderscompliancegroup.com/16.html">See our October 4, 2012 article on Consumer Complaints and the Consumer Response team.</a>) This team hears directly from consumers about the challenges they face in the marketplace and brings their concerns to the attention of the financial institutions that the CFPB regulates for investigation and resolution.</div>
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The Consumer Response team is tasked also to learn from the experiences of already operating complaint centers, for instance, by using the historical data from the FTC's <u>Consumer Sentinel</u> network, which is a collection of consumer complaint data from a variety of contributors, to inform its approach to handling complaints.</div>
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<span style="color: #c0504d;">Performance metrics are applied by</span> deriving data from complaint volume, the percentage of complaints routed through the dedicated company portal, and the complaint cycle time (i.e., intake cycle time, from receipt to company referral; company cycle time, from referral to company response; consumer cycle time, from company closure response to dispute; investigations cycle time, from investigations queue to closure).</div>
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<span style="color: #c0504d;">Outcome # 2:</span></div>
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The second outcome helps consumers understand the costs, risks, and tradeoffs of financial decisions; build trusted relationships that are interactive and informative to help consumers take control of their financial choices to meet their own goals; and raise effectiveness of those who provide financial education services to increase financial literacy.</div>
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In this outcome, the CFPB aims to provide consumers with the information, knowledge, and financial education needed in order to make well-informed decisions to enhance the financial knowledge and capability of the country as a whole. In addition to improving overall financial literacy, the CFPB plans to focus on addressing the unique financial challenges faced by four specific populations: students, older Americans, servicemembers, and the economically vulnerable and underserved.</div>
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<span style="color: #c0504d;">Performance metrics are applied by</span> deriving data from targeted populations or organizations directly servicing targeted populations reached by digital content, decision tools, educational materials and resources, and outreach work; the number of outreach activities on fair lending and access to credit; and, mechanism in place to identify key success factors in financial education.</div>
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<span style="color: #c0504d;"><b>Goal 3</b></span></div>
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<span style="color: #c0504d;"><b>Inform The Public</b></span></div>
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This goal is designed to inform the public, policy makers, and the CFPB's own policy-making with data-driven analysis of consumer finance markets and consumer behavior.</div>
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According to the CFPB, this goal offers an understanding of how consumer financial markets work, the avenues for innovation in financial products and services, and the potential for risk to consumers is a core component of the CFPB's mission. As the CFOB states: "the CFPB’s aim is to ground all of its work - from writing rules and litigating enforcement actions to its outreach and financial literacy efforts - in the realities of the marketplace and the complexities of consumer behavior."</div>
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<span style="color: #c0504d;">To reify this goal, the CFPB has predicated two outcomes.</span></div>
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<span style="color: #c0504d;">Outcome # 1:</span></div>
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Evidence based analysis obtained by monitoring markets and conducting research to bring to the surface financial trends and emergent risks relevant to consumers.</div>
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The following chart provides the CFPB's approach to building and maintaining the technological infrastructure required to support market intelligence through the integration of diverse internal and external data.</div>
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<span style="color: #c0504d;">Performance metrics are applied by</span> measuring the percentage of the credit card market monitored through data percentage of mortgage market monitored, and the percentage of the mortgage originations and servicing market monitored through data.</div>
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<a href="http://lh5.ggpht.com/-MSRGeR-tQ-M/UIawS6a3_hI/AAAAAAAABuQ/0jir4A-Y-FU/s1600-h/CFPB-Data-Sources-and-Outputs-Strate%25255B1%25255D.jpg"><img alt="CFPB-Data Sources and Outputs (Strategic Plan)" border="0" height="250" src="http://lh3.ggpht.com/-MQXJg3KXKb8/UIawTmuCQAI/AAAAAAAABuY/XZWQ-hhsaTo/CFPB-Data-Sources-and-Outputs-Strate%25255B2%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="CFPB-Data Sources and Outputs (Strategic Plan)" width="454" /></a></div>
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<span style="color: #c0504d; font-size: xx-small;">Data Sources and Data Outputs</span></div>
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<b><span style="color: #c0504d;">Outcome # 2:</span></b></div>
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This goal requires a research-driven, evidence-based perspective on consumer financial markets, consumer behavior, and regulations to inform the public discourse, inform CFPB thinking on priority areas, identify areas where CFPB intervention may improve market outcomes, and support efforts to reduce outdated, unnecessary, or unduly burdensome regulations.</div>
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<span style="color: #c0504d;">Performance metrics are applied by</span> reports produced about specific consumer financial products, markets, or regulations research reports produced, and reports or research projects produced on consumer decision-making.</div>
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<span style="color: #c0504d;"><b>Goal 4</b></span></div>
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<span style="color: #c0504d;"><b>Maximizing Resources and Impact</b></span></div>
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The CFPB's Plan expects to advance its performance by "maximizing resource productivity and enhance impact."</div>
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In order to maximize the effectiveness the consumer protections established by Federal consumer financial law, the CFPB wants to acquire, maintain, support, and direct its resources in a way that enables it to operate efficiently, effectively, and transparently. This means developing, maintaining, and continuously, improving the policies and controls in place to ensure the CFPB has the resources it needs and puts those resources to the best use possible.</div>
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A "key mission" of the CFPB is to make financial products and services more transparent in the consumer marketplace. Accordingly, the CFPB will strive to achieve the same level of transparency in its own activities, subject to consumer privacy and other confidentiality interests. </div>
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To accomplish this, the CFPB plans to "develop and implement mechanisms and provide channels to maintain an open, collaborative dialogue with the public."</div>
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<span style="color: #c0504d;">To reify this goal, the CFPB has predicated four outcomes. </span></div>
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<span style="color: #c0504d;">Outcome # 1:</span></div>
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Attract, engage, and deploy a workforce that meets dynamic challenges and provides effective oversight of the consumer financial marketplace.</div>
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The CFPB will continue to identify and adopt 'best practices' from the private and public sectors to hire, train, develop, and retain a “world-class workforce with the knowledge, skills, and abilities required to effectively execute against our mission." </div>
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The CFPB is working to develop a sustainable pipeline of diverse candidates and will continue to engage and develop its staff through education and training programs. </div>
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<span style="color: #c0504d;">Performance metrics are applied by</span> achievement of workforce profile goals, assessing the level of employee engagement, evaluating the effectiveness of learning and development program, and the determining the effectiveness of performance management program.</div>
<div align="justify">
<br /></div>
<div align="justify">
<span style="color: #c0504d;">Outcome # 2:</span></div>
<div align="justify">
<br /></div>
<div align="justify">
Enable the innovative use of technology for the benefit of efficient internal communications and effective public engagement.</div>
<div align="justify">
<br /></div>
<div align="justify">
The CFPB will deploy "cutting edge" technology and leverage its technological resources to provide significant business value with lower costs. The Plan states that "technology will be core to the CFPB accomplishing its mission."</div>
<div align="justify">
<br /></div>
<div align="justify">
Performance metrics are applied by reviewing the efficiency of internal processes and procedures as well as the external use of and public contributions to the CFPB's software.</div>
<div align="justify">
<br /></div>
<div align="justify">
<span style="color: #c0504d;">Outcome # 3:</span></div>
<div align="justify">
<br /></div>
<div align="justify">
Enable the operation of a high-performing organization by ensuring effective and efficient management, protection of CFPB resources, rigorous internal controls, and full compliance with the law.</div>
<div align="justify">
<br /></div>
<div align="justify">
The CFPB will monitor its operations and conduct periodic evaluations to ensure it maintains good financial practices and robust internal controls.</div>
<div align="justify">
<br /></div>
<div align="justify">
<span style="color: #c0504d;">Performance metrics are applied by</span> providing unqualified "clean" audit opinion on financial statements, and a procurement process that continually evaluates the percentage of contracts competitively awarded.</div>
<div align="justify">
<br /></div>
<div align="justify">
<span style="color: #c0504d;">Outcome # 4:</span></div>
<div align="justify">
<br /></div>
<div align="justify">
Increase public confidence in consumer financial markets by maintaining the CFPB's transparency, accountability, and meaningful channels for feedback.</div>
<div align="justify">
<br /></div>
<div align="justify">
The CFPB expects to maintain transparency as the core of how it operates; therefore, the CFPB will provide clear information both on the use of resources and on its performance by communicating substantively and frequently across a wide range of industry and consumer group sectors. </div>
<div align="justify">
<br /></div>
<div align="justify">
Accordingly, the Plan calls for the CFPB to actively engage all stakeholders that could potentially be affected by the agency, with the understanding that there is much insight to be gained from varied perspectives that represent many distinct points of view.</div>
<div align="justify">
<br /></div>
<div align="justify">
<span style="color: #c0504d;">Performance metrics are applied by</span> engaging in public field hearings, town hall meetings, Congressional testimonies, open press events, meetings with stakeholders, and providing "CFPB-administered redress" through announcing the percentage of funds collected that are distributed to victims within 24 months.</div>
<div align="justify">
<br /></div>
<div align="center">
<span style="color: #c0504d;"><b>Library</b></span></div>
<div align="center">
<br /></div>
<div align="center">
<a href="http://lenderscompliancegroup.com/109.html"><img alt="Law Library Image" border="0" height="134" src="http://lh4.ggpht.com/-mcgK80A1umY/UIawUKJR-nI/AAAAAAAABug/XzohApdth6w/Law%252520Library%252520Image.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Law Library Image" width="134" /></a></div>
<div align="center">
<br /></div>
<div align="center">
<b>Strategic Plan 2013 - 2018</b></div>
<div align="center">
<b>Draft for Public Comment</b></div>
<div align="center">
Consumer Financial Protection Bureau</div>
<div align="center">
September 25, 2012</div>
Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.com0tag:blogger.com,1999:blog-8173665023107944560.post-39435590518772955932012-08-02T17:09:00.000-04:002012-08-02T17:09:31.852-04:00CFPB: Schedule of Rulemaking Initiatives<div align="justify">We have compiled the following schedule for the salient rulemaking initiatives of the CFPB regarding mortgage compliance. </div><div align="justify"></div><div align="justify"><br />
The calendar covers August 2012 through June 2013. </div><div align="justify"></div><div align="justify"><br />
I hope you will find it useful.*</div><div></div><div align="center"><br />
<span style="color: red;">IN THIS ARTICLE</span></div><div align="center"></div><div align="center"><br />
<span style="color: #c0504d;">August 2012</span></div><div align="center"><span style="color: #c0504d;">September 2012 <br />
December 2012</span></div><div align="center"><span style="color: #c0504d;">January 2013</span></div><div align="center"><span style="color: #c0504d;">April 2013</span></div><div align="center"><span style="color: #c0504d;">June 2013</span></div><div align="center"></div><div align="center"><br />
<span style="color: #a5a5a5;">__________________________________________</span></div><div align="center"></div><div align="center"><br />
<b><span style="color: #c0504d;">August 2012</span></b><br />
</div><br />
<ul><li> <div align="justify"><u>Appraisals</u>: proposed rule regarding appraisal changes required by Dodd-Frank's Truth-in-Lending and FIRREA amendments.</div></li>
<li> <div align="justify"><u>Mortgage originator standards</u>: proposed rule on mortgage originator standards.</div></li>
<li> <div align="justify"><u>Mortgage servicing</u>: proposed rule on mortgage servicing requirements.</div></li>
<li> <div align="justify"><u>Copies of appraisals</u>: proposed rule on copies of appraisals and other valuations to be furnished by creditors under Regulation B. </div></li>
<li> <div align="justify"><u>Remittance transfers</u>: final additional rule on remittance transfers.</div></li>
</ul><div align="justify"></div><div align="center"><br />
<b><span style="color: #c0504d;">September 2012</span></b><br />
</div><div align="justify"></div><ul><li> <div align="justify">Supervision of larger depository institutions and affiliates: proposed rules to clarify coordination between the CFPB and prudential regulators.</div></li>
</ul><div align="center"><br />
<b><span style="color: #c0504d;">December 2012</span></b><br />
</div><ul><li> <div align="justify"><u>Second in a series of definitions of "larger participants"</u>: final rule to include debt collectors.</div></li>
<li> <div align="justify"><u>Mandatory escrows/disclosures</u>: final rule regarding mandatory escrow accounts and escrow account disclosures.</div></li>
<li> <div align="justify"><u>Confidential treatment</u>: final rule on confidential treatment of privileged information.</div></li>
</ul><div align="justify"></div><div align="center"><br />
<b><span style="color: #c0504d;">January 2013</span></b><br />
</div><div align="justify"></div><ul><li>Registration of nonbank covered persons: advanced notice of proposed rulemaking on registration of certain nonbank covered persons.</li>
</ul> <br />
<u>On or by January 21, 2013</u> <u></u> <br />
<ul><li>Final rules regarding appraisals (Truth-in-Lending and FIRREA).<br />
</li>
<li>Final rules on high-cost mortgages.<br />
</li>
<li>Final rule on mortgage originator standards.<br />
</li>
<li>Final rules on mortgage servicing.<br />
</li>
<li>Final rule on copies of appraisals or other valuations to be furnished by creditors under Regulation B.<br />
</li>
<li>Final ability-to-repay (ATR) rule. </li>
</ul> <br />
<u>After January 21, 2013</u> <u></u> <br />
<ul><li>RESPA/TILA disclosure integration: final rule. </li>
</ul><div align="center"><br />
<b><span style="color: #c0504d;">April 2013</span></b><br />
</div><ul><li>HMDA: initiation of implementation planning for Home Mortgage Disclosure Act changes - additional data collection.</li>
</ul><div align="center"><br />
<b><span style="color: #c0504d;">June 2013</span></b><br />
</div><ul><li><u>AMTPA</u>: proposed broader Alternative Mortgage Transaction Parity Act (AMTPA) rule.<br />
</li>
<li><u>Regulation B lending data</u>: initiation of implementation planning for collection of additional women- or minority-owned and small business lending data under Regulation B.</li>
</ul><div align="center"><br />
<span style="color: #c0504d;"><b>Library</b></span><br />
<br />
</div><div align="center"></div><div align="center"><a href="http://lenderscompliancegroup.com/109.html"><img alt="Law Library Image" border="0" height="139" src="http://lh4.ggpht.com/-qjM6Ejf4XRI/UBrrn4fGaGI/AAAAAAAABj0/lfZ5EFxL0kY/Law-Library-Image5.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Law Library Image" width="139" /></a></div><div align="center"></div><div align="center"><br />
<b>CFPB Library – Lenders Compliance Group</b><br />
<span style="color: #a5a5a5;">__________________________________________</span> <span style="color: #a5a5a5; font-size: x-small;"> </span><br />
<span style="color: #a5a5a5; font-size: x-small;"> </span><span style="font-size: x-small;">*Jonathan Foxx is the President & Managing Director of Lenders Compliance Group</span></div>Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.com0tag:blogger.com,1999:blog-8173665023107944560.post-36671357725676604022012-04-24T13:46:00.000-04:002012-04-24T14:49:36.025-04:00The Regulatory Burdens of the Dodd-Frank Act<div align="justify">
Let it not be said that regulations are ever 'easy enough' to implement in these post-Crash times! *</div>
<div align="justify">
<br /></div>
<div align="justify">
Of course, this view presupposes that we know which regulations to factor in and which ones to factor out. It presupposes that we know which ones are relevant and which ones do not apply. It presupposes that we are in a position to keep track of new regulatory requirements, how they impact existing regulations, and how they supersede existing regulations. And it presupposes that we have sufficient time, resources, and focused energy to implement the regulations, without putting a deep drain on the already compressed margins caused by a real estate market in free fall and a loan origination market with low interest rates that have only one way to go - up!</div>
<div align="justify">
<br /></div>
<div align="justify">
The other day a good friend and long time client of ours, when considering all the new regulations his publicly traded firm is implementing and would have to put in place due to the Dodd-Frank Act, blurted out to me in a paroxysm of frustration: "What have we done to deserve this?" Indeed.</div>
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<br /></div>
<div align="justify">
So, just how burdensome a burden is the Dodd-Frank regulatory burden?</div>
<div align="justify">
<br /></div>
<div align="center">
<b><span style="color: #c0504d;">IN </span><span style="color: #c0504d;">THIS ARTICLE</span></b></div>
<div align="center">
<br /></div>
<div align="center">
<span style="color: #c0504d;">Burden? What burden?<br />Keeping Track<br />The Burden Tracker<br />Consequences</span></div>
<div align="center">
<span style="color: #a5a5a5;">__________________________________________</span></div>
<div align="center">
<br /></div>
<div align="center">
<span style="color: #c0504d;"><b>Burden? What Burden?</b></span></div>
<div align="justify">
<br /></div>
<div align="justify">
Having read, outlined, and written about the 2319 page Dodd-Frank Wall Street Reform and Consumer Protection Act, I will vouch for the amazing complexity and regulatory intricacies that abound within it. </div>
