Mortgage Banking and Consumer Financial Products Group Highlight

Mortgage Banking and Consumer Financial Products Group

Highlight of 2009 Activities

Mortgage Banking and Consumer Financial Products Group Highlight of 2009 Activities 2

K&L Gates maintains one of the most prominent financial services practices in the United States—with more than 150 U.S.-based lawyers representing diversified financial services institutions and their affiliated service providers. Our practice is at once regional, national, and international in scope, cutting edge, complex, and dynamic. Amidst the constant stream of negotiating transactions, providing regulatory counseling, defending clients in litigation or government enforcement actions or advocating on the policy side, our lawyers try to find time to educate and train clients on the major industry issues of the day. We do it through webinars, seminars, client alerts, and we remain available to do on-site training. Below is a sample of the types of educational endeavors the Mortgage Banking & Consumer Financial Products lawyers have undertaken in 2009.

Webinars:Indentured Servicertude: Treasury Introduces Servicer Participation Agreement, presented by Laurence E. Platt, Jonathan D. Jaffe, Nanci L. Weissgold and Melanie H. Brody. April 30, 2009.

Mortgage Reform and Anti-Predatory Lend-ing Act of 2009, presented by Laurence E. Platt. May 14, 2009.

Do Your Fees Comply with RESPA? What You Need to Know About the Recent Busby Case and Section 8(b) of RESPA, presented by Phillip L. Schulman and Holly Spencer Bunting. May, 27, 2009.

How to Avoid FHA Penalties, presented by Phillip L. Schulman and Krista Cooley. June 25, 2009.

New GFE/HUD-1, You Really Need to Know This Stuff, presented by Phillip L. Schulman and Holly Spencer Bunting. September 22, 2009.

Beware Multi-State Mortgage Examinations, presented by Steven M. Kaplan, Costas A. Avrakotos, Nanci L. Weissgold and Phillip L. Schulman. November 2, 2009.

New GFE/HUD-1, Mortgage Brokers Really Need to Know This Stuff, presented by Phillip L. Schulman. Sponsored by United Wholesale Mortgage. November 18, 2009.

New RESPA Rules Affect Every Mortgage Broker, presented by Phillip L. Schulman. Sponsored by Security Atlantic Mortgage Company and the Real Estate Mortgage Network. December 1, 2009.

Alerts:FTC Imposes $2.9 Million Fair Lending Judgment on Mortgage Lender by Melanie H. Brody, Paul F. Hancock and Stephanie C. Robinson. Mortgage Banking & Consumer Financial Products Alert, January 7, 2009.

The Federal Trade Commission and a mortgage lender have settled allegations that the lender charged Hispanic and African-American borrowers higher prices for residential mortgage loans than similarly situated non-Hispanic white borrowers. The settlement requires the lender to implement a comprehensive fair lending program that includes monitoring for potential price discrimination in its overall retail lending, overall wholesale lending, retail lending by branch, and retail lending by loan originator.

Federal Preemption: 2008 Recap and Guide to 2009 by David L. Beam. Mortgage Banking & Consumer Financial Products Alert, January 8, 2009.

Pop culture aficionados may remember 2008 for Heath Ledger’s swan song as the Joker or Tina Fey’s Sarah Palin impression. Politicos will recall the groundbreaking 2008 election. And federal preemption devotees will look back on 2008 as the year that courts clarified the standards governing preemption of state laws for federally-regulated lenders (hereinafter “Federal Lenders”) in a number of important areas, including with respect to agents and other parties associated with those institutions.

This Client Alert will focus on the last of the preceding three items, and also discuss some of the major preemption issues to watch for in 2009.

The Clock is Ticking: Two Lawsuits Seek to Enjoin Final RESPA Rule by Phillip L. Schulman and Holly Spencer Bunting. Mortgage Banking & Consumer Financial Products Alert, January 9, 2009.

