Dodd-Frank News Center

CFPB soothes concerns over 'Know Before You Owe' compliance; promises regulatory clarity

This story appeared in Bank Digest.

In an April 28, 2016, letter, the Consumer Financial Protection Bureau has informed a number of trade groups of its efforts to address the groups' concerns regarding compliance with the "Know Before You Owe" mortgage disclosure forms. The CFPB's Know Before You Owe initiative culminated in a final rule that integrated a number of disclosure forms required by the Real Estate Settlement Procedures Act and the Truth and Lending Act. The mortgage lending industry commonly refers to the integrated disclosure requirements as TRID.

In its letter, the CFPB recognized that "the implementation of the Know Before You Owe rule poses many operational challenges" and said it wants to "continue the collaboration and engagement toward solutions and provide guidance where we have to the ability to do so." The bureau also noted that it has begun to draft a Notice of Proposed Rulemaking on the Know Before You Owe rule to provide "greater certainty and clarity" and hopes to issue the proposal in late July. As part of this process, the bureau intends to have one or two meetings before the proposal is issued.

Senator Bob Corker (R-Tenn), who had previously written to CFPB Director Richard Cordray requesting increased clarity regarding the TRID rule, said he commended Cordray "for taking this important step to provide more clarity. The TRID rule is impacting millions of Americans, and we must ensure it is implemented in the most transparent and effective manner possible."

Representative French Hill (R-Ark) said he was "glad Director Cordray acknowledges the problems with implementing TRID, but it should not have taken 7 months to do so."

Agencies seek comments on incentive-based compensation

This story appeared in Bank Digest.

At its April 26, 2016, meeting, the Federal Deposit Insurance Corporation board of directors approved a proposed rulemaking that would implement Section 956 of the Dodd-Frank Act, which requires the FDIC, Office of the Comptroller of the Currency, Federal Reserve Board, Securities and Exchange Commission, Federal Housing Finance Agency, and National Credit Union Administration to prohibit certain types of incentive-based payment arrangements.

The proposed rule, which replaces a never-acted-upon 2011 proposal, will be jointly published by the agencies. The NCUA approved the proposed rule at its April 21, 2016, meeting. Comments on the proposed rule are due by July 22, 2016.

Under the proposed rule, all covered institutions would be prohibited from offering any incentive-based compensation arrangements that would "encourage inappropriate risks" by providing a "covered person" with compensation that is "excessive" or "could lead to material financial loss" to the covered institution.

• Press Release
• Staff Memorandum
• Statement by FDIC Chairman Martin J. Gruenberg

CFPB takes action against law firm, debt buyer over debt collection lawsuits

This story appeared in Bank Digest.

The Consumer Financial Protection Bureau has entered into two consent orders with a debt collection law firm, two of the firm's principal partners, and a debt buyer, ordering them "to stop churning out unfair and deceptive debt collection lawsuits based on flimsy or nonexistent evidence." The CFPB based the consent orders on violations of the Fair Debt Collection Practices Act and provisions of the Consumer Financial Protection Act that prohibit unfair and deceptive acts or practices in the consumer financial marketplace.

The consent orders were entered into by the bureau with Pressler & Pressler, LLP, a New Jersey-based law firm, Sheldon H. Pressler and Gerard J. Felt, partners of the firm, and New Century Financial Services, Inc., also based in New Jersey. Under the consent orders, Pressler & Pressler, the named partners, and New Century Financial Services are prohibited from filing lawsuits or threatening to sue to collect debts unless they obtain and review specific account-level documents and information showing the debt is accurate and enforceable. They are also prohibited from using affidavits as evidence to collect debts unless they accurately describe relevant facts, including that the individual executing the affidavit has personal knowledge of the debt, or, if not, has reviewed documentation related to the debt.

In addition, the law firm must keep an electronic record showing it is following proper procedures. Finally, the law firm and the named partners must pay a penalty of $1 million to the CFPB's Civil Penalty Fund. New Century must pay a penalty of $1.5 million.

• Press release
• Pressler & Pressler Consent Order
• Pressler & Pressler Stipulation
• New Century Financial Services Consent Order
• New Century Financial Services Stipulation

CFPB seeks comment on consumer testing of forms for consumers in bankruptcy

This story appeared in Bank Digest.

The Consumer Financial Protection Bureau is reopening the comment period for a specific aspect of a proposed rule entitled "Amendments to the 2013 Mortgage Rules under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z)" that was published in the Federal Register (79 FR 74176) on Dec. 15, 2014. The original comment period closed on March 16, 2015. The proposed rule includes proposed sample periodic statement forms to be provided under Reg. Z to consumers who have filed for bankruptcy. The bureau conducted consumer testing of these forms after the close of the original comment period and is now reopening the comment period until May 26, 2016, to seek comments specifically on the report summarizing the consumer testing.

Treasury announces allocation of final $1 billion under Hardest Hit Fund

This story appeared in Bank Digest.

The Treasury Department has announced the allocation of the final $1 billion under the Hardest Hit Fund, which was created in 2010 to provide targeted assistance to 18 states and the District of Columbia that were deemed hardest hit by the economic and housing market downturn. According to Treasury, 13 of the 19 participating HHF jurisdictions will receive additional funds, which were allocated through a competitive application process. The newly announced allocation is the second phase of $2 billion in additional funding authorized by Congress under the Consolidated Appropriations Act, 2016.

Senators Robert Menendez (D-NJ) and Cory Booker (D-NJ) announced the awarding of an additional $45,354,517 from the HHF to assist financially stressed New Jersey homeowners, while House Financial Services Committee Ranking Member Maxine Waters (D-Calif) announced that California had been awarded $169.8 million.

Shelby writes to agencies on FHFA, GSEs

This story appeared in Bank Digest.