<div align="justify">
<br /></div>
<div align="justify">
If you want a brush-up primer on Dodd-Frank, as it pertains to mortgage banking, you can read some of my published articles <a href="http://blog.lenderscompliancegroup.com/">HERE</a>. (See: 2010 3-Part Series on Dodd-Frank.)</div>
<div align="justify">
<br /></div>
<div align="justify">
And <a href="http://publications.lenderscompliancegroup.com/index.html">HERE</a> are numerous newsletters that we have sent to you regarding Dodd-Frank.</div>
<div align="justify">
<br /></div>
<div align="justify">
The Merriam-Webster Dictionary defines the word "burden" in two basic ways: (1) something that is carried, such as a load, or it may be a duty, or a responsibility; and, (2) something oppressive or worrisome. From my admittedly non-scientific polling, it seems clear to me that the management of many financial institutions believe that Dodd-Frank satisfies both definition (1) and definition (2). Certainly, management and Boards of Directors almost universally want to fulfill their duties and responsibilities; however, what I hear most often is that they consider the duties and responsibilities that flow from Dodd-Frank to be oppressive and worrisome. </div>
<div align="justify">
<br /></div>
<div align="justify">
The view about Dodd-Frank that I have received from management, at financial institutions and from industry leadership, is so pandemically against the 'burden' of Dodd-Frank that it is hard to make a case for asserting that nefarious lobbyists in DC are deliberately misleading the public and trying to eviscerate this legislation on behalf of financial interests. Everybody agrees that Dodd-Frank is landmark legislation. But the view is that, in many aspects of Dodd-Frank, the legislation is like heaving the Hulk's sledge hammer, when a nimble scalpel would be much more effective in providing some needed remedies to the financial system.</div>
<div align="center">
<br /></div>
<div align="center">
<span style="color: #c0504d;"><b>Keeping Track</b></span></div>
<div align="justify">
<br /></div>
<div align="justify">
Interestingly, certain members of the political class have been pushing back all along, alleging that Dodd-Frank is a burdensome onslaught that the financial system simply cannot bear. Most recently, on April 17th, the House's Financial Services Committee notified the public about a new tool that it developed, called the <b>Dodd-Frank Burden Tracker</b> - which is, to use the Committee's description, "<a href="http://financialservices.house.gov/News/DocumentSingle.aspx?DocumentID=291036">an online resource to help the public keep track of all the new government rules and red tape required by the Dodd-Frank Act</a>."</div>
<div align="justify">
<br /></div>
<div align="justify">
Here's the Committee's analysis - which I must leave unchallenged for the time being - of the effects of Dodd-Frank:</div>
<div align="justify">
<br /></div>
<div align="justify">
<span style="color: #c0504d;">“Dodd-Frank, passed by Congress in 2010, mandates that government regulators write over 400 new rules and requirements that will be imposed on the private sector. Since the law was signed by President Obama in July 2010, the Dodd-Frank Burden Tracker reveals:</span> </div>
<ul>
<li> <div align="justify">
<span style="color: #c0504d;">regulators have written 185 of the 400 rules;</span></div>
</li>
</ul>
<ul>
<li> <div align="justify">
<span style="color: #c0504d;">these 185 rules consume 5,320 pages;</span></div>
</li>
</ul>
<ul>
<li> <div align="justify">
<span style="color: #c0504d;">it will take private sector job-creators 24,035,801 hours every year to comply with these first 185 Dodd-Frank rules</span><span style="color: #c0504d;">.”</span></div>
</li>
</ul>
<div align="justify">
The mathematician in me can't help but see these numbers in percentages and common ratios: </div>
<blockquote>
<div align="justify">
<span style="color: #c0504d;">The percentage of new rules written versus the total: 46%.</span></div>
<ul>
<li>(46% of the new rules have been written - which, of course, is another way of saying that 54% of the new rules are not yet written.)</li>
</ul>
</blockquote>
<blockquote>
<div align="justify">
<span style="color: #c0504d;">For each rule, the number of pages describing the rule: 1 : 28.75.</span> </div>
</blockquote>
<blockquote>
<ul>
<li>(1 rule consumes 28.75 pages.)</li>
</ul>
</blockquote>
<blockquote>
<div align="justify">
<span style="color: #c0504d;">The number of private sector, annual hours to comply with each of the first 185 rules: 129,923 : 1.</span></div>
<ul>
<li>(The first 185 new rules take a private sector, annual labor output of 129,923 hours to implement.)</li>
</ul>
</blockquote>
<div align="justify">
That last statistic is a bit skewed, inasmuch as there are only 8760 hours in a year. But the number 24,035,801 refers to so-called 'total man hours.' I think you get the point!</div>
<div align="justify">
<br /></div>
<div align="justify">
Nevertheless, consider those 400 new rules: the huge number of deadlines contained in the 400 rulemakings required by Dodd-Frank is obviously overwhelming the regulatory agencies as well as the private sector. </div>
<div align="justify">
<br /></div>
<div align="justify">
And I haven't even yet mentioned the estimated cost! </div>
<div align="justify">
<br /></div>
<div align="justify">
The Congressional Budget Office has estimated that it will cost well over $3 billion over the next 5 years to implement Dodd-Frank. Indeed, in an Atlantic Magazine article published last year, entitled <i>Dodd-Frank's Derivatives Rules Could Cost Main Street $1 Trillion</i>, Daniel Indiviglio estimated that there could be up to $1 trillion in broader economic costs resulting from Dodd-Frank.</div>
<div align="center">
<br /></div>
<div align="center">
<span style="color: #c0504d;"><b>The Burden Tracker</b></span></div>
<div align="justify">
<br /></div>
<div align="justify">
We can play around with statistic all day, often using them for or against our arguments. But the Committee has done some of the work for us in the form of its <span style="color: #c0504d;">Dodd-Frank Burden Tracker</span> - which I shall call the <b>Burden Tracker</b>.</div>
<div align="justify">
<br /></div>
<div align="justify">
<a href="http://lenderscompliancegroup.com/resources/Dodd-Frank+Burden+Tracker+-+2012.04.16.pdf">HERE's</a> <span style="color: #c0504d;">a link to</span><span style="color: #c0504d;"> the April 17th version, if you'd like to download all 20 pages.</span></div>
<div align="justify">
<br /></div>
<div align="justify">
The Committee will update the Burden Tracker periodically.</div>
<div align="justify">
<br /></div>
<div align="justify">
If you want a sense of the broad range of Dodd-Frank, the following is a list of the agencies, by their acronyms, that the Burden Tracker cites as affected by Dodd-Frank's new rules: <u>FDIC</u>, <u>OCC</u>, <u>FRS</u>, <u>OTS</u>, <u>NCUA</u>, <u>CFTC</u>, <u>SEC</u>, <u>CFPB</u>, <u>FSOC</u>, <u>FHFA</u>, <u>HUD</u>, <u>IRS</u>, <u>FTC</u>, <u>DOE</u>, <u>DO</u>, <u>VA</u>, and the <u>FCA</u>. </div>
<div align="justify">
<br /></div>
<div align="justify">
The Burden Tracker totals the number of new rulemaking pages associated with each Dodd-Frank mandate, and the stages of such rulemaking thus far are <u>interpretations</u>, <u>final rules</u>, <u>proposed rules</u>, <u>interim final rules</u>, <u>request for public comment</u>, <u>notice</u>, <u>order</u>, <u>joint notice</u>, <u>notice of proposed rulemaking by cross-reference to temporary regulations</u>, <u>interim final rule with request for public comment</u>, <u>further notice of proposed rulemaking</u>, and <u>acceptance of standard</u>.</div>
<div align="center">
<br /></div>
<div align="center">
<span style="color: #c0504d;"><b>Consequences</b></span></div>
<div align="justify">
<br /></div>
<div align="justify">
Dodd-Frank actually created thirteen new regulatory agencies, and it eliminated only one: the Office of Thrift Supervision. </div>
<div align="justify">
<br /></div>
<div align="justify">
One report I have read, issued by the Committee, entitled <i>One Year Later: The Consequences of the Dodd-Frank Act</i>, states that Dodd-Frank creates more than 2,600 new positions at regulatory agencies, with some agencies, like the Office of Financial Research, lacking any size limitations on their budgets or staffs.</div>
<div align="justify">
<br /></div>
<div align="justify">
It seems to me that something is amiss in the way this legislation is being implemented, when Representative Neugebauer, the Chairman of the Committee's <i>Oversight and Investigations Subcommittee</i>, can opine that "it will take businesses more time to comply with Dodd-Frank rules than it took to build the Panama Canal."</div>
<br />
I'll let you reach your own conclusions.<br />
<div align="center">
<span style="color: #a5a5a5;">__________________________________________</span> </div>
<div align="center">
<span style="font-size: xx-small;">* Jonathan Foxx is the President & Managing Director of Lenders Compliance Group</span></div>Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.com0tag:blogger.com,1999:blog-8173665023107944560.post-68687214462272618292011-12-19T13:29:00.000-05:002011-12-19T13:29:54.006-05:00Whistleblowers and Bounty Hunters<div align="justify">Americans have often had an ambivalent view of whistleblowers. When we feel that the whistleblowing serves some righteous cause, the whistleblower's actions are worthy of a medal; but when the whistleblower's cause is considered to mask self-aggrandizement, then we often contend that some jail time might be a more suitable reward, whatever the cause. Still, one person's justification for such actions may be castigated by another person as an act of perfidy. </div><div align="justify"><br />
</div><div align="justify">In a rather morally twisted way, recent law has combined the act of whistleblowing with the remuneration of bounty hunting, the latter being yet another concerning happenstance of American ambivalence. </div><div align="justify"><br />
</div><div align="justify">Let's call this new ethical imperative the "Dope for Dough" compact.</div><div align="justify"><br />
</div><div align="justify"><span style="color: #c0504d;">In this article:</span></div><ul><li> <div align="justify"><span style="color: #c0504d;">A Snitch In Time Saves Crime</span></div></li>
<li> <div align="justify"><span style="color: #c0504d;">If You See Something, Say Something</span></div></li>
<li> <div align="justify"><span style="color: #c0504d;">Welcome to the Office of the Whistleblower</span></div></li>
<li> <div align="justify"><span style="color: #c0504d;">Bounty Hunter</span></div></li>
<li> <div align="justify"><span style="color: #c0504d;">Tips, Complaints and Referrals</span></div></li>
<li> <div align="justify"><span style="color: #c0504d;">Anonymity More-or-Less</span></div></li>
<li> <div align="justify"><span style="color: #c0504d;">Preventing Retaliation More-or-Less</span></div></li>
<li> <div align="justify"><span style="color: #c0504d;">First Do No Harm</span></div></li>
</ul><div align="center"><b><span style="color: #c0504d;">A Snitch In Time Saves Crime</span></b></div><div align="justify"><br />
</div><div align="justify">Being a snitch is not exactly the kind of job position somebody must apply for, even in these days of high unemployment. It's not a career opportunity. A snitch doesn't want to be a snitch, hates snitching, and would rather not have to snitch at all. Being a snitch does not bestow a badge of honor! There are no annual conferences for snitchers. A snitch is not born a snitch; something has to happen to make a snitch snitch. </div><div align="justify"><br />
</div><div align="justify">Often, the stakes for snitching are very high. Being a snitch means subjecting oneself to potential ostracism, being fired, not being hired, jail time, and even community time (yes, courts have held that "community service" may be a proxy for prison time). Snitchers know that whenever people pass them by, there will be fingers pointed at them and breathless whispers behind their backs about the supposed damage done by, or the great good achieved through, their snitching. Snitching has a wake all its own and the snitcher can never get out of it, whatsoever the tattletale tattled.</div><div align="justify"><br />
</div><div align="justify">The list of snitch martyrdom is long and, depending on the results and society's comfort zone, contains patriots and traitors, saints and the damned, reformists and reactionaries, the sempiternal loyalists and the double-crossing turncoat. Even if the weaseling betrayer squeals the unvarnished truth, the very act of making manifest the heretofore hidden may bring with it many dangers impinging on the tipster's physical, let alone social, survival.</div><div align="justify"><br />
</div><div align="center"><b><span style="color: #c0504d;">If You See Something, Say Something!</span></b></div><div align="justify"><br />
</div><div align="justify">We constantly hear, "if you see something, say something." Implied in that statement is the moral judgment that we do know when something is wrong and when something is right, and, knowing that difference, when we know something wrong is happening, we should share such knowledge with somebody else. The phrase does not say, "if you see something, say something, and if you do we'll pay you for the information." It does not say, "if you see something, say something, but if you do you will put yourself and perhaps all of your loved ones at personal risk." And it does not say, "if you see something, say something, but if you do you may go to jail or you may not." Finally, it does not say, "if you see something, say something, though if you do we will ignore what you have to say and nobody will ever know something wrong happened."</div><div align="justify"><br />
</div><div align="justify">The instinct for self-preservation is strong. Especially strong in a stoolie! This is obviously why <a href="http://www.labaton.com/en/about/press/upload/Ethics-and-Action-Survey.pdf">a recent study</a> shows that 78 percent of Americans said they would report something wrong only if they could be anonymous informants, be assured of evading retaliation, and nevertheless get a reward for information, whether such information was pilfered, pinched, purloined, or professed.</div><div align="justify"><br />
</div><div align="justify">Pity the poor snitch! So misunderstood, often the butt of ridicule, and only occasionally appreciated for the grumbling sacrifice of life and liberty. But now a new era of gratitude, tribute, and prestige has begun for the deep throated canary that yearns to sing.</div><div align="justify"><br />
</div><div align="center"><b><span style="color: #c0504d;">Welcome to the Office of the Whistleblower</span></b></div><div align="justify"><br />
</div><div align="justify">Henceforth, we will need to replace the term snitch with a new title, the "whistleblower," and appoint an overseer to protect the whistleblower's rights, prevent retaliation, and offer remuneration for blowing the whistle and assisting with any investigation or judicial or administrative action that follows from the information thereby obtained.</div><div align="justify"><br />
</div><div align="justify">Section 924(d) of the Dodd-Frank Act (Dodd-Frank) directs the Security and Exchange Commission (Commission) to establish a separate office within the Commission to administer and to enforce the Section 21F provisions of the Securities Exchange Act of 1934 (Exchange Act). On February 18, 2011, the Commission appointed an overseer or Chief, Sean X. McKessy, to head the newly-created <a href="http://www.sec.gov/whistleblower">Office of the Whistleblower</a> in the Division of Enforcement (Whistleblower's Office). Chief McKessy is looking for a Deputy Chief, and there are several attorneys among the staff.</div><div align="justify"><br />
</div><div align="justify">The ostensible purpose of the Whistleblower's Office is to provide assistance to a whistleblower who knows of possible securities law violations, such as identifying possible fraud and other violations, much earlier than might otherwise have been possible. The result, presumably, will be to minimize the harm to investors, preserve confidence in capital markets, and hold accountable those responsible for unlawful conduct.</div><div align="justify"><br />
</div><div align="center"><b><span style="color: #c0504d;">Bounty Hunter</span></b></div><div align="justify"><br />
</div><div align="justify">For remunerating the whistleblower, the Commission is authorized by Congress to provide monetary awards to eligible individuals who come forward with "high-quality original information" that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10% and 30% of the monetary sanctions collected (which I will term the Bounty Fee).</div><div align="justify">This Bounty Fee of 10% to 30% is particularly robust, compared to the usual 10% (or less) of bail collected these days by bounty hunters. Of course, the whistleblower's Bounty Fee is not quite the same as the fee paid to a bounty hunter for capturing a fugitive outlaw. Bounty hunters are usually employed by bail bondsmen. But there is, shall we say, a resemblance.</div><div align="justify"><br />
</div><div align="justify">In any event, the whistleblower's information must be provided voluntarily, which means it must be given before the Congress, or a regulatory or enforcement agency requests it or asks for the information in connection with an investigation or certain examinations or inspections. It's hard to determine what is meant by "high-quality original information" but it likely means independent knowledge (facts known to the whistleblower that are not derived from publicly available sources) or independent analysis (evaluation of information that may be publicly available but which reveals information that is not generally known) that is not already known by the aforementioned governmental entities.</div><div align="justify"><br />
</div><div align="justify">If the whistleblower believes that reporting information internally is a problem, the Whistleblower's Office has a solution. Although internal reporting is not required to be considered for an award, the whistleblower may be eligible for an award for information reported internally if the whistleblower also reported the information to the Whistleblower's Office within 120 days of reporting it internally. The scrutiny for "original information" will then take place and investigation will be conducted. If such information is considered useful, the range provided in the Bounty Fee will then be considered.</div><div align="justify"><br />
</div><div align="center"><b><span style="color: #c0504d;">Tips, Complaints and Referrals</span></b></div><div align="justify"><br />
</div><div align="justify">There's even a form for the whistleblower. In order to qualify for an award under the whistleblower program, the whistleblower submits information either through an online Tips, Complaints and Referrals questionnaire or by completing a hardcopy Form-TCR and mailing or faxing it to the Whistleblower's Office. And anonymity is available, as well, if the whistleblower has attorney representation and the Form-TCR is submitted.</div><div align="justify"><br />
</div><div align="center"><b><span style="color: #c0504d;">Anonymity More-or-Less</span></b></div><div align="justify"><br />
</div><div align="justify">Unfortunately, total anonymity is not actually possible, but it's perhaps better than nothing. The Whistleblower's Office will not disclose the whistleblower's identity in response to requests under the Freedom of Information Act. </div><div align="justify"><br />
</div><div align="justify">But, in an administrative or court proceeding it may be required to produce documents or other information which would reveal the identity, and, as part of ongoing investigatory responsibilities, it may use information provided by the whistleblower during the course of its investigation. </div><div align="justify"><br />
</div><div align="justify">Furthermore, in certain circumstances, the Whistleblower's Office may also provide information, subject to confidentiality requirements, to other governmental or regulatory entities. </div><div align="justify"><br />
</div><div align="center"><b><span style="color: #c0504d;">Preventing Retaliation More-or-Less</span></b> </div><div align="justify"><br />