After the U.S. Department of Housing and Urban Development (“HUD” or “Department”) issued its final rule on November 17, 2008 to reform the Real Estate Settlement Procedures Act (“RESPA”),

two groups appeared to fare the worst based on the Department’s RESPA changes—mortgage brokers and home builders. Accordingly, on December 19, 2008, the National Association of Mortgage Brokers (“NAMB”) filed suit against HUD in the U.S. District Court for the District of Columbia for permanent injunctive relief to prevent the Department from enforcing the final RESPA rule. Three days later, on December 22, 2008, the National Association of Home Builders (“NAHB”) sued HUD in the U.S. District Court for the Eastern District of Virginia in search of both a preliminary and permanent injunction against the Department’s enforcement of the “required use” provision. While the NAMB and the NAHB have different reasons to block the final RESPA rule, both have similar arguments—that is, the Department acted arbitrarily and capriciously in its decision making and failed to state adequate reasons for the restrictions it created in the rule. The NAHB suit, at least, has HUD’s attention since the Department agreed to extend the effective date of the “required use” provision until April 16, 2009. This Client Alert summarizes the arguments made in these two lawsuits, as well as the effects these suits may have on the future of the final RESPA rule.

New York Opens the New Year by Targeting Mortgage Brokers for Fair Lending Violations by Melanie H. Brody, Paul F. Hancock and David G. McDonough, Jr. Mortgage Banking & Consumer Financial Products Alert, January 13, 2009.

New York financial services regulators recently announced the results of a “landmark” fair lending investigation of mortgage brokers, charging one broker with violating the federal Fair Housing Act and the New York Human Rights Law and settling with two other brokers. In addition to forecasting potential increased fair lending scrutiny of mortgage brokers, the investigation and settlements provide interesting insights into how at least one state analyzes broker compensation under fair lending laws. As detailed in the attached client alert, the settlement agreements impose a standard fee schedule that the brokers must follow unless certain conditions are met (e.g., a borrower presents a written offer from another broker with lower up-front fees or the loan requires additional work that is documented in detail in the loan file) and include detailed price monitoring requirements.


Appraisal Industry Remains Intact: FHFA Announces Revised Home Valuation Code of Conduct by Phillip L. Schulman and Holly Spencer Bunting. Mortgage Banking & Consumer Financial Products Alert, January 13, 2009.

On December 23, 2008, the Federal Housing Finance Agency (“FHFA”) released a revised final Home Valuation Code of Conduct (“Code”) applicable to mortgage lenders that sell residential mortgage loans to Fannie Mae and Freddie Mac. Initially, the Code proposed to make sweeping changes to the appraisal process, affecting both the ways that most mortgage lenders handle their appraisal processes and the sources from which lenders obtain appraisals. Most notably, the Code would have prevented lenders from employing staff appraisers, operating their own appraisal management companies, and using vendor management companies owned by entities that perform other settlement services (i.e., title insurance). This would have required significant changes in the business practices and structural ownership of vendor management companies and appraisal management companies throughout the settlement service industry. However, after providing an opportunity for public comment on the proposed Code, the FHFA appears to have listened to the wide spread industry concerns. As long as mortgage bankers, appraisal management companies, and vendor management companies adhere to certain safeguards and increased quality control under the final Code, the current appraisal process remains largely intact. Accordingly, this Client Alert summarizes the primary components of the final appraisal Code.

FTC Consent Decree Alleges Mortgage Lender Failed to Ensure the Protection of Consumer Information Provided to a Third Party by David A. Tallman. Mortgage Banking & Consumer Financial Products Alert, January 15, 2009.

On December 16, 2008, the Federal Trade Commission (the “FTC”) issued a final consent decree against a mortgage lender, alleging that the lender failed to adequately protect non-public personal financial information provided to a third party. The FTC claimed that by permitting a strategic partner to access consumer credit reports without verifying the third party’s data security policies and procedures, the lender failed to comply with the FTC’s Safeguards Rule. The FTC also alleged that the lender committed a deceptive

act in violation of the FTC Act, because boilerplate language in its privacy policy contained “false or misleading” statements regarding its information security practices. In the current market environment, mortgage companies are increasingly permitting third parties to access borrower information. In light of the FTC’s enforcement activity, every mortgage company should understand how it and its strategic partners collect, use, and protect non-public personal information.

Jordan v. Paul Financial Option ARM Class Action Victory by Irene C. Freidel and David D. Christensen. Mortgage Banking & Consumer Financial Products Alert, January 28, 2009.