Senate Banking Committee Chairman Richard Shelby (R-Ala) has written to the heads of the Government Accountability Office and the Congressional Budget Office requesting that the agencies provide reports to Congress regarding the Federal Housing Finance Agency and government-sponsored enterprises Fannie Mae and Freddie Mac.

In the letter to the GAO, Shelby said that the FHFA recently "has taken steps that appear to encourage a more active, rather than a reduced, role in the mortgage market for the enterprises" and asked that the GAO study and report on the extent to which the FHFA's actions could influence the enterprises' dominance in residential mortgage markets, a potential increase in the cost of entry for future competitors to the enterprises, and other matters. He also asked that the GAO report on a number of topics related to housing finance reform. These topics are capital requirements for originating, funding, and servicing a mortgage; geo-coding in loan-level disclosures; the residual income approach to underwriting affordable housing; and equity building.

In his letter to the CBO, Shelby referred to concerns "about the possibility of quarterly losses by Fannie Mae or Freddie Mac ('the GSEs') necessitating a draw of funds from the U.S. Treasury" that had "led some in the mortgage industry to support amending the GSEs' agreements with the Department of Treasury to allow the GSEs to increase capital levels by retaining more of their earnings." He asked the CBO to prepare a report addressing questions on what the federal government's financial obligations are to Fannie Mae and Freddie Mac while they are in conservatorship, what the implications for the budget and the federal debt would be if the GSEs were to retain more of their earnings, how increasing the GSEs' capital would affect the risk borne by taxpayers, and whether an increase in the capitalization of the GSEs could have consequences for the operations of the GSEs or the mortgage markets.

FSOC provides update on financial stability risks from asset management products and activities

This story appeared in Bank Digest.

The Financial Stability Oversight Council has released a statement that provides a public update on its review of potential risks to U.S. financial stability that may arise from asset management products and activities. According to a Treasury Department press release, the statement describes the FSOC's views regarding potential financial stability risks and next steps to respond to these potential risks, and it focuses on the areas of liquidity and redemption, leverage, operational functions, securities lending, and resolvability and transition planning.

The FSOC voted unanimously to release the statement at its April 18 meeting, at which Treasury Secretary Jacob Lew spoke. In his prepared remarks, Lew highlighted findings in the Council's statement regarding liquidity and leverage risk. On liquidity, he said that "the Council's analysis indicates that financial stability concerns may arise from liquidity and redemption risks in pooled investment vehicles, and in particular in mutual funds, and we have laid out a number of important policy steps that should be considered, including robust liquidity management practices and disclosures for mutual funds, as well as clearer guidelines limiting a fund's ability to hold assets with very limited liquidity."

Regarding leverage, Lew said that "we have not come to any conclusions yet that the use of leverage by private funds currently presents financial stability risks." He went on to say that "the use of leverage in the financial system has come down dramatically since the crisis" overall but said that there was a "need for further analysis and information sharing" on issues related to leverage.

UBS to pay $69.8M over sales of residential mortgage-backed securities

This story appeared in Bank Digest.

UBS will pay the National Credit Union Administration $69.8 million in damages and interest for claims arising from losses to Members United and Southwest corporate credit unions related to purchases of residential mortgage-backed securities. According to the agency's news release, the NCUA had initiated litigation against UBS as liquidating agent for the two credit unions, which failed during the financial crisis, and in February it accepted UBS's offer of judgment of $33 million in damages. The $69.8 million amount includes prejudgment interest determined by the court, as well as the amount for damages.

UBS also will be liable for attorney fees and expenses in an amount to be determined later.

FHFA announces Principal Reduction Modification program, enhanced requirements for NPL sales

This story appeared in Bank Digest.

The Federal Housing Finance Agency has announced a new Principal Reduction Modification program under which Fannie Mae and Freddie Mac will offer principal reduction to certain seriously delinquent, underwater borrowers to help them avoid foreclosure and stay in their homes. According to the agency's press release, the program is a one-time offering for borrowers whose loans are owned or guaranteed by Fannie Mae or Freddie Mac and who meet specific eligibility criteria. Servicers must solicit borrowers eligible for a principal reduction modification no later than Oct. 15, 2016.

The FHFA has also announced enhancements to its requirements for Freddie Mac's and Fannie Mae's sales of non-performing loans. According to the agency, the enhancements are designed to minimize foreclosures, help mitigate the potential for neighborhood blight and decay, and help improve loan modification success rates.

Reacting to the Principal Reduction Modification program, Senate Banking Committee member Mark Warner (D-Va) said, "While a principal reduction program at FHFA for underwater mortgages is long overdue, I welcome this tailored approach, which will bring essential relief for struggling American families." On the other hand, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said, "Principal reductions exacerbate the same moral hazard problems that left taxpayers holding the bag for the government's failures. Further, the FHFA itself previously warned us that principal reduction would be very costly for taxpayers, who already have spent hundreds of billions to bail out Fannie and Freddie."

• Fact Sheet: Principal Reduction Modification
• FAQs--Principal Reduction Modification
• FHFA's Analysis of a Principal Reduction Modification Program and Enhanced Non-Performing Loan Sales Requirements
• Fact Sheet: Enhanced Non-Performing Loan Sale Guidelines

House passes bills to reform FSOC, raise consolidated assets threshold

This story appeared in Bank Digest.

The House of Representatives has passed H.R. 3340 (the Financial Stability Oversight Council Reform Act), which would make the FSOC and the Office of Financial Research subject to the normal and transparent appropriations process, among other provisions, and H.R. 3791, which would raise the consolidated assets threshold under the small banking holding company policy statement.

H.R. 3340 passed the House 239-179, and H.R. 3791 passed by a vote of 247-171. Both bills had passed the Financial Services Committee last year.