</div><div align="justify">If an employer retaliates against the whistleblower, for instance discharges, demotes, suspends, harasses, or in any way discriminates against the whistleblower, a private action may be brought in federal court against the employer. If the whistleblower prevails, remedies include reinstatement, and payment of double back pay, litigation costs, expert witness fees, and attorneys fees. </div><div align="justify"><br />
</div><div align="justify">The Commission can also take legal action in an enforcement proceeding against any employer who retaliates against a whistleblower for reporting information to it. This redress covers the whistleblower for any lawful act done by the whistleblower in providing information to the Whistleblower's Office under the whistleblower program or assisting in any investigation or proceeding based on the information submitted.</div><div align="justify"><br />
</div><div align="justify">In fact, under the Sarbanes-Oxley Act, the whistleblower may be entitled to file a complaint with the Department of Labor if there is retaliation for reporting possible securities law violations, including making internal reports to the employer.</div><div align="justify"><br />
</div><div align="center"><b><span style="color: #c0504d;">First Do No Harm</span></b> </div><div align="justify"><br />
</div><div align="justify">An organization can foster a culture of transparency and dignified responsibility rather than encouraging a tribal mentality. The era of the whistleblower has arrived, and with its advent there is an obligation to be alert to incompetence parading as misguided loyalty, thwarting information about unlawful conduct. Whistleblowers are now incentivized by a monetary award to come forward, their anonymity guarded, and retaliation against them protected. </div><div align="justify"><br />
</div><div align="justify">Compliance departments, risk management professionals, outside and inside counsel, need to focus immediately on internal reporting procedures for whistleblowers, recognizing the key areas where whistleblowers are likely to report information.</div><div align="justify"><br />
</div><div align="justify">And, most of all, each employee should be told "if you see something, say something."</div><div align="center"><br />
</div><div align="center"><span style="font-size: xx-small;">* Jonathan Foxx is the President and Managing Director of Lenders Compliance Group</span></div>Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.com0tag:blogger.com,1999:blog-8173665023107944560.post-79162871280209031192011-11-18T10:51:00.000-05:002011-11-18T10:51:36.747-05:00Interagency Statement Clarifies Supervisory & Enforcement Responsibilities<div align="justify">On November 17, 2011, five federal financial supervisory agencies issued a statement that explains how the total assets of an insured bank, thrift or credit union will be measured for purposes of determining supervisory and enforcement responsibilities under the Dodd-Frank Wall Street Reform and Consumer Protection Act. </div><div align="justify"><br />
</div><div align="justify">Under section 1025 of Dodd-Frank, the <span style="color: green;"><a href="http://www.consumerfinance.gov/">Consumer Financial Protection Bureau</a></span> has exclusive authority to examine for compliance with federal consumer financial laws and primary authority to enforce those laws for <u>institutions with total assets of more than $10 billion</u>, and their affiliates. </div><div align="justify"><br />
</div><div align="justify">Section 1026 confirms that the four prudential regulators - the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency--will retain supervisory and enforcement authority for other institutions. The policy statement clarifies the application of sections 1025 and 1026 by addressing two key matters: (1) <u>the measure</u> to be used to determine asset size, and (2) <u>the schedule</u> for making such determinations. </div><div align="justify"><br />
</div><div align="justify">The statement explains that a common measure of the asset size of an insured depository institution is the total assets reported in the quarterly Reports of Condition and Income (Call Reports), which banks, thrifts, and insured credit unions are required to file. </div><div align="justify"><br />
</div><div align="justify">The statement also explains the need to establish a schedule for determining the size of an institution that avoids unwarranted uncertainty or volatility regarding the identity of an institution's primary supervisor for federal consumer financial laws. Such conditions could both impose increased burden on institutions and interfere with the orderly implementation of the agencies' responsibilities with respect to the federal consumer financial laws. In order to avoid these adverse consequences, the agencies are adapting criteria used for deposit insurance assessment purposes. </div><div align="justify"><br />
</div><div align="justify">Accordingly, after an initial asset size determination based on June 30, 2011, data, an institution generally will not be reclassified unless four consecutive quarterly reports indicate that a change in supervisor is warranted. </div><div align="justify"><br />
</div><div align="center"><span style="color: green;">Library </span></div><div align="center"><span style="color: green;"> </span> </div><div align="center"><a href="http://lenderscompliancegroup.com/114.html"><img alt="Law Library Image" border="0" height="139" src="http://lh4.ggpht.com/-YksQg1-XdEU/TsZu_LYpwMI/AAAAAAAABAM/Eq-mMtaj0Z4/Law%252520Library%252520Image%25255B5%25255D.jpg?imgmax=800" style="background-image: none; border-bottom: 0px; border-left: 0px; border-right: 0px; border-top: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Law Library Image" width="139" /></a></div><div align="center"><br />
</div><div align="center">Interagency Guidelines<br />
<b>Supervisory Statement - November 17, 2011</b><br />
Determination of Depository Institution and Credit Union Asset Size<br />
For Purposes of Sections 1025 and 1026<br />
Dodd-Frank Wall Street Reform and Consumer Protection Act</div>Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.com0tag:blogger.com,1999:blog-8173665023107944560.post-5604655647645077262011-11-01T14:09:00.007-04:002011-11-02T08:24:35.846-04:00Dismantling the Dodd-Frank "Myths"<div align="justify">Recently, Neal S. Wolin, Deputy Treasury Secretary, and Anthony Coley, the Deputy Assistant Secretary of the Treasury for Public Affairs, have taken to "dismantling" some myths about the Dodd-Frank Act and Wall Street Reform. </div><div align="justify"><br />
</div><div align="justify">The fact is, Dodd-Frank is with us now, and will be with us into the foreseeable future. It makes substantive changes to the financial system as we have known it. But, like any major initiative, myths build up over time, springing forth from both proponents and opponents, each with their own agendas. Most people concern themselves with Dodd-Frank in a colloquial sense - when it actually affects them at work or somehow in their daily lives. If, as Tip O'Neil once said, "all politics is local," then all Dodd-Frank is local, too.</div><div align="justify"><br />
</div><div align="justify">Dodd-Frank is such an enormous undertaking that there is really no way for any one person to master its vast stretches of new regulatory implications. However, while the "myths" abound, becoming familiar with Dodd-Frank is an even greater challenge. So, whatever your persuasion on the Dodd-Frank legislation, it is worthwhile to examine the "myths" that these Treasury dons are debunking.</div><div align="justify"><br />
</div><div align="justify"><a href="http://publications.lenderscompliancegroup.com/8.html">I have written extensively about Dodd-Frank</a>, mostly with respect to its impact on the mortgage industry. And, I formed the <a href="http://dodd-frankforum.blogspot.com/">Dodd-Frank Forum website</a> and its social media platforms to help us all to vet through the many Dodd-Frank issues that will arise for years to come. </div><div align="justify"><br />
</div><div align="justify">We all have a stake in watching over those who are supposedly watching over us. As Juvenal, the Latin poet, wrote, "Quis custodiet ipsos custodes?" ("Who will watch the watchmen themselves?" - My translation.)</div><a href="http://www.blogger.com/post-edit.g?blogID=8173665023107944560&postID=560465564764507726#back"></a><br />
So, in their own words, let's give the Treasury a chance to be heard:<br />
<br />
Myth 1: Wall Street Reform Hurts Small Bank<br />
<br />
Myth 2: Wall Street Reform Puts the U.S. at a Competitive Disadvantage Internationally<br />
<br />
Myth 3: The Consumer Financial Protection Bureau (CFPB) Is Bad for the Financial System <br />
<br />
Library <br />
<br />
Sincerely, <br />
<a href="http://lenderscompliancegroup.com/18.html">Jonathan Foxx</a><br />
<br />
<a href="http://lh5.ggpht.com/-VEru6lNYTEs/TrAuaKq8LcI/AAAAAAAAA_I/THZR07kGkfE/s1600-h/Line-Webpage%25255B2%25255D.jpg"><img alt="Line-Webpage" border="0" height="9" src="http://lh4.ggpht.com/-5TQBYyujUUI/TrAuaYyyuyI/AAAAAAAAA_Q/d5C3Zu-akdU/Line-Webpage_thumb.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: block; float: none; margin-left: auto; margin-right: auto; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Line-Webpage" width="244" /></a><br />
<a href="http://www.blogger.com/post-edit.g?blogID=8173665023107944560&postID=560465564764507726#myth1"></a><br />
<div align="center"><br />
<a href="http://www.blogger.com/post-edit.g?blogID=8173665023107944560&postID=560465564764507726#myth1"></a></div><div align="center"><a href="http://www.blogger.com/post-edit.g?blogID=8173665023107944560&postID=560465564764507726#myth1"><span style="color: #c0504d;">Myth 1: Wall Street Reform Hurts Small Banks</span></a> </div><br />
<div align="center">Neal S. Wolin (10/17/11) </div><div align="justify"><br />
</div><div align="justify">This claim is particularly dubious given strong support for enactment of the Dodd-Frank Act by the Independent Community Bankers of America. Wall Street Reform helps level the playing field between large banks and small ones, helping to eliminate distortions that previously favored the biggest banks that held the most risk. he Dodd-Frank Act subjects big banks to much higher standards than small banks in a number of areas:</div><div align="justify"><br />
</div><div align="justify">-Tough new capital and liquidity requirements to reduce the risks presented by the biggest Wall Street firms do not apply to community banks. In fact, the law largely exempted about 7,000 community banks and thrift institutions, nearly all of which hold less than $10 billion in assets and a third of which hold less than $100 million, from these requirements.</div><div align="justify"><br />
</div><div align="justify">-Wall Street Reform requires the biggest institutions to pay a larger share of the cost of deposit insurance protection, reflecting the greater risk they pose to the financial system.</div><div align="justify"><br />
</div><div align="justify">-Wall Street Reform strengthens protections for one of community banks' core sources of funding by raising deposit insurance protection from $100,000 to $250,000.</div><div align="justify"><br />
</div><div align="justify">The Dodd-Frank Act also helps to level the playing field between small banks and their nonbank competitors by making sure they're playing by the same set of rules. The Dodd-Frank Act gave the Consumer Financial Protection Bureau the ability to examine regularly nonbank financial services providers-like payday lenders, debt collectors, and independent mortgage brokers-and to prohibit unfair, deceptive, and abusive acts or practices that hurt small banks and Americans across the country. Of course, in order for the CFPB to be fully equipped to carry out these crucial responsibilities, the Senate must move forward expeditiously to confirm Rich Cordray as Director.</div><div align="justify"><br />
</div><div align="justify">Finally, Wall Street Reform helps make sure that small banks are not subject to excessive supervisory burdens, such as multiple exams by different regulators. The regulators of community banks will bear responsibility for enforcing one set of rules issued by the new CFPB, allowing small banks to avoid the burden of multiple exams.</div><div align="justify"><br />
</div><div align="justify">The authors of Wall Street Reform understood that small banks did not cause the crisis and should not be the focus of reform. Small banks play a critical role in their communities-creating jobs and helping Americans borrow money to buy a home, grow their businesses, or pay for college.</div><div align="justify"><br />
</div><div align="justify">Thanks to the steps now being taken, reform is helping put community banks on a more equal footing and is strengthening-not weakening-their essential role in our financial system. That's good news for growth and job creation in communities across the country.<br />
<a href="http://www.blogger.com/post-edit.g?blogID=8173665023107944560&postID=560465564764507726" name="back"></a></div><div align="justify"><br />
<a href="http://www.blogger.com/post-edit.g?blogID=8173665023107944560&postID=560465564764507726#myth2"></a></div><a href="http://www.blogger.com/post-edit.g?blogID=8173665023107944560&postID=560465564764507726#myth2"></a><br />
<div style="text-align: center;"><a href="http://www.blogger.com/post-edit.g?blogID=8173665023107944560&postID=560465564764507726#myth2"><span style="color: #c0504d;">Myth 2: Wall Street Reform Puts the U.S. <br />
at a Competitive Disadvantage Internationally</span></a></div><div style="text-align: center;"></div><div style="text-align: center;"><br />
</div><div style="text-align: center;">Neal S. Wolin (10/18/11) </div><div align="justify"><br />
</div><div align="justify">The suggestion is puzzling-that a stronger and more stable financial system would create a competitive disadvantage. The strong protections offered by U.S. markets for much of the 20th century helped make our financial system the envy of the world. Rather than disadvantage the U.S. financial system, Wall Street Reform will assure investors that U.S. institutions and markets remain the world's most attractive destination for investment-dynamic and innovative, but with a renewed strength and resilience.</div><div align="justify"><br />
</div><div align="justify">In the wake of the financial crisis, the U.S. set a strong example by immediately committing to comprehensive financial reform. At the G-20 meeting in April 2009, and at multiple meetings since, world leaders have committed to a framework for financial reform to close regulatory gaps, end opportunities for arbitrage across regulatory systems, and prevent a global race to the bottom. Key elements of this framework included improving firms' capital and liquidity positions, reforming the derivatives markets, and developing policies to address the financial risks posed by large, systemically important financial institutions. The United States moved first, enacting comprehensive financial reform last summer, and consistent with their international commitments, other major financial systems are now putting their legal and regulatory frameworks in place.</div><div align="justify"><br />
</div><div align="justify">Strong U.S. leadership has been key to the important progress the world has made in the G-20 and other international fora. Working with our international counterparts, we have been able to reach global agreement on capital and liquidity requirements-to make sure that banks are better protected against stress-and are moving towards stronger standards for the derivatives markets, which were a major source of risk during the financial crisis. At the G-20 Finance Ministers meeting last week, we agreed to enhanced prudential standards for large, systemically important financial institutions, along with a new G-20 framework to resolve these firms without widespread disruption and cost to taxpayers.</div><div align="justify"><br />
</div><div align="justify">Of course, as we implement our reform in the United States, it's important that the rest of the world move forward as well, and we will continue to monitor progress in other jurisdictions. A level playing field is crucial to making sure that U.S. firms remain competitive and to preventing risk from simply shifting to other parts of the world.</div><div align="justify"><br />
</div><div align="justify">The critics of reform should remember that in order to remain competitive, U.S. firms need a financial system that combines dynamism and a capacity for innovation with robust protections for investors and consumers. A strong foundation against financial shocks, whether domestic or international, is a crucial element of a strong economy: one that can attract investment; support long-term growth and job creation; and help protect American businesses, investors, and families in times of stress.</div><div align="justify"><br />
<a href="http://www.blogger.com/post-edit.g?blogID=8173665023107944560&postID=560465564764507726#myth3"></a></div><a href="http://www.blogger.com/post-edit.g?blogID=8173665023107944560&postID=560465564764507726#myth3"></a><br />
<div style="text-align: center;"><a href="http://www.blogger.com/post-edit.g?blogID=8173665023107944560&postID=560465564764507726#myth3"><span style="color: #c0504d;">Myth 3: The Consumer Financial Protection Bureau (CFPB) <br />
Is Bad for the Financial System</span> </a></div><div style="text-align: center;"><br />
</div><div style="text-align: center;"></div><div style="text-align: center;">Anthony Coley (10/21/11) </div><div align="justify"><br />
</div><div align="justify">The CFPB was created for a simple reason: to make sure Americans understand the terms and conditions of financial products. In the system we had before, consumers were too often pushed into loans they couldn't afford or didn't understand, and often had to choose between one misleading offer and another. That's not fair. When people take out a mortgage to buy a home, pick out a credit card, or set up a bank account, they should understand the services to which they are entitled and receive a clear description of the fees they are being charged. </div><div align="justify"><br />
</div><div align="justify">By limiting unfair, abusive and deceptive practices, promoting clear disclosure, and giving consumers the information they need, the CFPB will help Americans make smart, informed financial decisions. Yet despite these important responsibilities, the CFPB remains controversial among some in Congress and the financial industry.</div><div align="justify"><br />
</div><div align="justify">Some critics say that the CFPB is complicating regulation or putting new burdens on lenders. In fact, one of the CFPB's most important jobs is to simplify disclosure-which is better for everyone. The CFPB has already launched an initiative, Know Before You Owe, to simplify and combine two federally required mortgage disclosure forms (TILA and RESPA). There's no doubt that one, simplified form is better for lenders and consumers alike. That's not more regulation-it's simplified regulation and smart regulation.</div><div align="justify"><br />
Other critics make the claim that the CFPB is hurting small banks. But as we explored in our first post this week, the regulators of community banks will bear responsibility for enforcing one set of rules issued by the new CFPB, allowing small banks to avoid the burden of multiple exams. Furthermore, the CFPB is helping to level the playing field between small banks and nonbank financial service providers. For too long, banks were playing by one set of rules, while other parts of the financial industry, like payday lenders or independent mortgage brokers, were playing by another, often with little or no oversight.</div><div align="justify"><br />
</div><div align="justify">But in order for the CFPB to make sure that everyone is subject to the same clear and fair set of rules, it needs a Director. Senate Republicans must drop their opposition to Rich Cordray's nomination as Director, so that CFPB can do its job-empowering Americans to make real choices, and leveling the playing field among financial institutions. Without a Director, the CFPB is handicapped from exercising its full authority, because nonbank financial service providers will be allowed to function without the necessary oversight. That's not acceptable. It's not good for our financial system, and it's not good for the American people.</div><div align="justify"><br />
</div><div align="justify">Those are the facts.</div><div align="justify"><br />