In the first decision on a motion for class certification out of the more than forty “Option ARM class actions” pending nationwide, the United States District Court for the Northern District of California yesterday denied plaintiff’s motions for class certification and for a preliminary injunction.

Tennessee Supreme Court Holds That Commencement of Foreclosure Doesn’t Foreclose Hazard Insurance Claim by Philip H. Hecht. Insurance Coverage and Mortgage Banking Alert, February 4, 2009.

The Tennessee Supreme Court recently held that a mortgage lender is not required to give notice to a hazard insurer when the lender commences foreclosure proceedings, reversing a Tennessee Court of Appeals’ decision holding that initiation of foreclosure proceedings constitutes an “increase in hazard”under the standard mortgage clause in hazard insurance policies. The Tennessee Supreme Court decision offers potential relief from further administrative burdens to already burdened loan servicers.

Putting the Rigor in Rigorous: The Third Circuit Clarifies Plaintiffs’ Burden of Proof in Seeking Class Certification by R. B. Allensworth, Andrew C. Glass and David D. Christensen. Commercial Disputes Class Action Defense Alert, February 13, 2009.

Federal courts have long cited United States Supreme Court precedent for the proposition that they must conduct a “rigorous analysis” of class certification motions brought pursuant to Fed. R. Civ. P. 23 (“Rule 23”). But, to date, courts have provided little guidance as to the burden of proof plaintiffs must meet in supporting such motions.

Recently, however, the Third Circuit Court of Appeals issued an opinion that sheds significant light on the matter. For class action defendants, the In re Hydrogen Peroxide Antitrust Litigation decision heralds a welcomed bolstering of the standard of proof that plaintiffs must satisfy. The Third Circuit’s emphasis for courts to understand how the merits of class claims intersect with class certification will also benefit class action defendants. And defendants can make use of the decision’s rekindling of the role that expert testimony can play in defeating class certification. Because In re Hydrogen Peroxide was authored by Third Circuit Chief Judge Anthony J. Scirica, who as chair of the Standing Committee on Rules of Practice and Procedure oversaw extensive revisions to Rule 23, the decision is likely to impact federal courts’ class action jurisprudence nationwide.

RESPA’s New Average Charge Provisions –Available for Some by Phillip L. Schulman, Nanci L. Weissgold and Holly Spencer Bunting. Mortgage Banking & Consumer Financial Products Alert, February 19, 2009.

Effective January 16, 2009, the Real Estate Settlement Procedures Act (“RESPA”) allows settlement service providers – including lenders and mortgage brokers – to use an alternative means of calculating and disclosing settlement charges on the HUD-1 or HUD-1A Settlement Statements. That means that lenders and brokers do not have to charge the borrower the exact cost of a settlement service in every circumstance. According to the U.S. Department of Housing and Urban Development, this approach “balances the settlement service provider’s interest in flexibility in calculating the average charge with the borrower’s interest in preventing excessive settlement charges” . . . and “is intended to promote greater efficiencies that ultimately lead to lower prices for consumers.” Is that too lofty a goal? While RESPA may permit the calculation and disclosure of the average cost of certain typical third-party fees, such as appraisal fees, credit report fees, and other third-party fees conducive to an average charge, state law may not. This Client Alert discusses RESPA’s average charge rule, state law limits on that rule, and the interplay of federal and state law on lenders (including federally chartered entities) and mortgage brokers.


Court Decision Confirms that State Agencies are Subject to Gramm-Leach-Bliley Act (“GLBA”) Reuse and Redisclosure Restrictions and that the GLBA Preempts Inconsistent State Law by Steven M. Kaplan, Melanie H. Brody and David A. Tallman. Mortgage Banking & Consumer Financial Products Alert, February 23, 2009.

On January 6, 2009, a Washington state appellate court held that the financial privacy provisions in the Gramm-Leach-Bliley Act (“GLBA”) apply to government entities that receive nonpublic personal information from financial institutions. Ameriquest Mortgage Company v. State Attorney General, 2009 WL 26888 (Wash.App.Div.2). The court also held that the GLBA preempts state freedom of information laws that purport to require the state government to publicly disclose such information. The case is significant because consumer financial services companies are often required to provide loan-level information to federal and state regulators. While the decision’s immediate impact is limited to Washington state, financial services companies may be able to rely upon the principles articulated in this decision to prevent sensitive information from being released to the public in other jurisdictions.

SAFE Mortgage Licensing Act, HUD Blesses the Model State Law, CSBS and AARMR Petition for a Later Effective Date for Loss Mitigation Specialists by Costas A. Avrakotos, Kristie D. Kully and David L. Beam. Mortgage Banking & Consumer Financial Products Alert, February 25, 2009.

The states are scrambling to comply with the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “SAFE Act”), in a race to enact a compliant mortgage loan originator licensing law before being forced to hand that authority over to the Department of Housing and Urban Development (“HUD”). While there is a HUD-blessed model law for the states to consider, it is anyone’s guess whether the states will expand upon the SAFE Act’s requirements, and whether the goal of comprehensive and uniform supervision of mortgage loan originators will (or can) be achieved. The timing of the SAFE Act’s requirements also is subject to conjecture - while the states are up against a deadline to establish a compliant licensing system, HUD has indicated a willingness to extend the deadline by which individuals must actually be licensed. Finally, questions continue to circulate about the types of activities that will invoke

the licensing obligation in any given state. This client alert describes the SAFE Act’s requirements, HUD’s input, and the states’ initial efforts to implement the Act.

Cram Downs: An End Run of Loan Modifications? by Laurence E. Platt and John H. Culver III. Mortgage Banking & Consumer Financial Products Alert, March 3, 2009.

A funny thing happened on the way to the amendment of the Bankruptcy Code to permit cram downs. Many members of Congress paused and reflected on the perverse incentives that the bill provides to mortgagors to file for bankruptcy. At least for now, they seem to have concluded that more time is needed to think through the consequences of cram downs--even though the delay may be fleeting. Many still believe cram down legislation may happen, but at least the delay affords an opportunity to contemplate the conflicts the proposal presents with the Obama Administration’s ambitious housing agenda. Whether the availability of a cram down encourages a borrower to file for bankruptcy instead of negotiating a loan modification is a key part of the focus. Reasonable people may differ on whether any borrower should have a statutory right to a loan principal write down as a result of a decline in property values; few persons who study the details of the cram down bill, however, believe that a distressed borrower should reap an economic windfall beyond what a borrower could achieve with a conventional modification.

That’s Unconscionable: An Update Regarding The Enforceability Of Arbitration Provisions In Form Contracts by R. B. Allensworth, Irene C. Freidel, Phoebe Gallagher Winder, William G. Potter and Robert W. Sparkes, III. Commercial Disputes Class Action Defense Alert, March 5, 2009.

A current hot topic in the ever-growing field of consumer finance litigation is the enforceability of arbitration provisions in lending contracts. The enforceability of such provisions, however, has become a thorny issue, and one that is increasingly resolved in favor of the consumer. The importance and fluidity of the enforceability issues surrounding arbitration provisions in lending and other consumer finance contracts are highlighted by recent opinions out of the Third Circuit Court of Appeals (Homa v. American Express Co., ---F.3d---, 2009 WL 440912 (3d Cir. Feb. 24, 2009)) and the United States District Court for the Central District of California (Guadagno v. E*Trade Bank, ---F.

Supp. 2d ---, 2008 WL 5479062 (C.D. Cal. Dec. 29, 2008)). These opinions exhibit the constantly evolving nature of the debate surrounding the enforceability of arbitration provisions in consumer finance related contracts.

Déjà Vu All Over Again? California’s Latest Foreclosure Prevention Legislation by Jonathan D. Jaffe, Nanci L. Weissgold and Morey E. Barnes. Mortgage Banking & Consumer Financial Products Alert, March 9, 2009.