</div><div align="center"><a href="http://lh3.ggpht.com/-FRHbyReHSOU/TrAuaUvtblI/AAAAAAAAA_Y/Da2wOYcoVhs/s1600-h/Line-Webpage%25255B8%25255D.jpg"><img alt="Line-Webpage" border="0" height="9" src="http://lh3.ggpht.com/-JvW-OTyi5RI/TrAuaktUBGI/AAAAAAAAA_g/usrSwDa9Xyg/Line-Webpage_thumb%25255B2%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Line-Webpage" width="244" /></a></div><a href="http://www.blogger.com/post-edit.g?blogID=8173665023107944560&postID=560465564764507726#library"> </a><br />
<div align="center"><br />
<a href="http://www.blogger.com/post-edit.g?blogID=8173665023107944560&postID=560465564764507726#library"></a></div><div style="text-align: center;"><a href="http://www.blogger.com/post-edit.g?blogID=8173665023107944560&postID=560465564764507726#library"><span style="color: #c0504d;">Library</span></a></div><div style="text-align: center;"></div><div style="text-align: center;"></div><div style="text-align: center;"><br />
</div><div style="text-align: center;"><a href="http://lenderscompliancegroup.com/105.html"><img alt="Law Library Image" border="0" height="139" src="http://lh4.ggpht.com/-4AtS2-Uxyn0/TrAua0Pg6wI/AAAAAAAAA_o/WhrR7MEG65w/Law%252520Library%252520Image%25255B5%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Law Library Image" width="139" /></a></div><div style="text-align: center;"><br />
U. S. Department of the Treasury </div><div align="center"><br />
</div><div align="center"><b>Dismantling the Myths Around Wall Street Reform</b> </div><ul><li> <div align="justify">Myth 1: "Wall Street Reform Hurts Small Banks" - Neal S. Wolin, Deputy Treasury Secretary, Treasury Notes (10/17/11)</div></li>
</ul><ul><li> <div align="justify">Myth 2: "Wall Street Reform Puts the U.S. at a Competitive Disadvantage Internationally" - Neal S. Wolin, Deputy Treasury Secretary, Treasury Notes (10/18/11)</div></li>
</ul><ul><li> <div align="justify">Myth 3: "The Consumer Financial Protection Bureau (CFPB) Is Bad for the Financial System" - Anthony Coley, the Deputy Assistant Secretary of the Treasury for Public, Treasury Notes (10/21/11)</div></li>
</ul>Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.com0tag:blogger.com,1999:blog-8173665023107944560.post-84119534615217541532011-09-26T10:19:00.001-04:002011-09-26T10:33:45.375-04:00Riding the Horse Backwards<div align="justify">At a DC conference, dauntingly titled Mortgage Regulatory Forum, Barney Frank, the Congressman from Massachusetts whose name eponymously joins Dodd in the landmark Dodd-Frank Act, spoke about a "revolt" against the risk retention regulations embodied in the Qualified Residential Mortgage rules required by that Act.</div><div align="justify"></div><div align="justify"><br />
We've heard about this risk retention requirement by its euphemistic cognate, rather barbarically described as to "keep skin in the game." I will be publishing a comprehensive article soon about the Act's provision regarding this "skin in the game" mandate. And I will see that you get a copy of the article. For the time being, though, maybe we should reflect a bit on Congressman Frank's worries.</div><div align="justify"></div><div align="justify"><br />
But first, before speculating on Frank's musings about a revolution, let's begin with a story.<br />
<br />
</div><div align="justify"></div><div align="center"><b><span style="color: #c0504d;">Snideley Whiplash and Dudley Do-Right</span></b><br />
<br />
</div><div align="center"></div><div align="justify">You might remember the cartoon character Dudley Do-Right of the "Dudley Do-Right of the Mounties" series, a part of the Rocky and Bullwinkle show. Dudley was forever saving Nell Fenwick, Mountie Inspector Fenwick's beautiful daughter, from the machinations of the evil Snideley Whiplash and Tuque, his equally nefarious sidekick. Whereas Dudley is garbed in the bold red uniform with shiny gold buttons of the Royal Canadian Mounted Police, Snidely wears black on black: suit, cape, stove pipe hat, boots - even a black, twisted, handlebar moustache. </div><div align="justify"></div><div align="justify"><br />
Snidely was bent on doing naughty things to the hapless Nell, like tying her to a railroad track. And Snideley's arrogance was only exceeded by his sheer joy when conniving some evil exploit to be perpetrated on the innocent.</div><div align="justify"></div><div align="justify"><br />
But Dudley would save Nell, usually just by dumb luck, free her from the railroad tracks, and boldly stand before her in a puffed-up, prideful "my hero" pose. And then Nell would thrillingly come running into Dudley's open arms, thanking him profusely for saving her! </div><div align="justify"></div><div align="justify"><br />
Actually, no. Nell never did run into Dudley's arms. That just never happened. Not even once!</div><div align="justify"></div><div align="justify"><br />
In fact, Nell would show her gratitude not to Dudley but to Dudley's horse, aptly named Horse, also dressed up like a Mountie. Dudley often rode Horse backwards, galloping boldly to the scenes of Snideley's pernicious schemes.</div><div align="justify"></div><div align="justify"><br />
Even when Dudley had freed Nell from the chains holding her to the railroad tracks, she would hardly notice him. Instead, she gently stroked Horse's snout and elicited his big, charming, toothy smile. For the most part, Nell ignored Dudley, even when he saved her from Snideley's perilous plans.</div><div align="justify"></div><div align="justify"><br />
Poor Dudley Do-Right! He really never did get the grateful recognition he thought he deserved. He never did win Nell's hand in romance. And yet Dudley never gave up on seeing himself as the bold hero responding with courageous alacrity to Nell's call of distress!</div><div align="center"></div><div align="center"><b><span style="color: #c0504d;">"Skin in the Game"</span></b><br />
<b><span style="color: #c0504d;"> </span> </b></div><div align="center"></div><div align="justify">In a proposed rule issued by federal financial regulators, and pursuant to Dodd-Frank, there will soon be a requirement for sponsors of certain asset-backed securities to retain at least 5% of the credit risk of the assets underlying the securities. For "asset-backed securities" read mortgage securitizations. This is being referred to as "risk retention," or that "skin in the game" phrase I mentioned above. </div><div align="justify"></div><div align="justify"><br />
According to those in favor of risk retention, the purpose of this rule is to coalesce underwriting guidelines into an incentivized alignment with securitizers and investors, through promoting a certain set of underwriting standards. The risk retention provision would exempt asset-backed securities that are collateralized exclusively by residential mortgages that are eligible as "qualified residential mortgages," now known, of course, as QRMs.</div><div align="justify"></div><div align="justify"><br />
Many regulators have signed on to the QRM and risk retention provisions, since their view essentially is that "credit risk retention," the name given to the QRM concept, should be required because they believe it encourages prudent underwriting and securitization. </div><div align="justify"></div><div align="justify"><br />
However, consider this: it is simply not known if 5% is even the appropriate amount of risk to be retained in order to align incentives! Indeed, there is scant statistical support for any such percentage whatsoever.<br />
<br />
</div><div align="justify"></div><div align="center"><b><span style="color: #c0504d;">From a Distance</span></b><br />
<br />
</div><div align="center"></div><div align="justify">From a high altitude of consideration, the composite criteria of a QRM are the "plain vanilla" variety perfectly familiar to residential mortgage loan originators: 80% LTV; 20% down payment plus closing costs; 28% front-end ratio, and 36% back-end ratio.</div><div align="justify"></div><div align="justify"><br />
Underwriting to the QRM guidelines means that securities backed by QRMs will not require securitizers to retain credit risk. Of course, there's far more to what constitutes a QRM and how it is structured. </div><div align="justify"></div><div align="justify"><br />
Recently, I spoke with a supervising prudential regulator, an old friend, and asked if QRM will crowd out the development of other products that could serve the consumer. His view was that the QRM criteria allow for innovation and, in any event, if they adversely affect a consumer's access to credit, then QRM standards may need to be changed. I must admit, I do not find that response very satisfying. </div><div align="justify"></div><div align="justify"><br />
Markets are active, not passive. Much too often, though, regulatory requirements tend to be reactive, rather than responsive, mostly due to politicians catering to their constituencies and lobbyists. Since when did politicians and regulators so fully replace market action or override underwriting models that lenders undertake as part of making a market, pricing in risk, and developing loan products that respond to consumer needs?<br />
<br />
</div><div align="justify"></div><div align="center"><b><span style="color: #c0504d;">"Revolt"</span></b><br />
<br />
</div><div align="center"></div><div align="justify">Congressman Frank seems to have concluded that the recent economic meltdown was largely caused by the housing bubble - <a href="http://www.youtube.com/watch?v=iW5qKYfqALE&feature=player_embedded">presumably, that would be the housing bubble that he declared would never take place</a>. So, "credit risk retention" is now being advanced as a policy that can help to avoid another housing bubble.</div><div align="justify"></div><div align="justify"><br />
Here's the prevailing narrative: in 2008 and 2009, we went into the Great Recession, and now we're experiencing high unemployment and weak growth. Was the housing bubble the ultimate cause? </div><div align="justify"></div><div align="justify"><br />
Most people seem to think so. They believe that the housing bubble burst in 2006 and led to a severe financial crisis in 2008, intensifying a recession that had begun in December 2007. And the Fed did what it could, through targeting inflation to prevent the crash, but could not stem the tide.</div><div align="justify"></div><div align="justify"><br />
Here's another narrative, one actually supported by facts: the housing crash did not lead directly to a recession or high unemployment, although it seems to have been a proximate cause. </div><div align="justify"></div><div align="justify"><br />
More than two-thirds of the decline in housing construction happened between January 2006 and April 2008. During that period, though, the unemployment rate rose only slightly, from 4.7% to just 4.9%. And statistics demonstrate that most of the workers who lost jobs in housing construction were subsequently reemployed in other fields. It wasn't until October 2009 that unemployment soared to 10.1%, with job losses spread out across almost all sectors of the economy. </div><div align="justify"></div><div align="justify"><br />
Indeed, the financial crisis did have its roots in the housing bubble, and there were consequent systemic failures of financial institutions, yet for some odd reason this situation did not set off alarm bells at the Fed until much too late.</div><div align="justify"></div><div align="justify"><br />
There is a world of difference between a proximate cause and the ultimate cause. </div><div align="justify"></div><div align="justify"><br />
Bottom Line: monetary policy failed to predict the problem and the Fed did not respond soon enough.<br />
<br />
</div><div align="justify"></div><div align="center"><b><span style="color: #c0504d;">Fallacy of the "Blame Game"</span></b><br />
<br />
</div><div align="center"></div><div align="justify">The assumptions of the first narrative have dominated politics and have led to the QRM remedy.</div><div align="justify"></div><div align="justify"><br />
Thus it is that we have this <a href="http://www.boston.com/Boston/politicalintelligence/2011/09/frank-warns-revolt-against-dodd-frank-lending-regulations/u8OJFfdHzPBxGFpHBI6h3I/index.html">statement from Mr. Frank</a>:</div><blockquote><div align="justify">"I am disappointed at this <b>revolt against risk retention</b> that was so clearly at the center of this."</div></blockquote><blockquote><div align="justify">"All the other problems we had ... they all centered on the system for selling to other people loans that shouldn't have been made in the first place."</div></blockquote><blockquote><div align="justify">"It's simply not possible with any conceivable number of regulators to monitor every loan. If the people making the loans do not have an incentive not to lend to people who can't repay, there is no way we will prevent those kinds of loans from being made." (My emphasis.)</div></blockquote><div align="justify">That sweeping statement is certainly not supported by the facts. I have discussed this <a href="http://publications.lenderscompliancegroup.com/8.html">fallacy of the "blame game"</a> in detail elsewhere, for instance in my three-part series on the Dodd-Frank legislation.</div><div align="justify"></div><div align="justify"><br />
Yet the "revolt" is not just coming from lenders. Consumer advocacy groups want to ensure homeownership for qualified borrowers among low and middle income families, without having to be turned away due to a market that has been deincentivized from lending to them. <br />
<br />
</div><div align="justify"></div><div align="center"><b><span style="color: #c0504d;">Nell and the Horse </span></b><br />
<br />
</div><div align="center"></div><div align="justify">Maybe there was a really good reason why Nell preferred to show her gratitude to the Horse, rather than to drape herself around Dudley Do-Right's neck in gleeful appreciation and unbounded thanks.</div><div align="justify"></div><div align="justify"><br />
I wonder if you could suggest what Nell's reason might have been.<br />
<br />
</div><div align="justify"></div><div align="center"><b><span style="color: #c0504d;">What do you think?</span></b><br />
<br />
</div><div align="center"></div><div align="center"><b>Please feel free to comment!</b><br />
<br />
<br />
</div><div align="center"></div><div align="center">Jonathan Foxx is the President and Managing Director of Lenders Compliance Group.</div>Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.com0tag:blogger.com,1999:blog-8173665023107944560.post-80250461363759188042011-09-07T11:30:00.002-04:002011-09-07T11:33:07.269-04:00Dodd-Frank Act: New Era of Mortgage ReformPart II of a Three-Part Series on Financial Reform Legislation<br />
Dodd-Frank: Legislation - Reactive or Proactive<br />
Author: <a href="http://lenderscompliancegroup.com/18.html">Jonathan Foxx</a><br />
Published in <a href="http://nationalmortgageprofessional.com/">National Mortgage Professional Magazine</a><br />
First Published: September 2010<br />
<blockquote><div align="center"><i>“This great Nation will endure as it has endured, will revive and will prosper. <br />
So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. <br />
In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory.”</i><br />
<b>Franklin D. Roosevelt<br />
First Inaugural Address (1933)</b><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn1" name="_ednref1">[1]</a></div></blockquote><div align="justify">We are now living in a time when fear stalks the land. It’s impossible not to notice its insidious maneuverings in many areas of everyday life. Fear of losing a job. Fear of losing a home. Fear of losing a pension. Fear of losing stock equity value. Fear of devalued or depleted savings. Fear of losing health insurance. Fear of inflation and fear of deflation. Fear of certain religions. Fear of a terrorist attack. Fear of rising education costs and tuition. Fear of continued political gridlock. Fear of disintermediation. Fear of a continuing credit freeze. Fear of reduced Social Security and Medicare benefits. Fear of the impact of climate change. Fear of decaying infrastructure. Fear of socialism as well as crony capitalism. Fear of more wars. Fear of jobs being sent overseas. Fear of another financial meltdown. Fear of government intervention and fear of government nonintervention. Fear of burdensome federal regulations. And fear of bedrock industries and whole company towns becoming permanently decimated by recessionary pressures. </div><div align="justify"><br />
</div><div align="justify">In such a political and economic environment, our politicians seek to calm our fears by providing salvific ways and means, promising various kinds of safety, certainty, and stability. The way of the politician is the way of legislating laws and their implementing regulations – through more regulation or, occasionally, less regulation. Politicians rarely get involved in politics to preserve the <i>status quo</i>. They seek public office in order to bring about change. We hope for prescience from our politicians. Voters are rarely interested in keeping things just the way they are; most of the time, voters represent special interests that compete with one another for access to the levers of political power. </div><div align="justify"><br />
</div><div align="justify">But groups weakened in the midst of a fearful polity are also weakened at the ballot box and have less clout with lobbyists. Industry associations that may have once been able in a strong economy to support bold lobbying initiatives, expecting politicians to respond to their interests, lose membership in a declining economy, where fear often gains traction; and, because of that reduced membership, the money needed to protect the group through mounting political campaigns and successful lobbying efforts is drastically reduced. </div><div align="justify"><br />
</div><div align="justify">Our industry, the mortgage industry, has been weakened. Mortgage originators are not exempt from the impact of huge political forces that either foster or succumb to fear. In the wake of the recent financial collapse, the mortgage industry finds itself today faced with a blizzard of new regulations. There are reformist politicians who advocate for these new regulations, giving forth an apologetics that rival the reasoning of the most eloquent, ancient rhetoricians; and, there are politicians who condemn these same, new regulations, proclaiming that the prior existing regulations should have been (but were not) enforced, and that interposing new regulations in a deteriorating economy only adds to the industry’s already hefty and costly regulatory burden. Both sides have had their say and their vote; and, this time, the reformists have made the law, consisting of 2319 pages, covering a vest stretch of financial regulatory requirements. </div><div align="justify"><br />
</div><div align="justify">The “Wall Street Reform and Consumer Protection Act,” known as the “Dodd-Frank Act” (Act), is the federal government’s response to the financial collapse, offering financial reform of the financial system in general, and to the mortgage industry in particular.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn2" name="_ednref2">[2]</a> It has been legislated into law at a time when fear pervades politics and the economic climate continues to worsen, with high unemployment, an eroding tax base, a swelling budget deficit, trillions of dollars in debt, and increasingly compressed corporate profit margins. The Act hopes to provide that salvific safety, certainty, and stability that will calm our fears. But it is legislation that reacts to events past, and it is not necessarily proactive about possible events that may yet transpire. Financial bubbles, after all, exist due to the blindness of market participants, not their foresight. </div><div align="justify"><br />
</div><div align="justify">The Act, signed into law by the President on July 21, 2010, is a federal statute that principally intends to legislate the presumed ways to avoid future systemic failures in the country’s financial infrastructure. Importantly, it seeks to provide new regulations that will protect consumers in the financial marketplace – and especially the mortgage marketplace – through the creation of a new bureaucracy within the Treasury, to be called the Bureau of Consumer Financial Protection (Bureau).<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn3" name="_ednref3">[3]</a> </div><div align="justify"><br />