To quote Yogi Berra, “It’s like déjà vu all over again.” Just last July, we reported on SB 1137, California legislation that requires lenders to expend significant effort trying to notify borrowers of the possibility of foreclosure and the options that may be available to avoid foreclosure. The net result for investors and loan servicers was an extended time frame for nonjudicial foreclosures, increased foreclosure and holding costs, and arguably lower bids from third parties at the foreclosure sale. In a Second Extraordinary Session that ended February 19, 2009, the California Legislature further expanded the time frame and costs for certain loans by passing a pair of bills that are being referred to as a foreclosure moratorium, but that are really backdoor attempts to force (or at least coerce) loan servicers into instituting loss mitigation programs. They do so by imposing a 90-day delay on foreclosure proceedings unless the loan servicer is willing to implement a loss mitigation program acceptable to the state. The bills were purportedly modeled after the approach the Federal Deposit Insurance Corporation took to help IndyMac borrowers. Similar legislation is cropping up in other states.

The Mod Squad: Modifications, Refinancings and Cram Downs by Laurence E. Platt and Kerri M. Smith. Mortgage Banking & Consumer Financial Products Alert, March 12, 2009.

Using a trio of tools to triage those whom it realistically can seek to help, the federal government has stepped up its efforts to fight foreclosures. With the announcement of the details of the Obama Administration’s Making Home Affordable Program (“the Plan”) on March 4, 2009, it is clear that the federal government will rely on loan modifications, refinancings and cram downs to try to keep borrowers in their homes. In addition, the recent passage of H.R. 1106, Helping Families Save Their Homes Act of 2009 (“H.R. 1106” or “the Bill”), by the House of Representatives, bolsters the Plan’s agenda by


allowing bankruptcy judges unilaterally to modify mortgage loans, and providing a safe harbor against investor liability for servicers that make loan modifications subject to the Plan. While most of the Plan does not need Congressional approval, the Bill must be passed by the Senate to become law. No one can tell in advance whether the anti-foreclosure lifeline will work in an increasingly deteriorating economy. While an individual consumer who ultimately saves his or her home from foreclosure certainly will appreciate the effort, there are lots of investors and unemployed borrowers who are less hopeful about the Mod Squad’s efforts.

“With Reasonable Probability:” The First Circuit Defines Defendants’ CAFA Jurisdictional Burden by R. B. Allensworth, Andrew C. Glass and David D. Christensen. , Commercial Disputes Class Action Defense Alert, March 17, 2009.

In its recent decision, Amoche v. Guarantee Trust Life Insurance Co., the First Circuit Court of Appeals joined the growing number of federal courts to have articulated defendants’ jurisdictional burden under the Class Action Fairness Act (“CAFA”). Eight federal circuits have now ruled that defendants must establish CAFA jurisdiction, at the very least, by a “reasonable probability” or by a preponderance of the evidence. The Amoche opinion highlights potential pitfalls that defendants may face in the CAFA removal process, particularly in meeting CAFA’s amount-in-controversy threshold of $5,000,000. The federal circuits warn that speculative assertions, unsupported by evidence, will not suffice to meet defendants’ jurisdictional burden. Rather, courts exhort defendants to carefully develop the evidentiary support necessary to sustain removal of an action.

HUD Delays Effective Date and Solicits Comments on “Required Use” by Phillip L. Schulman and Holly Spencer Bunting. Mortgage Banking & Consumer Financial Products Alert, March 19, 2009.

On Friday, March 6, 2009, the U.S. Department of Housing and Urban Development (“HUD” or “Department”) took a step closer to withdrawing the new definition of “required use,” which HUD promulgated as a part of its final rule to the Real Estate Settlement Procedures Act (“RESPA”) in November 2008. This definition has proved to be one of the more controversial aspects of the final rule, as the definition allows only settlement

service providers (i.e., mortgage companies, real estate brokers, and title providers) to offer customer discounts and link the receipt of those discounts to a customer’s use of an affiliate company. As a result, home builders may no longer offer discounts or rebates to their customers to encourage them to use the builders’ affiliate mortgage or title companies, which would substantially alter the way home builders and their affiliate companies currently operate across the country.

Legacy Loans Program: The Government Offers Bridge Over Troubled Assets by Eric J. Edwardson, Phillip J. Kardis II and J. Eric Holland. Mortgage Banking & Consumer Financial Products Alert, March 31, 2009.

The federal government finally has turned to the task of assisting financial institutions with disposing of their toxic mortgage assets to clean up their balance sheets and stop the drain on capital. On March 23, 2009, the United States Department of the Treasury (the “Treasury”) announced a new plan for the sale of financial institutions’ “legacy loans” and “legacy securities” pursuant to its Public-Private Investment Program. Rather than use the statutory authority that Congress delegated to Treasury last year to be a direct buyer of troubled assets, the government now is proposing to effect such sales through public-private partnerships, where the government will share in the risks and rewards of loan purchases.

Public-Private Investment Partnerships To Tackle Legacy Toxic Assets by Anthony R.G. Nolan, Daniel F. C. Crowley, Gordon F. Peery, David H. Jones and Anthony J. Barwick. Distressed Real Estate and Investment Management Alert, March 31, 2009.

On Monday, March 23, 2009, the U.S. Department of Treasury (“Treasury”) announced the expansion of the Troubled Assets Relief Program (“TARP”) to facilitate removal of “distressed real estate-related assets” from the balance sheets of financial institutions. The announcement described the framework for two public-private investment programs (collectively, “PPIP”) under which the United States will make equity co-investments in, and provide leverage to, investment vehicles that will be established to acquire from financial institutions existing whole loans, commercial mortgage-backed securities (“CMBS”) and private-label residential mortgage-backed securities (“RMBS”).

Fifty Ways to Need a Lawyer: Congress Proposes to Establish Financial Services Watchdog Agency by Melanie H. Brody and Stephanie C. Robinson. Mortgage Banking & Consumer Financial Products Alert, April 15, 2009.

The federal government is looking at multiple ways to regulate similar issues, using different laws, different agencies, and different remedies. The creation of a Financial Products Safety Commission is another proposal by Congress to regulate consumer financial products. If created, the entity would have broad rulemaking authority to regulate a wide range of products and services. How this new federal agency and its rules would fit together within the existing financial services regulatory structure remains to be seen, but it is clear that if the bill is enacted, financial services providers will have to contend with a complex web of requirements.

FTC Asks Congress to Expand Consumer Protections under the Fair Debt Collection Practices Act by Steven M. Kaplan and David G. McDonough, Jr. Mortgage Banking & Consumer Financial Products Alert, April 22, 2009.

Amid the flurry of legislative activity surrounding the financial services industry, the Federal Trade Commission (“FTC” or “Commission”) largely flew below the radar when it recently called on Congress to make some significant consumer protection oriented modifications to the federal Fair Debt Collection Practices Act (“FDCPA” or “Act”). In this client alert, we summarize the changes recommended by the FTC in its workshop report titled “Collecting Consumer Debts: The Challenges of Change” and review other areas where the FTC clarified current provisions or hinted at future Commission action.

Court Rejects Bar Association’s Attempt to Restrict the Issuance of Title Insurance in Massachusetts by Phillip L. Schulman, Irene C. Freidel and Holly Spencer Bunting. Mortgage Banking & Consumer Financial Products Alert, by April 23, 2009.

On April 13, 2009, the United States District Court for the District of Massachusetts entered summary judgment for Defendants National Real Estate Information Services and National Information Services, Inc. (collectively “NREIS”) in The Real


Estate Bar Association For Massachusetts, Inc. v. National Real Estate Information Services, et al., Civil Action No. 07-10224-JLT (D. Mass.) (Tauro, J.). The federal district court dismissed all claims brought by Massachusetts’s Real Estate Bar Association (“REBA”) alleging that NREIS, a Pittsburgh, Pennsylvania-based multi-state real estate settlement service provider (or “vendor manager”) was engaged in the unauthorized practice of law in Massachusetts. The Court also granted summary judgment to NREIS on its Dormant Commerce Clause counterclaim and issued a permanent injunction enjoining REBA from enforcing its unconstitutional interpretation of the Massachusetts state unauthorized practice of law provisions against NREIS. As a result, the Court’s decision rejects REBA’s attempt to prevent non-lawyers from participating in the business of title insurance and closing-related services and allows non-attorney-owned title insurance agencies and vendor management companies to continue to deliver title insurance services in Massachusetts.