</div><div align="justify">At least 16 consumer protection laws will be affected or transferred to the Bureau, including the Alternative Mortgage Transaction Parity Act (AMTPA), Community Reinvestment Act (CRA), Consumer Leasing Act (CLA), Electronic Funds Transfer Act (EFTA), Equal Credit Opportunity Act (ECOA), Fair Credit Billing Act (FCBA), Fair Credit Reporting Act (except with respect to sections 615(e), 624 and 628) (FCRA), Fair Debt Collection Practices Act (FDCPA), Federal Deposit Insurance Act, subsections 43(c) through 43(f)(12) (FDIA) Gramm-Leach-Bliley Act, sections 502 through 509 (GLBA), Home Mortgage Disclosure Act (HMDA), Home Ownership and Equity Protection Act (HOEPA), Real Estate Settlement Procedures Act (RESPA), SAFE Mortgage Licensing Act (S.A.F.E. Act), Truth in Lending Act (TILA), and Truth in Savings Act (TISA).<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn4" name="_ednref4">[4]</a> </div><div align="justify"><br />
</div><div align="justify">In the previous article in this 3-part series, I outlined the mortgage loan regulatory provisions of the Act.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn5" name="_ednref5">[5]</a> As I wrote in that article, <b>this series on the Dodd-Frank Act is meant to provide an overview. However, the legislation is extremely detailed and extensive. Therefore, for guidance and risk management support, I strongly recommend that you consult a residential mortgage compliance professional or regulatory counsel to develop policies and procedures to implement the Act’s requirements.</b> </div><div align="justify"><br />
</div><div align="justify">In this article I will summarize certain salient aspects of the <u>Mortgage Reform and Predatory Lending Act</u> (Mortgage Reform Act).<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn6" name="_ednref6">[6]</a> It is a primary component of the Act and requires careful review and analysis in order to implement properly. And, in the third and final article we’ll consider the new Bureau of Consumer Financial Protection and offer some observations on how the many features of the Act may affect the mortgage industry’s prospects. </div><div align="center"><br />
</div><div align="center"><b><span style="color: #c0504d;">MORTGAGE REFORM AND PREDATORY LENDING ACT</span></b></div><div align="center"><b><span style="color: #c0504d;"> </span></b> </div><div align="center"><i>“Restoration calls, however, not for changes in ethics alone.<br />
This Nation asks for action, and action now.”<br />
</i><b>Franklin D. Roosevelt<br />
First Inaugural Address (1933)</b><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn7" name="_ednref7">[7]</a></div><div align="justify"><br />
</div><div align="justify">The following matrix provides a brief overview of the Mortgage Reform and Predatory Lending Act, with respect to the minimum standards for mortgages.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn8" name="_ednref8">[8]</a></div><div align="justify"><br />
</div><div align="center"><a href="http://lh4.ggpht.com/-JgTWrfQqNd4/TmeH4LwsfHI/AAAAAAAAAxw/cFMsN9DcF74/s1600-h/DFA-Matrix-Title%25252014%25255B193%25255D.jpg"><img alt="DFA-Matrix-Title 14" border="0" height="310" src="http://lh3.ggpht.com/-NxAVZ6_VWSQ/TmeH4Xly88I/AAAAAAAAAx0/kv1J14U4lUY/DFA-Matrix-Title%25252014_thumb%25255B191%25255D.jpg?imgmax=800" style="background-image: none; border-bottom: 0px; border-left: 0px; border-right: 0px; border-top: 0px; display: block; float: none; margin-left: auto; margin-right: auto; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="DFA-Matrix-Title 14" width="389" /></a></div><div align="justify"><br />
</div><div align="justify">There has been some concern relating to the effective compliance date of the Mortgage Reform Act’s requirements. The Bureau will be implementing the Mortgage Reform Act and receiving the authorities from the Truth in Lending Act and other statutes (see above). The Bureau will be charged with finalizing the provisions of the Mortgage Reform Act within eighteen (18) months of the designated date of transfer of authorities of the enumerated laws (see above). The regulatory implementation, once promulgated in final form, will become effective within twelve (12) months. </div><div align="justify"><br />
</div><div align="justify">Because the Mortgage Reform Act does not have an effective date, the Act itself becomes the operative date for certain provisions that will not be included in the above-described rulemaking process and timeframe. This means that <u>certain provisions are effective one day after July 21, 2010</u> – the advent date of the law.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn9" name="_ednref9">[9]</a> Amongst those affected provisions are the implementation of revisions to a mortgage originator’s compensation, limits to prepayment penalties, HOEPA’s high cost triggers, required disclosures at consummation, and single payment credit insurance.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn10" name="_ednref10">[10]</a><br />
<a name='more'></a></div><div align="center"><br />
</div><div align="center"><b><span style="color: #c0504d;">Mortgage Reform Act – Certain Provisions</span></b> </div><div align="center"><br />
</div><div align="center"><b>Ability to Repay</b> </div><div align="justify"><br />
</div><div align="justify">With the exception of reverse mortgages or temporary or bridge loans with twelve (12) months or less remaining in amortization - including any loan to purchase a new dwelling where the consumer plans to sell a different dwelling within 12 months - certain requirements will be implemented on residential mortgage loans (on an amortized basis). Borrower payment ability is derived through a “reasonable and good faith determination, based on verified and documented information.” </div><br />
<b>Basis for Determination</b> <br />
<div align="justify"><br />
</div><div align="justify">Lenders must consider the following criteria in determining payment ability:<u></u> </div><ul><li> <div align="justify">Credit history</div></li>
<li> <div align="justify">Current income<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn11" name="_ednref11">[11]</a></div></li>
<li> <div align="justify">Expected income the consumer is reasonably assured of receiving</div></li>
<li> <div align="justify">Current obligations</div></li>
<li> <div align="justify">Debt to income ratio or residual income the consumer will have after paying non-mortgage debit and mortgage-related obligations</div></li>
<li> <div align="justify">Employment status</div></li>
<li> <div align="justify">Other financial resource other than the consumer’s equity in the dwelling or real property that secures payment of the loan</div></li>
</ul><div align="justify">If the creditor plans on making more than one loan secured by the same residence, then payment ability must be made using the combined payments of all such loans, utilizing a “reasonable and good faith determination.” </div><br />
<b>Verification of Income</b> <br />
<br />
Income verification is based on: <br />
<ul><li>Internal Revenue Service Form W-2<br />
</li>
<li>Tax returns<br />
</li>
<li>Payroll receipts<br />
</li>
<li>Financial institution records, or<br />
</li>
<li> <div align="justify">Other third-party documents that provide reasonably reliable evidence of the consumer's income or assets</div></li>
</ul><b>Exemption</b> <br />
<div align="justify"><br />
</div><div align="justify">There is an <b>exemption for a streamlined refinance</b> made, guaranteed or insured by federal departments or agencies from the income verification requirement, provided: </div><ol><li> <div align="justify">The consumer is not more than 30 days past due on the prior existing loan.</div></li>
<li> <div align="justify">The refinancing does not increase the balance of the prior existing loan, other than permissible fees and charges related to the loan product itself.</div></li>
<li> <div align="justify">Total points and fees do not exceed 3% of the total new loan amount, other than <i>bona fide</i> third party fees not retained by the mortgage originator.</div></li>
<li> <div align="justify">The interest rate on the refinanced loan is lower than the interest rate of the original loan, unless the borrower is refinancing from an adjustable rate to a fixed-rate loan, under guidelines that the department or agency shall establish for loans they make, guarantee, or issue.</div></li>
<li> <div align="justify">The mortgage is fully amortizing.</div></li>
<li> <div align="justify">Loan terms do not permit a balloon payment.</div></li>
<li> <div align="justify">Both the loan being refinanced and the refinancing satisfy all requirements of the department or agency making, guaranteeing, or insuring the refinancing.</div></li>
</ol><b>Non-Standard Loans</b> <br />
<div align="justify"><br />
</div><div align="justify">Repayment determination for a category called Non-Standard Loans. The following are the grouped into this category along with their respective amortizing and schedule parameters: </div><ul><li> <div align="justify"><b>Variable Rate Loans</b> that defer repayment of any principal or interest:</div><ul><li> <div align="justify">Repayment Ability: based on a fully amortizing repayment schedule</div></li>
</ul></li>
<li> <div align="justify"><b>Interest Only Loans</b>:</div><ul><li> <div align="justify">Repayment Ability: based on the payment amount required to amortize the loan by its final maturity.</div></li>
</ul></li>
<li> <div align="justify"><b>Negative Amortization – Calculation</b>:</div><ul><li> <div align="justify">Repayment Ability: based on any balance increase that may accrue from any negative amortization provision.</div></li>
</ul></li>
<li> <div align="justify"><b>Calculating Payment of Principal and Interest - Assumptions</b>:</div><ul><li> <div align="justify">Proceeds are fully disbursed on the date of the consummation of the loan.</div></li>
<li> <div align="justify">The loan is to be repaid in substantially equal monthly amortizing payments for principal and interest over the entire term of the loan with no balloon payment, unless the loan contract requires more rapid repayment (including balloon payment), in which case the calculation must be made in accordance with prescribed regulations.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn12" name="_ednref12">[12]</a></div></li>
<li>The interest rate over the life of the loan is a fixed rate equal to the fully indexed rate at the time of the loan closing, without considering the introductory rate.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn13" name="_ednref13">[13]</a></li>
</ul></li>
<li><b>Hybrid Loans Refinanced with Current Lender</b>: <ul><li> <div align="justify">Converting a hybrid loan into to a standard loan to be made by the same creditor in any case in which there would be the (a) reduction in monthly payment and (b) the mortgagor has not been delinquent on any payment on the existing hybrid loan:</div><ul><li> <div align="justify"><u>Repayment Ability</u> based on: </div><ul><li> <div align="justify">Mortgagor's good standing on the existing mortgage.</div></li>
<li> <div align="justify">If the extension of new credit would prevent a likely default should the original mortgage reset and give such concerns a higher priority as an acceptable underwriting practice.</div></li>
<li> <div align="justify">Offer rate discounts and other favorable terms to such mortgagor that would be available to new customers with high credit ratings based on such underwriting practice.</div></li>
</ul></li>
</ul></li>
</ul></li>
</ul><div align="center"><br />
</div><div align="center"><b><span style="color: #c0504d;">SAFE HARBOR AND REBUTTABLE PRESUMPTION</span></b> </div><div align="justify"><br />
</div><div align="justify">Lenders may presume to have a “safe harbor” where such loans have satisfied the ability to repay criteria summarized above. These loans are called “qualified mortgages” and meet specific requirements. The ability to repay presumption is based on using certain, defined parameters. The “safe harbor” provisions may change from time to time for qualified mortgages if the Federal Reserve Board (Board) finds that such revised regulations are “necessary or proper to ensure that responsible, affordable mortgage credit remains available to consumers.”<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn14" name="_ednref14">[14]</a> </div><br />
<b>Qualified Mortgages</b> <br />
<div align="justify"><br />
</div><div align="justify">The following criteria define the “qualified mortgage,” as a residential mortgage loan for which: </div><ul><li> <div align="justify">The regular periodic payments for the loan may not result in an increase of the principal balance or allow the consumer to defer repayment of principal.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn15" name="_ednref15">[15]</a></div></li>
<li> <div align="justify">The terms do not result in a balloon payment, where a “balloon payment” is a scheduled payment that is more than twice as large as the average of earlier scheduled payments.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn16" name="_ednref16">[16]</a></div></li>
<li> <div align="justify">The income and financial resources relied upon to qualify the obligors on the loan are verified and documented.</div></li>
<li> <div align="justify">In the case of a fixed rate loan, the underwriting process is based on a payment schedule that fully amortizes the loan over the loan term and takes into account all applicable taxes, insurance, and assessments.</div></li>
<li> <div align="justify">In the case of an adjustable rate loan, the underwriting is based on the maximum rate permitted under the loan during the first 5 years, and a payment schedule that fully amortizes the loan over the loan term and takes into account all applicable taxes, insurance, and assessments.</div></li>
<li> <div align="justify">Compliance with any guidelines or regulations is required by the Federal Reserve Board relating to ratios (i.e., debt-to-income), other ability to repay standards.</div></li>
<li> <div align="justify">The total points and fees payable in connection with the loan do not exceed 3 percent of the total loan amount.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn17" name="_ednref17">[17]</a></div></li>
<li> <div align="justify">The term of the loan does not exceed 30 years, except as such term may be extended by the guaranteeing or insuring federal departments or agencies (i.e., high-cost areas), and</div></li>
<li> <div align="justify">In the case of a reverse mortgage (except where an exemption applies, as indicated above), a reverse mortgage which meets the standards for a qualified mortgage.</div></li>
</ul><b>Points and Fees</b> <br />
<div align="justify"><br />
</div><div align="justify">Other than <i>bona fide</i> third party charges not retained by the mortgage originator, creditor, or an affiliate of the creditor or mortgage originator, total points and fees are those points and fees payable in connection with the loan. </div><ul><li> <div align="justify"><b>Calculation</b>: Points and fees exclude either of the amounts described in the following scenarios, but not both:</div><ul><li> <div align="justify"><u>Scenario # 1</u>: Up to and including 2 <i>bona fide</i> discount points payable by the consumer in connection with the mortgage, but only if the interest rate from which the mortgage's interest rate will be discounted does not exceed by more than 1 percentage point the average prime offer rate.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn18" name="_ednref18">[18]</a></div></li>
<li> <div align="justify"><u>Scenario # 2</u>: Unless 2 <i>bona fide</i> discount points have been excluded under Scenario # 1, up to and including 1 <i>bona fide</i> discount point payable by the consumer in connection with the mortgage, but only if the interest rate from which the mortgage's interest rate will be discounted does not exceed by more than 2 percentage points the average prime offer rate.</div></li>
</ul></li>
<li> <div align="justify"><b>Bona Fide Discount Points</b>: Loan discount points which are knowingly paid by the consumer for the purpose of reducing, and which in fact result in a <i>bona fide</i> reduction of, the interest rate or time-price differential applicable to the mortgage.</div></li>
<li> <div align="justify"><b>Interest Rate Reduction</b>: Scenario # 1 and Scenario # 2 (see above) do not apply to discount points used to purchase an interest rate reduction, unless the amount of the interest rate reduction purchased is reasonably consistent with established industry norms and practices for secondary mortgage market transactions.</div></li>
<li> <div align="justify"><b>Smaller Loans</b>: for lenders that extend smaller loans to meet the requirements of the presumption, the Board will consider the potential impact of such rules on rural areas and other areas where home values are lower.</div></li>
<li> <div align="justify"><b>Balloon Loans</b>: The term “qualified mortgage” includes a balloon loan:</div><ul><li> <div align="justify">Meeting all of the criteria for a qualified mortgage (see above);</div></li>
<li> <div align="justify">For which the lender makes a determination that the consumer is able to make all scheduled payments, except the balloon payment, out of income or assets other than the collateral;</div></li>
<li> <div align="justify">For which the underwriting is based on a payment schedule that fully amortizes the loan over a period of not more than 30 years and takes into account all applicable taxes, insurance, and assessments; and</div></li>
<li> <div align="justify">that is extended by a lender which:</div><ul><li> <div align="justify">Operates predominantly in rural or underserved areas;</div></li>
<li> <div align="justify">Together with all affiliates, has total annual residential mortgage loan originations that do not exceed a limit set by the Board;</div></li>
<li> <div align="justify">Retains the balloon loans in portfolio; and</div></li>
<li> <div align="justify">Meets any asset size threshold and any other criteria as the Board may establish, consistent with the purposes of this subtitle.</div></li>
</ul></li>
</ul></li>
</ul><div align="center"><br />
</div><div align="center"><b><span style="color: #c0504d;">DEFENSE TO FORECLOSURE</span></b> </div><div align="justify"><br />
</div><div align="justify">The Mortgage Reform Act amends the Truth in Lending Act (TILA)<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn19" name="_ednref19">[19]</a> by adding a new section entitled “Defense of Foreclosure.” Pursuant to this section of TILA, a consumer now may assert a defense of recoupment<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn20" name="_ednref20">[20]</a> claim for violations when a creditor, assignee, or other holder of a residential mortgage loan or anyone acting on behalf of such creditor, assignee, or holder, initiates a judicial or non-judicial foreclosure of the residential mortgage loan, or any other action to collect the debt in connection with such loan. Areas that provide additional protection to consumers include “steering” violations and the failure to properly determine the borrower’s ability to repay. Also, a set off is now provided without regard for the time limit on a private action for damages.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn21" name="_ednref21">[21]</a> </div><div align="justify"><br />
</div><div align="justify">The amount of recoupment or set off is equal to the amount which the consumer would be entitled for damages for a valid claim brought in an original action against the creditor, plus the costs to the consumer of the action, including a reasonable attorney's fee.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn22" name="_ednref22">[22]</a> </div><div align="center"><br />
</div><div align="center"><b><span style="color: #c0504d;">PREPAYMENT PENALTIES</span></b> </div><div align="justify"><br />
</div><div align="justify">A lender <b>may not charge a prepayment penalty</b> for a residential mortgage loan, if it meets any one of the following criteria: </div><ul><li> <div align="justify">Has an adjustable rate; or</div></li>
<li> <div align="justify">Has an annual percentage rate (APR) that exceeds the average prime offer rate (APOR) for a comparable transaction, as of the date the interest rate is set:</div><ul><li> <div align="justify"><u>First lien loans</u> (1) with principal amounts at or below limits set by Freddie Mac, the APR is more than 1.5 points above the APOR for comparable transactions, as published by the Board; (2) with principal amounts above limits set by Freddie Mac, the APR is more than 2.5 points above the APOR.</div></li>
<li> <div align="justify"><u>Second lien loans</u> the APR is more than 3.5 points above the APOR. </div></li>
</ul></li>
</ul><b>Restrictions</b> <br />
<ul><li> <div align="justify">During the first year period beginning on the date the loan is consummated, the prepayment penalty may not exceed an amount equal to 3% of the outstanding balance on the loan.</div></li>