Recent Third Circuit Decision Explores Scope of CAFA’s Local Controversy Exception by R. B. Allensworth, Andrew C. Glass and David D. Christensen. Commercial Disputes Class Action Defense Alert, April 28, 2009.

In Kaufman v. Allstate New Jersey Insurance Company, a decision of first impression among the federal circuit courts, the Third Circuit Court of Appeals recently explored the scope of the local controversy exception to the Class Action Fairness Act (“CAFA”). Under CAFA’s local controversy exception, a district court must remand a class action, which otherwise satisfies the requirements for federal court jurisdiction, where at least one “significant” defendant and more than two-thirds of the members of the putative class are citizens of the forum state. A significant defendant is, in pertinent part, one “whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class.” In Kaufman, the Third Circuit held that this exception applies if a local defendant’s alleged conduct is a significant part of the alleged conduct of all the defendants, even though not all the putative class members could assert a claim against the local defendant. The decision may tempt class plaintiffs to join a local defendant as a means of trying to evade federal court jurisdiction. Accordingly, when unrelated defendants are named in a single class action, they may wish to undertake an early analysis of whether they have been properly joined in the suit.

New Disclosure Obligation Imposed on Assignees by Laurence E. Platt and Kerri M. Smith. Mortgage Banking & Consumer Financial Products Alert, May 21, 2009.

Purchasers (including hedge funds and other investment funds) of residential mortgage loans will have affirmative disclosure obligations to consumers under The Helping Families Save Their Homes Act of 2009 (the “Act”), which Congress passed this week and sent to President Obama for his signature. While most have focused attention on the Act’s “safe harbor” for servicers and amendments to the FHA Hope for Homeowners Program, this new statutory obligation will subject purchasers of mortgage loans to civil liability if they fail to make the required disclosures. This provision does not require regulations first to be promulgated and is effective upon the President’s signature.

The Gift That Keeps on Giving (to the Lawyers): Congress Passes a Federal Gift Card Law by Steven M. Kaplan and David L. Beam. Mortgage Banking & Consumer Financial Products Alert, June 1, 2009.

You have probably heard about the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “Act”), which President Obama signed into law just before the Memorial Day weekend. But you might not have heard about provisions in the Act that impose new federal rules for gift cards. If you issue or sell gift cards (or plan to do so), then you should familiarize yourself with these provisions of the Act.

Discretionary Pricing Authority Remains In the Crosshairs; FDIC Settles Fair Lending Allegations against First Mariner Bank by Melanie H. Brody and David G. McDonough, Jr. Mortgage Banking & Consumer Financial Products Alert, June 10, 2009.

Discretionary pricing by loan originators remains the focus of banking regulators, as evidenced by a recent fair lending settlement between the Federal Deposit Insurance Corp. and a Maryland-chartered bank. In addition to illustrating the increasing prevalence of fair lending enforcement actions based upon statistical analyses of mortgage loan pricing, the settlement underscores that lenders need to be aware of whether their loan data shows pricing disparities across borrower groups, and, if so, whether the disparities can be explained. As detailed in the attached client alert, the settlement allows the bank to preserve loan officer discretionary pricing authority, but subject

to stringent monitoring and reporting requirements. The settlement also requires that the bank pay up to $950,000 in restitution to minority borrowers whom the government alleged were charged higher overages than similarly situated non-minority borrowers.

Downpayment Mirage: FHA Reworks First-Time Homebuyer Tax Credit by Phillip L. Schulman and Krista Cooley. Mortgage Banking & Consumer Financial Products Alert, June 17, 2009.

After a false start in early May, the U.S. Department of Housing and Urban Development (“HUD” or “Department”) has reissued guidance on the use of the first-time homebuyer tax credit provided in the recently enacted American Recovery and Reinvestment Act (“ARRA” or “Recovery Act”) in connection with Federal Housing Administration (“FHA”) insured mortgage loans. Unfortunately, the reworked guidance includes significant limitations on the ability of an eligible borrower to utilize anticipated tax credit funds toward downpayment costs and provides little information to FHA-approved lenders on how to structure the process of “monetizing” the borrower’s tax credit. The Department’s guidelines also place considerable responsibility on FHA-approved lenders to ensure that borrowers qualify for the first-time homebuyer credit under current tax law and that any costs associated with the use of the tax credit in the FHA-insured transaction are reasonable. As a result, lenders may wonder whether the reissued guidelines are nothing more than an illusion. Lenders are not likely to front the tax credit proceeds to borrowers on an unsecured promise to be repaid.