<li> <div align="justify">In the second year from the date the loan is consummated, the prepayment penalty may not exceed an amount equal to 2% of the outstanding balance on the loan.</div></li>
<li> <div align="justify">In the third year from the date the loan is consummated, the prepayment penalty may not exceed an amount equal to 1% of the outstanding balance on the loan.</div></li>
<li> <div align="justify">After the end of the 3-year period beginning on the date the loan is consummated, no prepayment penalty may be imposed on a qualified mortgage.</div></li>
</ul><b>Required to Provide Alternative Financing</b> <br />
<ul><li> <div align="justify">A lender may not offer a consumer a residential mortgage loan product that has a prepayment penalty without offering the consumer a residential mortgage loan product that does not have a prepayment penalty as a term of the loan.</div></li>
</ul><div align="center"><b><span style="color: #c0504d;">SINGLE PAYMENT CREDIT INSURANCE</span></b> </div><br />
<b>Prohibition and Exceptions</b> <br />
<div align="justify"><br />
</div><div align="justify"><u>Prohibition</u> - Lenders may not finance,<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn23" name="_ednref23">[23]</a> directly or indirectly, any credit life, credit disability, credit unemployment, or credit property insurance, or any other accident, loss-of-income, life, or health insurance, or any payments directly or indirectly for any debt cancellation or suspension agreement or contract. </div><div align="justify"><br />
</div><div align="justify"><u>Exceptions</u> – (1) Insurance premiums or debt cancellation or suspension fees calculated and paid in full on a monthly basis that are not considered financed by the creditor; and, </div><div align="justify">(2) Credit unemployment insurance for which the unemployment insurance premiums are reasonable, the lender receives no direct or indirect compensation in connection with the unemployment insurance premiums, and the unemployment insurance premiums are paid pursuant to another insurance contract (i.e., third party) and not paid to an affiliate of the creditor. </div><div align="center"><br />
</div><div align="center"><b><span style="color: #c0504d;">ARBITRATION AGREEMENTS</span></b> </div><div align="justify"><br />
</div><div align="justify"><u>Prohibition</u> – Lenders are not permitted to have arbitration provisions or any other non-judicial procedure in mortgage contracts as the method for resolving any controversy or settling any claims arising out of the mortgage transaction.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn24" name="_ednref24">[24]</a> At any time after a dispute or claim has arisen under the transaction arises, however, the consumer and the creditor or any assignee may agree to arbitration or any other non-judicial procedure as the method for resolving any controversy. </div><div align="justify"><br />
</div><div align="justify"><u>Statutory Cause of Action – No Wavier</u> – Lenders are not permitted to have provisions in mortgage contracts that may apply to or be interpreted so as to bar a consumer from bringing an action in an appropriate district court (i.e., federal court) of the United States, or any other court of competent jurisdiction, for damages or other relief in connection with any alleged violation of the Mortgage Reform Act or any other Federal law. </div><div align="justify"><br />
</div><b>Negative Amortization Loans</b><br />
<b> </b> <br />
<div align="justify">Lenders may not offer negative amortization loans on residential mortgages and HELOCs, excluding reverse mortgages, unless prior to the consummation the lender provides the consumer with a statement that: </div><ul><li> <div align="justify">the pending transaction will or may, as the case may be, result in negative amortization;</div></li>
<li> <div align="justify">describes negative amortization in the manner required by the Board;</div></li>
<li> <div align="justify">negative amortization increases the outstanding principal balance of the account; and</div></li>
<li> <div align="justify">negative amortization reduces the consumer's equity in the dwelling or real property.</div></li>
</ul><u>Counseling</u> <br />
If the transaction is not a “qualified mortgage” (see <i>Safe Harbor and Rebuttable Presumption</i> section for definition) and the consumer is a first-time borrower, the consumer must provide the lender with “sufficient documentation” to demonstrate that homeownership counseling was completed by the consumer.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn25" name="_ednref25">[25]</a><br />
<br />
<div align="center"><b><span style="color: #c0504d;">ANTI-DEFICIENCY PROTECTIONS</span></b></div><div align="center"><b><span style="color: #c0504d;"> </span></b> </div><div align="justify">An “anti-deficiency law” is a state law which provides that, in the event of foreclosure the consumer is not liable, in accordance with the terms and limitations of that state’s law, for any deficiency between the sale price obtained through foreclosure and the outstanding balance of the mortgage. The Mortgage Reform Act provides protection to the consumer with respect to actions taken by the lender that are subject to anti-deficiency laws. In this regards, the creditor or mortgage originator must provide a written notice to the consumer describing the protection provided by the anti-deficiency law and the “significance for the consumer of the loss of such protection” before the loan is consummated. Therefore, prior to consummating a refinance, notification to the consumer that refinancing would cause loss of protection must be provided. </div><div align="justify"><br />
</div><div align="center"><b><span style="color: #c0504d;">PARTIAL PAYMENTS</span></b></div><div align="center"><b><span style="color: #c0504d;"> </span></b> </div><div align="justify">TILA has been further amended<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn26" name="_ednref26">[26]</a> to require a creditor or an entity “becoming a creditor” to notify the consumer about the creditor's policy regarding the acceptance of partial payments, and, if partial payments are accepted, how such payments (1) will be applied to the mortgage, and (2) if such payments will be placed in escrow. </div><div align="center"><br />
</div><div align="center"><b><span style="color: #c0504d;">INCREASE TO CIVIL LIABILITY PROVISIONS</span></b></div><div align="center"><b><span style="color: #c0504d;"> </span></b> </div><div align="justify">Private rights of action brought under TILA have been extended with respect to statutory damages, as follows: </div><div align="justify"><br />
</div><div align="justify">· Transaction: not less than $200 or more than $2000 </div><div align="justify">· Class Action: the lesser of $1,000,000 or 1 percent of the creditor’s net worth. </div><div align="justify"><br />
</div><div align="justify">Claims may be brought in any United States district court (i.e., federal court), or in any other court of competent jurisdiction, before the end of the 3-year period beginning on the date of the occurrence of the violation.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn27" name="_ednref27">[27]</a> </div><div align="center"><br />
</div><div align="center"><b><span style="color: #c0504d;">LENDER RIGHTS FOR BORROWER DECEPTION</span></b></div><div align="center"><b><span style="color: #c0504d;"> </span></b> </div><div align="justify">There is now an exemption from liability and rescission where borrower fraud or deception has taken place in the transaction: no creditor or assignee will be liable to an obligor, if such obligor or co-obligor has been convicted of obtaining the mortgage through actual fraud. Of course, the lender may have additional remedies available by law or contract. </div><div align="justify"><br />
</div><div align="center"><b><span style="color: #c0504d;">HYBRID ADJUSTABLE RATE MORTGAGES</span></b></div><div align="center"><b><span style="color: #c0504d;"> </span></b> </div><div align="justify">A hybrid adjustable rate mortgage (H-ARM) has a fixed interest rate for an introductory period that adjusts or resets to a variable interest rate after such period. The Board reserves the right to issue additional disclosure regulations for adjustable rate mortgages other than H-ARMs. </div><div align="justify"><br />
</div><div align="justify">New consumer notification requirements must be provided that state the reset terms and alternatives, as follows: </div><ul><li> <div align="justify"><b>Reset</b>: During the 1-month period that ends 6 months before the date on which the interest rate in effect during the introductory period of the H-ARM adjusts or resets to a variable interest rate or, in the case of such an adjustment or resetting that occurs within the first 6 months after consummation, at the consummation the creditor or servicer of the H-ARM must provide a written notice, separate and distinct from all other correspondence to the consumer, with this information:</div><ul><li> <div align="justify">Index: The index or formula used in making adjustments to or resetting the interest rate and a source of information about the index or formula.</div></li>
<li> <div align="justify">Calculation: An explanation of how the new interest rate and payment would be determined, including an explanation of how the index was adjusted, such as by the addition of a margin.</div></li>
<li> <div align="justify">Good Faith Estimate (GFE): A GFE based on accepted industry standards, provided by the creditor or servicer, which states the amount of the monthly payment to be applied after the date of the adjustment or reset, and the assumptions on which this estimate is based.</div></li>
</ul></li>
<li> <div align="justify"><b>Alternative</b>s: A list of alternatives consumers may pursue before the date of adjustment or reset, and descriptions of the actions available to consumers, including:</div><ul><li> <div align="justify">Refinancing</div></li>
<li> <div align="justify">Renegotiation of loan terms</div></li>
<li> <div align="justify">Payment forbearances</div></li>
<li> <div align="justify">Pre-foreclosure sales</div></li>
</ul></li>
<li> <div align="justify">Contact Information: counseling agencies or programs, and state housing finance authority</div></li>
</ul><div align="center"><br />
</div><div align="center"><b><span style="color: #c0504d;">REQUIRED DISCLOSURES AT CONSUMMATION</span></b></div><div align="center"><b><span style="color: #c0504d;"> </span></b> </div>Prior to consummation, new disclosures are required. <br />
<ul><li><b>Variable (Adjustable) Rate - Disclosure</b>: <ul><li> <div align="justify">The amount of the initial monthly payment of principal and interest, and the amount of such initial monthly payment including the escrows.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn28" name="_ednref28">[28]</a> Also, the amount of the fully indexed monthly payment of principal and interest, and the amount of such fully indexed monthly payment including the escrows.</div></li>
</ul></li>
<li> <div align="justify"><b>Settlement Charges</b>: the aggregate amount of settlement charges, the amount of charges included in the loan, the amount of such charges the borrower must pay at closing, the approximate amount of the wholesale rate of funds in connection with the loan, and the aggregate amount of other fees or required payments in connection with the loan.</div></li>
<li> <div align="justify"><b>Fees Paid</b>: the aggregate amount of fees paid to the mortgage originator in connection with the loan, the amount of such fees paid directly by the consumer, and any additional amount received by the originator from the creditor.</div></li>
<li> <div align="justify"><b>Total Interest</b>: the total amount of interest that the consumer will pay over the life of the loan as a percentage of the principal of the loan.</div></li>
</ul><div align="center"><br />
</div><div align="center"><b><span style="color: #c0504d;">REQUIRED MONTHLY STATEMENTS</span></b></div><div align="center"><b><span style="color: #c0504d;"> </span></b> </div><div align="justify">There has been an amendment to TILA regarding monthly billing statements.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn29" name="_ednref29">[29]</a> The Board reserves the right to issue additional disclosure regulations. For each billing cycle, a statement must be provided to the borrower that provides the following: </div><ul><li> <div align="justify">Amount of the principal obligation under the mortgage.</div></li>
<li> <div align="justify">Current interest rate in effect for the loan.</div></li>
<li> <div align="justify">Date on which the interest rate may next reset or adjust.</div></li>
<li> <div align="justify">Amount of any prepayment fee to be charged, if any.</div></li>
<li> <div align="justify">Description of any late payment fees.</div></li>
<li> <div align="justify">Telephone number and electronic mail address that may be used by the obligor to obtain information regarding the mortgage. </div></li>
</ul><ul><li> <div align="justify">Contact Information: counseling agencies or programs, and state housing finance authority.</div></li>
</ul><div align="justify"><u>Exception</u>: A fixed rate residential mortgage loan where the creditor, assignee, or servicer issues a coupon book to the obligor that contains substantially the same information as indicated above. </div><div align="justify"><br />
</div><div align="center"><b><span style="color: #c0504d;">REPORT TO THE GAO</span></b></div><div align="center"><b><span style="color: #c0504d;"> </span></b> </div><div align="justify">Before the end of the 1-year period beginning on the date of the enactment, the Comptroller General of the United States will conduct a study to determine the effects of the Mortgage Reform Act on the availability and affordability of credit for consumers. The report will produce findings for the mortgage market for mortgages that are not within the safe harbor (discussed above); on the ability of prospective homebuyers to obtain financing; on the ability of homeowners facing resets or adjustments to refinance; on minorities' ability to access affordable credit compared with other prospective borrowers; and, on home sales and construction. The report will also contain findings and conclusions regarding the extending of the rescission right, if any, on adjustable rate loans and its impact on litigation; state foreclosure laws and, if any, an investor's ability to transfer a property after foreclosure; expanding the existing provisions of the Home Ownership and Equity Protection Act of 1994 (HOEPA); prohibiting prepayment penalties on high-cost mortgages; and, establishing counseling services under the Department of Housing and Urban Development and offered through the Office of Housing Counseling. </div><div align="justify"><br />
</div><div align="center"><b><span style="color: #c0504d;">MEETING THE CHALLENGE</span></b></div><div align="center"><b><span style="color: #c0504d;"> </span></b> </div><div align="center"><i>“Finally, in our progress toward a resumption of work we require two safeguards against a return of the evils of the old order; there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people’s money, and there must be provision for an adequate but sound currency.”</i> <b> </b></div><div align="center"><b>Franklin D. Roosevelt First Inaugural Address (1933)</b><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn30" name="_ednref30">[30]</a></div><div align="center"><br />
</div><div align="justify">We have now come to the end of the second part in this 3-part series about mortgage reform. Due to this financial reform legislation, over the next few years (and beyond) the way we will originate mortgages will markedly change, our assumptions will be challenged, and the financial considerations we bring to our work will be transformed. </div><div align="justify"><br />
</div><div align="justify">Many new guidelines yet to be promulgated await future interpretation and implementation. Litigation will inevitably ensue, individual and class action, come what may. </div><div align="justify"><br />
</div><div align="justify">A new Bureau of Consumer Financial Protection will soon become the center of our focus; its leadership, structure, and rulemaking will determine our mortgage origination processes and market actions.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_edn31" name="_ednref31">[31]</a> In the next and final article, I will summarize the features of this Bureau and discuss how the fulfilling of its legislated purpose will change and inform the mortgage industry. The country’s economic stability is inherently linked to the health of the mortgage industry. In due course, we will know if this mortgage reform contributes to its long term well-being. </div><hr align="left" size="1" width="33%" /><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref1" name="_edn1">[1]</a> Franklin D. Roosevelt, Inaugural Address, March 4, 1933, as published in Samuel Rosenman, ed., The Public Papers of Franklin D. Roosevelt, Volume Two: The Year of Crisis, 1933 (New York: Random House, 1938), 11–16. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref2" name="_edn2">[2]</a> H.R. 4173: <i>Dodd-Frank Wall Street Reform and Consumer Protection Act</i>, 111th Congress (2009-2010): "A bill to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail", to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes." Sponsored by Representative Barney Frank (D-MA) and Senator Christopher Dodd (D-CT) </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref3" name="_edn3">[3]</a> Foxx, Jonathan, <i>The Birth of an Agency</i>, in National Mortgage Professional Magazine, September 2009, Volume 1, Issue 5, pp 24-27. This article provides a chart that outlines the Bureau’s structure and authorities. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref4" name="_edn4">[4]</a> See Foxx, Jonathan, <i>The CFPA Controversy: Asking the Tough Questions</i>, in National Mortgage Professional Magazine, October 2009, Volume 1, Issue 6, pp 22-25. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref5" name="_edn5">[5]</a> See Foxx, Jonathan, <i>Landmark Financial Legislation: New Rules for Mortgage Originators – Part I: Reformation and Regulations</i>, August 2010, Volume 2, Issue 8, pp 28-42. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref6" name="_edn6">[6]</a> My analysis will not address the Act’s new regime for national bank federal preemption in the area of state consumer financial laws, or, for that matter, the new framework for determining the states’ enforcement powers against financial services companies. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref7" name="_edn7">[7]</a> Op. cit 1 </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref8" name="_edn8">[8]</a>Op. cit. 2, the matrix and subsequent outline of the Mortgage Reform Act – Certain Provisions are based on Title XIV, Subtitle B (Minimum Standards for Mortgages), Subsections 1411-1422. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref9" name="_edn9">[9]</a> Op. cit. 2, <i>Section 4: Effective Date</i>, states: “Except as specifically provided in this Act or the amendments made by this Act, this Act and such amendments shall take effect 1 day after the date of enactment of this Act.” </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref10" name="_edn10">[10]</a> Op. cit. 5 </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref11" name="_edn11">[11]</a> Seasonal income may be used, including income from a small business, considering the seasonality and irregularity of such income in the underwriting and the scheduling of payments. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref12" name="_edn12">[12]</a> Accordingly, with respect to any loan which has an annual percentage rate (APR) that does not exceed the average prime offer rate (APOR) for a comparable transaction, as of the date the interest rate is set, by 1.5 or more percentage points for a first loan; and by 3.5 or more percentage points for a subordinate loan; or, using the contract's repayment schedule, with respect to a loan which has an APR, as of the date the interest rate is set, at least 1.5 percentage points above the APOR for a first lien residential mortgage loan; and 3.5 percentage points above the APOR for a subordinate loan. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref13" name="_edn13">[13]</a> The term “fully indexed rate” means the index rate prevailing on a residential mortgage loan at the time the loan is made plus the margin that will apply after the expiration of any introductory interest rates. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref14" name="_edn14">[14]</a> Op. cit. 2, Title XIV, Subtitle B (Minimum Standards for Mortgages), Subsections 1412 (3)(B)(i). </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref15" name="_edn15">[15]</a> Except as provided by the Mortgage Reform Act’s requirements for balloon mortgages. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref16" name="_edn16">[16]</a> Except as provided by the Mortgage Reform Act’s requirements for balloon mortgages. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref17" name="_edn17">[17]</a> Other than <i>bona fide</i> third party charges not retained by the mortgage originator, creditor, or an affiliate of the creditor or mortgage originator, total points and fees payable in connection with the refinancing may not exceed 3 percent of the total new loan amount. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref18" name="_edn18">[18]</a> The term “average prime offer rate” (APOR) means the average prime offer rate for a comparable transaction as of the date on which the interest rate for the transaction is set, as published by the Federal Reserve Board. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref19" name="_edn19">[19]</a> Section 130 of the Truth in Lending Act (15 U.S.C. 1640). </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref20" name="_edn20">[20]</a> The term “recoupment” generally refers to an affirmative defense that may be asserted by a defendant whose claim is based upon the same transaction that is the subject of the plaintiff's suit. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref21" name="_edn21">[21]</a> The term “set off” has been judicially defined as "a claim arising out of a completely independent and unrelated transaction," which is asserted to offset liability for another claim. [Atlantic City Hasp. v. Finkle, 110 N.J., 1970] </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref22" name="_edn22">[22]</a> The statute of limitations for private right of action for such violations of TILA does not apply to such recoupment defenses. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref23" name="_edn23">[23]</a> The prohibition applies to any residential mortgage loan or with any extension of credit under an open end consumer credit plan secured by the principal dwelling of the consumer (i.e., HELOC). </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref24" name="_edn24">[24]</a> The prohibition applies to any residential mortgage loan or with any extension of credit under an open end consumer credit plan secured by the principal dwelling of the consumer (i.e., HELOC). </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref25" name="_edn25">[25]</a> Homeownership counseling is acceptable from organizations or counselors certified by the Secretary of Housing and Urban Development (HUD) as competent to provide such counseling. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref26" name="_edn26">[26]</a> Section 129C of the Truth in Lending Act. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref27" name="_edn27">[27]</a> The statute of limitations extension is provided for any violation of 15 U.S.C. § 1639 or the newly created Section 129B and 129C of TILA. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref28" name="_edn28">[28]</a> All applicable taxes, insurance, and assessments. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref29" name="_edn29">[29]</a> Section 128 of the Truth in Lending Act (15 U.S.C. 1638) </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref30" name="_edn30">[30]</a> Op. cit 1 </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2010/Financial%20Reform%20%282010%29/Part%20II%20-%20Financial%20Reform/#_ednref31" name="_edn31">[31]</a> For more information about the Bureau of Consumer Financial Protection, please see my articles, referenced above: <i>The Birth of an Agency; The CFPA Controversy: Asking the Tough Questions; </i>and,<i> Landmark Financial Legislation: New Rules for Mortgage Originators – Part I: Reformation and Regulations </i>(Op. cit 3, 4, 5). </div>Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.com0tag:blogger.com,1999:blog-8173665023107944560.post-84963093112431299552011-08-16T17:31:00.001-04:002011-08-18T07:51:12.238-04:00Dodd-Frank Act – Reformation and RegulationsPart I of a Three-Part Series on Financial Reform Legislation<br />
Author: <a href="http://lenderscompliancegroup.com/18.html">Jonathan Foxx</a><br />
Published in <a href="http://nationalmortgageprofessional.com/">National Mortgage Professional Magazine</a><br />
First Published: August 2010<br />
<div align="center"><br />
</div><div align="center"><b>Who’s In Charge Here?</b> </div><div align="center"><i>I never blame myself when I'm not hitting. <br />
I just blame the bat and if it keeps up, I change bats.<br />
After all, if I know it isn't my fault that I'm not hitting, how can I get mad at myself?<br />
</i>Yogi Berra</div><div align="center"><br />
</div><div align="justify">Let’s admit it: the tendency to pretend we’re holding somebody or some entity “accountable” for the mortgage crisis, when we’re really not, is just a fashionable avoidance of that unpleasant word: “blame.” Once that label sticks, it’s on to dealing with the nasty culprits! Blaming is purported to be cowardly, even passive; and being held accountable is lauded as proactive and high-minded. So, the word “accountable” is now in vogue, instead of “blame.” Frankly, the word “accountable” in today’s world is merely politically-correct, euphemistic Newspeak for the fact that “you know you did wrong, I know you did wrong, everybody in the world knows you did wrong, but you’ll pay no penalties whatsoever for doing anything wrong.” </div><div align="justify"><br />
</div><div align="justify">Although the tone-at-the-top mantra of the Obama Administration is “let’s look forward and not look back,” or the Bush Administration’s tactic of retroactively making lawful what was heretofore unlawful (or unconstitutional) remains beyond contest, or the on-going trading of opaque financial instruments seems to continue in an entirely unregulated market, or many government departments and agencies are still remaining reactive at best during a crisis – in the Newspeak of our times, we are assured of <i>accountability</i>, which now apparently means there’s nobody to blame at all, nobody held responsible for the meltdown, nobody to put in jail. Everybody’s free to go and, we’re admonished, it doesn’t do any good to blame anybody for anything, since we can’t fix this mortgage mess unless and until we all can get along, be bi-partisan, be post-partisan, and look to the better angels of our nature! </div><div align="justify"><br />
</div><div align="justify">Accountability these days seems to mean no adverse consequences to the perpetrator and no blame for anybody. If you find a person to blame, that person’s not accountable; and if you find somebody who is accountable, that person is not to blame. While lobbyists, dogmatists, political catechists, and ideologues just make stuff up, they’ve found the culprit for sure, those bad actors portrayed as directly and indirectly culpable, the rapacious mortgage originators: they certainly should be blamed, reined in, re-regulated, and de-incentivized for having largely contributed to the worst financial crisis since the Great Depression! </div><div align="justify"><br />
</div><div align="justify">Portraying mortgage originators as the culprit is a politically useful narrative meant for the consumption of low information voters; but, as we’ll see, there is plenty of blame in this game and, to date, not much real, old-fashioned accountability – the kind that has real world consequences – except, of course, for those who originated the mortgages in the first place. </div><div align="justify"><br />
</div><div align="center"><b>Results are what you expect.<br />
Consequences are what you get.<br />
</b>Anonymous</div><div align="center"><br />
</div><b></b> <br />
<div align="justify">On Tuesday, June 22, 2010, a Conference Committee met in Room 106 of the Dirksen Senate Office Building, in Washington, to reconcile Senate and House versions of H.R. 4173, known as the <i>Wall Street Reform and Consumer Protection Act</i>. That bill ostensibly was drafted to create a new consumer financial protection “watchdog,” bring about an end to “too big to fail” bailouts, set up an early warning system to “predict and prevent” the next crisis, and bring transparency and accountability to exotic instruments such as derivatives. Led by Representative Barnie Frank (D-MA) and Senator Christopher Dodd (D-CT), the conferees reviewed and voted on new regulations as well as additions, deletions, and revisions of existing regulations. </div><div align="justify"><br />
</div><div align="justify">The list of new regulations and amendments to existing regulations, consisting of thousands of pages, read like the attenuated, convoluted, cross-tabulated Index Section of a <i>Whodunit’s Guide to the Perplexed</i>. Seated around a large, rectangular dais, the Committee’s politicians called one another out, speechified, postured, and legislated to protect their respective constituencies, absolved themselves of ever having allowed their own politics to contribute to the financial crisis, while the Clerk recorded votes, staff members raced around, and lawyers scurried about with various and sundry red-lined versions of financial reform legislation. </div><div align="justify"><br />
</div><div align="justify">On Friday, June 25, 2010, all the backroom<i>, sub rosa,</i> deals were ironed out, all the special interests had their way or lost their sway, and the votes tallied up mostly across party lines: Democrats – Aye; Republicans – Nay. The Ayes had it! Congratulations filled the conference chamber, Representatives and Senators praised one another, staff high-fived and hugged one another, and President Obama hailed the legislation as the “toughest financial reforms since the ones we passed in the aftermath of the Great Depression."<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn1" name="_ednref1">[1]</a> Now only House and Senate approval was needed,<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn2" name="_ednref2">[2]</a> and thence the President’s multi-pen signature, to become the law – which it did on July 21, 2010, just before noon. The legislation, now known as the Dodd-Frank Act, became the law of the land. </div><div align="justify"><br />
</div><div align="justify">Among the many features of the legislation, the following was gaveled in: </div><div align="justify"><br />
</div><div align="justify">· <b>Requiring Lenders to Ensure a Borrower's Ability to Repay</b>: Establishing a “simple federal standard” (sic) for all home loans to ensure that borrowers can repay the loans they are sold. </div><div align="justify"><br />
</div><div align="justify">· <b>Prohibiting Unfair Lending Practices</b>: Prohibiting the financial incentives for subprime loans that “encourage lenders to steer borrowers into more costly loans,” including the bonuses known as <i>yield spread premiums</i> that “lenders pay to brokers to inflate the cost of loans.” </div><div align="justify"><br />
</div><div align="justify">· <b>Penalizing Irresponsible Lending</b>: Issuing monetary penalties to lenders and mortgage brokers who don’t comply with new standards by holding them accountable for as high as three-year’s interest payments and damages plus attorney’s fees (if any), and, protects borrowers against foreclosure for violations of the new standards. </div><div align="justify"><br />
</div><div align="justify">· <b>Expanding Consumer Protections for High-Cost Mortgages</b>: Expanding the protections available under federal rules on high-cost loans -- lowering the interest rate and the points and fee triggers that define high cost loans. </div><div align="justify"><br />
</div><div align="justify">· <b>Mandating Additional Mortgage Disclosures:</b> Requiring lenders to disclose the maximum a consumer could pay on a variable rate mortgage, with a warning that payments will vary based on interest rate changes. </div><div align="justify"><br />
</div><div align="justify">· <b>Establishing an Office of Housing Counseling:</b> Establishing a special office within the Department of Housing and Urban Development (HUD) to “boost homeownership and rental housing” counseling.<b></b> </div><div align="justify"><b></b> </div><div align="justify">And, most significantly, the legislation’s centerpiece: the creation of a new agency, tucked into the Treasury and clearly under its purview: </div><div align="justify"><br />
</div><div align="justify">· <b>Bureau of Consumer Financial Protection (Bureau): </b>Creating a regulatory and supervisory authority to examine and enforce consumer protection regulations with respect to all mortgage-related businesses, large non-bank financial companies, and banks and credit unions with greater than $10 billion in assets.<b></b> </div><div align="justify"><br />
Some of these policies have been worthy of consideration, although others seem to be the result of reactive, political triage, and short-sighted (if not also short-term) fixes, without having given much thought to consequences, unintended or otherwise, on the consumer and the mortgage industry. </div><div align="justify"><br />
The Spinmeisters have already begun their Ode to Financial Reform! In this article, the first in a series of articles on the “landmark” legislation, we will un-spin and unpack the new law and seek to learn more about exactly what the Dodd-Frank Act (Act) has wrought for the mortgage industry. </div><div align="justify"></div><a name='more'></a><br />
<div align="justify"><br />
</div><div align="center"><b>Housing bubble? What housing bubble?</b> </div><div align="justify"><b></b> </div><div align="center">“Homes that are occupied may see an ebb and flow <br />
in the price at a certain percentage level, <br />
but you’re not going to see the collapse that you see <br />
when people talk about a bubble.”<br />
Barnie Frank (D-MA) June 27, 2005<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn3" name="_ednref3">[3]</a></div><div align="center"><br />
</div><div align="justify">The Act spans to 2,319 pages and affects almost every aspect of the financial services industry in the United States. Just the sheer size of the Act is indicative of the complexity and detailed, interlocking, regulatory authorities and mandates involved.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn4" name="_ednref4">[4]</a> Compare this with the 31 pages of the Federal Reserve Act which became law almost one hundred years ago. The law’s size also should be taken to reflect the enormous increase in regulations in the intervening years that must be factored into or subsumed under the Act. Consider the following chart:<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn5" name="_ednref5">[5]</a></div><div align="justify"> </div><div align="center"><b>Major Financial Legislation<br />
Number of Pages</b></div><b></b> <br />
<a href="http://lh4.ggpht.com/-pMFQ7rdaGJk/TkrfMljTW9I/AAAAAAAAAto/RkpG4xdNDDs/s1600-h/clip_image002%25255B107%25255D.jpg"><img alt="clip_image002" border="0" height="231" src="http://lh6.ggpht.com/-rZuhD6vjWgE/TkrfOFYv2LI/AAAAAAAAAts/wo3WljM46vU/clip_image002_thumb%25255B104%25255D.jpg?imgmax=800" style="background-image: none; border-bottom: 0px; border-left: 0px; border-right: 0px; border-top: 0px; display: block; float: none; margin-left: auto; margin-right: auto; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="clip_image002" width="314" /></a> <br />
<div align="justify"><br />
</div><div align="justify">Perhaps it would ultimately be worth all the effort put into such a prodigious and voluminous legislation if its purported objective – prevention of another financial crisis – could be expected to result from enforcement of this law. Unfortunately, it won’t! </div><div align="justify"><br />
</div><div align="justify">The Act does very little to prevent the next financial crisis because, among other things, it side-steps the “too big to fail” issues, for instance, by not imposing size limits on any financial institution; offers virtually no resolution to the dysfunctional operations of the GSEs, Freddie Mac and Fannie Mae; and, fails to reinstate the Glass-Steagall Act’s wall of separation between “utility” and “casino” banking. Although it will not prevent the next financial tsunami or Black Swan,<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn6" name="_ednref6">[6]</a> implementation of the regulatory requirements of the Act will dramatically and permanently affect the way residential mortgages are originated in this country. </div><div align="justify"><br />
</div><div align="justify">And if ineptitude, complacency, and failure to implement existing regulations were hallmarks of the regulatory environment prior to the Act, how will we know in advance how things are going with all these new regulatory requirements? After all, thanks to an unnoticed provision in the Act, the Securities and Exchange Commission (SEC) is now declaring itself exempt from Freedom of Information Act (FOIA) requests, one of the bulwarks of government transparency. Perhaps other government entities involved in the Act’s implementation will stake out similar positions.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn7" name="_ednref7">[7]</a> Of course, there are periodic reports to Congress on many issues and programs; however, Congress is the domicile of politicians and they often find ways to underplay failures and exaggerate successes. </div><div align="center"><br />
</div><div align="center"><b>Residential Mortgage Loan Provisions <br />
- New Rules -</b></div><div align="center"><b> </b> </div><b></b> <br />
<div align="justify">Analyzing this vast financial and mortgage reform legislation is a daunting prospect. Over this series of articles, we will highlight many of the Act’s components. <b>The articles in this series on the Dodd-Frank Act are meant to provide an overview. However, this legislation is extremely detailed and extensive. Therefore, for guidance and risk management support, I recommend that you consult a residential mortgage compliance professional in developing policies and procedures to implement the Act’s requirements.</b> </div><br />
Essentially, the following matrix provides a generalized outline of the salient provisions of the Act that directly affect residential mortgage loans originations.<br />
<br />
<div align="center"><a href="http://lh3.ggpht.com/-c7BpQzGtAHs/TkrfQxlpSsI/AAAAAAAAAtw/3QIdk9rmHfk/s1600-h/DFA-Outline-Mortgage%25255B6%25255D.jpg"><img alt="DFA-Outline-Mortgage" border="0" height="585" src="http://lh5.ggpht.com/-4YXeZwnAaoA/TkrfSm7QyUI/AAAAAAAAAt0/eqd-MsyJa3M/DFA-Outline-Mortgage_thumb%25255B3%25255D.jpg?imgmax=800" style="background-image: none; border-bottom: 0px; border-left: 0px; border-right: 0px; border-top: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="DFA-Outline-Mortgage" width="454" /></a></div><div align="justify"><br />
</div><div align="justify">For the remainder of this article, we will be reviewing the Mortgage Loan Regulatory Provisions and, where relevant, its integration into other parts of the Dodd-Frank Act. </div><div align="center"><br />
</div><div align="center"><b>Mortgage Loan Regulatory Provisions<br />
Residential Mortgage Loan Origination</b></div><b></b> <br />
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</div><div align="justify">The Act revises the Truth in Lending Act (TILA) by placing restrictions on “mortgage originators.” These new requirements are promulgated in addition to those imposed by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act).<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn8" name="_ednref8">[8]</a> The SAFE Act includes both registered and licensed mortgage loan originators (MLO).<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn9" name="_ednref9">[9]</a> Specifically, the Act prohibits an MLO from receiving compensation, such as a yield spread premium (YSP), based on the terms of the mortgage loan and it also effectively prevents the MLO from receiving compensation from other sources if such compensation is being otherwise received, directly or indirectly, from the consumer. </div><div align="justify"><br />
</div><div align="justify">TILA, as now revised by the Act, will provide that an MLO may not receive from any person (and no person may pay to an MLO), directly or indirectly, any compensation that varies based on the terms of the loan, other than the principal loan amount. With respect to the latter, compensation is allowed to the MLO (1) based on principal amount of loan, and (2) to be financed through the loan’s rate as long as it is not based on loan’s rate and terms and the MLO does not receive any other compensation such as discount points, or origination points, or fees other than third-party charges, from the consumer (or anyone else).<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn10" name="_ednref10">[10]</a> </div><div align="justify"><br />
</div><div align="justify">MLOs, therefore, are not being put out of business, but their means of deriving compensation has changed. </div><div align="justify"><br />
</div><div align="justify">The Federal Reserve Board (FRB) will be issuing new rules to limit “steering” by MLOs. That is, MLOs will not be permitted to “steer” a consumer toward a residential mortgage loan that (1) the consumer lacks, or can be expected to lack, the reasonable ability to repay; (2) has any predatory characteristics;<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn11" name="_ednref11">[11]</a> and (3) promotes disparities among consumers of equal creditworthiness, but different race, ethnicity, gender or age. Steering is broadened to mean directing a consumer to a non-qualified mortgage if that consumer is qualified to receive a qualified mortgage.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn12" name="_ednref12">[12]</a> </div><div align="justify"><br />
</div><div align="justify">Furthermore, the FRB will issue rules that prohibit MLOs from misrepresenting the residential mortgage loans available to the consumer, the creditworthiness of the consumer, and the subject property’s appraised value. Unfair or deceptive acts or practices (UDAP) rules will be further strengthened through authorities given to the FRB to enforce rules prohibiting abusive or predatory practices. Importantly, MLOs will be subject to the liability standards in TILA for violations: up to treble damages - three times the compensation received by the MLO for a residential mortgage loan. </div><div align="justify"><br />
</div><div align="center"><b>Minimum Mortgage Standards</b></div><div align="center"><b> </b> </div><div align="justify">New standards will be promulgated through the FRB which will require lenders to make a “reasonable and good faith determination, based on verified and documented information” that consumers have a “reasonable ability to repay” their mortgage loans. </div><div align="justify"><br />
</div><div align="justify">In the next article in this series we will discuss the relevant criteria in extensive detail. However, in general, lenders will need to consider the consumer’s (1) credit history, (2) current income, (3) expected future income, (4) current obligations (5) debt-to-income ratio or residual income (after paying all mortgage and non-mortgage debt), (6) employment status, and (7) “any other financial resources” other than equity in the property. </div><div align="justify"><br />
</div><div align="justify">Documenting all these requirements will be mandated; therefore, the lender will underwrite loans by obtaining verification of any income or assets normally used in repayment determination (i.e., tax returns, payroll receipts, bank records, and other third-party documents), but also either an IRS transcript of tax returns (i.e., 4506-T) or some other third-party income documentation method acceptable to the FRB. </div><div align="justify"><br />
</div><div align="center"><b>High Cost Mortgages</b></div><div align="center"><b> </b> </div><div align="justify">TILA has now been revised by further defining and elaborating the features and requirements of “high cost mortgages,” which are those mortgages with annual percentage rates or points and fees exceeding thresholds stated in the Act. </div><div align="justify"><br />
</div><div align="justify">With respect to high cost mortgages, lenders are (1) prohibited from encouraging default on prior debt to be refinanced in whole or in part by a high-cost mortgage, (2) limited in imposing late payment fees on delinquent payments, (3) not allowed to include balloon payments, and (4) prohibited from charging a fee to modify, renew, extend or amend the loan. </div><div align="justify"><br />
</div><div align="justify">Under a due-on-sale provision, or for a material violation of the loan terms, or in the event of a default, accelerating the principal balance due is permissible. To originate a high cost mortgage, the lender must receive certification from a HUD approved counselor that the consumer has received counseling about the advisability of entering into the loan and the consumer must receive Real Estate Settlement Procedures Act (RESPA) disclosures prior to speaking with the counselor. Additionally, there are restrictions on financing prepayment penalties, points or fees. </div><div align="justify"><br />
</div><div align="center"><b>Office of Housing Counseling</b></div><div align="center"><b> </b> </div><div align="justify">A new office and supporting bureaucracy will be created called the Office of Housing Counseling (OHC). The OHC will act in an oversight capacity to administer the counseling on home ownership, renter’s counseling, and certain educational materials. The HUD Secretary will appoint the OHC’s director and this new office will be given rulemaking authority with respect to its administrative mission. The OHC will certify counselors under the authority of certain federal housing laws. </div><div align="justify"><br />
</div><div align="center"><b>Mortgage Servicing</b></div><div align="center"><b> </b> </div><div align="justify">The Act also amends TILA with regard to servicing, requiring a lender to establish, prior to consummation, an escrow or impounds account for most mortgage loans secured by a first lien on the consumer’s primary residence.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn13" name="_ednref13">[13]</a> New consumer disclosures relating to an escrow or impounds account will be required. </div><div align="justify"><br />
</div><div align="justify">Prohibited practices include (1) obtaining force-placed hazard insurance (unless exemptions apply), (2) charging fees for responding to valid qualified written requests (QWR) from consumers,<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn14" name="_ednref14">[14]</a> (3) delayed or belated responses to alleged payment allocation errors (i.e., response required within ten business days to an information request from a consumer relating to the owner or assignee of the loan). </div><div align="justify"><br />
</div><div align="justify">Posting of payments to the consumer’s escrow or impounds account must be implemented as follows: (1) apply the payment amount to the loan account on the date of receipt; (2) within five days of receipt if the consumer does not pay in accordance with the servicer’s payment instructions; and, (3) within a reasonable time not to exceed seven business days for a payoff. </div><div align="justify"><br />
</div><div align="center"><b>Appraisal Requirements</b></div><div align="center"><b> </b> </div><div align="justify">For higher-risk mortgages,<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn15" name="_ednref15">[15]</a> prior to extending credit and at no cost to the applicant, the lender must obtain an appraisal that includes a physical property visit. In certain circumstances, a second appraisal may be required. </div><div align="justify"><br />
</div><div align="justify">New standards for appraisal independence are to be implemented and several regulatory agencies will be involved in setting rules for the registration and ensuing supervision of appraisal management companies (AMC). Automated valuation models are permitted (AVM), however new quality control requirements will be promulgated by the affected regulatory agencies. </div><div align="justify"><br />
</div><div align="center"><b>Mortgage Resolution and Modification</b></div><div align="center"><b> </b> </div><div align="justify">The HUD Secretary will establish a program to protect tenants’ rights and multifamily properties that are at risk. The Home Affordable Modification Program (HAMP) is to receive special attention by the Treasury Secretary in a tasking to develop guidelines that permit borrowers denied a request for mortgage modification under HAMP to use borrower-related and mortgage-related data for net present value analyses (NPV). A website is to be created that offers an NPV calculator. </div><div align="justify"><br />
</div><div align="center"><b>Other Provisions</b> </div><ul><li> <div align="justify">GAO review: a mandate for the GAO to conduct a study on interagency efforts to address mortgage foreclosure rescue scams.</div></li>
</ul><ul><li> <div align="justify">HUD review: a mandate to study the effects of the “Chinese drywall” on residential mortgage foreclosures.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn16" name="_ednref16">[16]</a></div></li>
</ul><ul><li> <div align="justify">Congressional review: consideration to the structural reform of Government Sponsored Enterprises (GSE), Fannie Mae and Freddie Mac.</div></li>
</ul><ul><li> <div align="justify">Funds for HUD: $1 billion in emergency mortgage assistance and $1 billion for state and local governments for the redevelopment of abandoned and foreclosed homes. </div></li>
</ul><ul><li> <div align="justify">Legal Assistance: HUD Secretary to establish a grant-making program for legal assistance to low-income and moderate-income homeowners, tenants relating to home ownership preservation, tenancy associated with home foreclosure, and also to those seeking to prevent foreclosure of their homes.</div></li>
</ul><ul><li> <div align="justify">SAFE Act registration: among amendments to the SAFE Act, the requirement to establish and maintain a system for registering employees of depository institutions (and their subsidiaries) regulated by a federal banking agency as registered loan originators with the Nationwide Mortgage Licensing System and Registry is transferred to the Bureau.</div></li>
</ul><div align="center"><b>If Not Now, When?</b></div><div align="center"><b> </b> </div><div align="justify">Various authorities will be transferred to the new Bureau. Many features of the consumer protection laws will be administered by the Bureau, which will become the administrator for the “federal consumer financial laws.” In other words, nearly every existing federal consumer financial statute, as well as new consumer financial protection mandates prescribed by the Act, will become the “enumerated consumer laws” transferred to the Bureau’s authority.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_edn17" name="_ednref17">[17]</a></div><div align="justify"> </div><div align="justify">On the one hand, regulations will be required to be finalized within 18 months of the designated date of transfer of authority to the Bureau. Then, those regulations become effective not later than 12 months after the regulations are issued. On the other hand, some provisions do not require implementing regulations and presumably would not be subject to the above-mentioned time period – which means, therefore, that the effective compliance date for certain provisions would actually be right after the enactment of the Dodd-Frank Act. Those regulations would include the restrictions on MLO compensation, certain disclosure requirements, and changes to financial triggers on “high cost” loans under the Home Ownership and Equity Protection Act. </div><div align="justify"><br />
</div><div align="justify">In the second part of this series we will discuss the Mortgage Reform and Predatory Lending Act. And, in the third and final article we will consider not only the formation and powers of the new Bureau of Consumer Financial Protection but also the overall implications of the Act for the mortgage industry. </div><hr align="left" size="1" width="33%" /><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref1" name="_edn1">[1]</a> Press Release, June 25, 2010, The White House Office of the Press: "Remarks by the President on Wall Street Reform" </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref2" name="_edn2">[2]</a> Vote was 60 to 39. Three Republican senators -- Scott Brown (MA), Olympia J. Snowe (ME), and Susan Collins (ME) -- joined 57 members of the Democratic caucus. Senator Russell Feingold (WI) was the lone Democratic opponent, saying the measure didn't go far enough. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref3" name="_edn3">[3]</a> Speech on the House Floor, June 27, 2005, In Recognition of National Homeownership Month, A Resolution (You Tube) <a href="http://bit.ly/HJAtd">http://bit.ly/HJAtd</a> </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref4" name="_edn4">[4]</a> See Foxx, Jonathan, <i>The CFPA Controversy: Asking the Tough Questions</i>, in National Mortgage Professional Magazine, October 2009, Volume 1, Issue 6, pp 22-25, which recites that at least 16 consumer protection laws are affected or transferred to the Bureau, mutatis mutandis “enumerated,” including Alternative Mortgage Transaction Parity Act (AMTPA), Community Reinvestment Act (CRA), Consumer Leasing Act (CLA), Electronic Funds Transfer Act (EFTA), Equal Credit Opportunity Act (ECOA), Fair Credit Billing Act (FCBA), Fair Credit Reporting Act (except with respect to sections 615(e), 624 and 628) (FCRA), Fair Debt Collection Practices Act (FDCPA), Federal Deposit Insurance Act, subsections 43(c) through 43(f)(12) (FDIA) Gramm-Leach-Bliley Act, sections 502 through 509 (GLBA), Home Mortgage Disclosure Act (HMDA), Home Ownership and Equity Protection Act (HOEPA), Real Estate Settlement Procedures Act (RESPA), SAFE Mortgage Licensing Act (S.A.F.E. Act), Truth in Lending Act (TILA), and Truth in Savings Act (TISA). </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref5" name="_edn5">[5]</a> Chart by John Hall of the American Bankers Association, from “Every Death March Starts With A First Step,” Kevin Funnell, July 15, 2010, Bank Lawyer’s Blog: <a href="http://bit.ly/cQOMhb">http://bit.ly/cQOMhb</a> </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref6" name="_edn6">[6]</a> The theory of Black Swan events was developed by Nassim Nicholas Taleb to explain the disproportionate role of high-impact, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance and technology. In other words, according to Taleb, almost all major scientific discoveries, historical, financial, and technological events, and artistic accomplishments are undirected and unpredicted. If this is so, it seems to me that a derivative hypothesis would be that government regulations will tend to react to rather than counteract or prevent such crises. See: <i>The Black Swan</i>, Taleb, Nassim Nicholas, 2007, Random House </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref7" name="_edn7">[7]</a> Some legal experts say Section 929I of the Act could be interpreted to mean that the SEC can set its own rules about how to respond to Freedom of Information Act requests and that, potentially, the majority of SEC records could be exempt from public disclosure. The wording of the section says that the SEC should not be compelled to disclose records or information obtained “for use in furtherance of the purposes of this title, including surveillance, risk assessments, or other regulatory and oversight activities.” Representative Darrell Issa (R-CA), the ranking member of the House Committee on Oversight and Government Reform, introduced legislation (HR 5924) back in May to repeal Section 929I. However, two other provisions have been identified that, in the interest of helping corporations shield information from the public, allow the SEC to ignore certain court subpoenas and FOIA requests. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref8" name="_edn8">[8]</a> Section 1503(3)(A)(i) of the SAFE Act defines "loan originator" as "an individual who (I) takes a residential mortgage loan application; and (II) offers or negotiates terms of a residential mortgage loan for compensation or gain." Section 1503(3)(B), entitled "Other Definitions Relating to Loan Originator" provides "For purposes of this subsection, an individual ‘assists a consumer in obtaining or applying to obtain a residential mortgage loan’ by, among other things, advising on loan terms (including rates, fees, other costs), preparing loan packages, or collecting information on behalf of the consumer with regard to a residential mortgage loan. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref9" name="_edn9">[9]</a> Among amendments to the SAFE Act, the requirement to establish and maintain a system for registering employees of depository institutions and their subsidiaries regulated by a federal banking agency as registered loan originators with the Nationwide Mortgage Licensing System and Registry is being transferred to the Bureau. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref10" name="_edn10">[10]</a> The Act expressly permits compensation to a creditor upon the sale of a consummated loan to a subsequent purchaser (i.e., secondary market transaction). And a consumer may finance origination fees or costs, as long as the fees or costs do not vary based on loan terms or the consumer’s decision to finance such fees, providing this financing takes place at the consumer’s option and solely through principal or rate. Also allowed are “incentive payments” to the MLO based on the number of loans originated within a specified period of time. See <i>Second Summary of Mortgage Related Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173)</i>, 7/13/10, Mortgage Bankers Association </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref11" name="_edn11">[11]</a> For a general description of predatory lending, see “Expanded Guidance for Evaluating Subprime Lending Programs,” FIL-9-2001 (1/31/01) which states that predatory lending involves at least one, and perhaps all three, of the following elements: (1) making unaffordable loans based on the assets of the borrower rather than on the borrower's ability to repay an obligation; (2) inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced ("loan flipping"); or (3) Engaging in fraud or deception to conceal the true nature of the loan obligation, or ancillary products, from an unsuspecting or unsophisticated borrower." Other federal and many state guidelines add even broader definitions to the meaning of predatory lending. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref12" name="_edn12">[12]</a> See TILA, Section 129C(b)(2) for the definition of “qualified mortgage,” which includes most residential mortgage loan products, and also includes reverse mortgages (see: TILA Sec. 129C(b)(2)(A), as added by Sec. 1412 of the Dodd-Frank Act), although there is an exemption for reverse mortgages or bridge loans with a 12 month or less repayment period. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref13" name="_edn13">[13]</a> Used to pay taxes and hazard insurance and, if applicable, certain other costs with respect to the secured property; must remain in place for at least five (5) years after loan consummation. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref14" name="_edn14">[14]</a> Section 6 of RESPA requires the lender (or servicer) to acknowledge receipt of the QWR within 20 business days and must try to resolve the issue within 60 business days. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref15" name="_edn15">[15]</a> See: TILA Sec. 129H, as added by Sec. 1471 of the Dodd-Frank Act. "Higher-risk mortgage" means a residential mortgage loan (other than a reverse mortgage that is a qualified mortgage) secured by a principal dwelling that (a) is not a qualified mortgage and (b) has an annual percentage rate (APR) that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set. For thresholds, see also TILA Sec. 129H(f), as added by Sec. 1471 of the Dodd-Frank Act. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref16" name="_edn16">[16]</a> In 2009 the Chinese drywall controversy reached Congress as a health and safety issue involving defective drywalls manufactured in China and imported by the United States starting in 2001. It is also considered an issue in many foreclosures. And in May 2009, the House passed an amendment to the Mortgage Reform and Predatory Lending Act (HR 1728) that would require HUD to study the effects of tainted Chinese drywalls on foreclosures and the availability of property insurance. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2011/Dodd-Frank%20Series/Dodd-Frank/Financial%20Reform%20%282010%29/Financial%20Reform%20%282010%29/Part%20I%20-%20Financial%20Reform/#_ednref17" name="_edn17">[17]</a> Op.cit. 4, provides the “enumerated laws,” to which add Section 626 of the Omnibus Appropriations Act and the Interstate Land Sales Full Disclosure Act. </div>Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.com0