While HUD estimates that thousands of families will be able to utilize the FHA’s tax credit program to purchase a house, it is unclear how many FHA-approved lenders and other entities approved to offer tax credit “monetization” will do so given the lack of clear guidance on several aspects of HUD’s tax credit program. That said, even those lenders that choose not to “monetize” tax credits must monitor their FHA-insured loan portfolios for mortgages involving monetization or advances and provide HUD with information regarding these activities. This Client Alert summarizes the Department’s revised guidance regarding use of the first-time homebuyer tax credits in FHA-insured transactions, as well as informal guidance HUD regulators have provided to the mortgage industry about the tax credit program.


Will a Deluge of Disclosures Lead to a “Do Not Send” Law? by Kristie D. Kully. Mortgage Banking & Consumer Financial Products Alert, June 24, 2009.

Like the consumers who have insisted on being added to the “Do Not Call” list after one too many telemarketing calls at dinner time, consumers may soon become overwhelmed with disclosures when attempting to obtain a mortgage loan. Congress and the Federal Reserve Board have enacted or are considering a myriad of disclosure requirements, assured that if only borrowers under troubled mortgages had received more information, they would have made different choices about the mortgage loans into which they entered. In this client alert, we describe new disclosure requirements Congress has enacted, as well as the numerous disclosure requirements proposed under the Mortgage Reform and Anti-Predatory Lending Act (H.R. 1728) (passed by the U.S. House of Representatives and under consideration in the Senate). Whether H.R. 1728 is enacted or its disclosure requirements get tacked on to other legislation, consumers may actually start clamoring for the creation of a “Do Not Send” list to escape the deluge of well-meaning mortgage disclosures.

Singularity of Purpose: Is Looking Out for Consumers Too Narrow a Mission? by Melanie H. Brody and Stephanie C. Robinson. Mortgage Banking & Consumer Financial Products Alert, June 25, 2009.

The Obama Administration’s financial regulatory reform proposal recommends the creation of a new federal agency responsible for protecting consumers in the financial products and services markets. The new Consumer Financial Protection Agency would have broad rulemaking, supervisory, examination, and enforcement authority over providers of financial products and services.

More Questions Raised Than Answered by Proposed Regulations to Register Federally Regulated Mortgage Loan Originators Under the SAFE Act by Costas A. Avrakotos and Collins R. Clark. Mortgage Banking & Consumer Financial Products Alert, July 2, 2009.

Regulations proposed June 9, 2009 by six federal agencies would implement the registration requirements that apply to mortgage loan originator employees of federally regulated lending institutions under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “SAFE

Act”). Although the proposed regulations provide guidance as to the manner in which the SAFE Act may be implemented by these agencies, they also raise a number of questions that are left unanswered. This alert summarizes the key provisions of these proposed regulations, and discusses certain issues that may arise from their implementation.

Third Party Loan Modification Companies and Foreclosure Consultants Subject to MARS’ Orbit by Nanci L. Weissgold and Kerri M. Smith. Mortgage Banking & Consumer Financial Products Alert, July 7, 2009.

Comments are due by July 15, 2009 on the Federal Trade Commission (“FTC”) proposed rulemaking that may subject third party loan modification companies and foreclosure consultants to new substantive requirements. This proposal, known as the Mortgage Assistance Relief Services rulemaking (“MARS”), would not likely grant the FTC any expansive pull over those third party entities helping borrowers avoid foreclosure beyond those powers which the FTC currently holds. However, state attorneys general may benefit from expanded enforcement authority. What other activities the FTC may address in its rulemaking is yet to be seen. In order to discern the rule’s interplay with existing law, and what its impact will be on servicers, or those entities assisting servicers, in loss mitigation efforts, servicers should keep MARS’ on their radar screen.

New Jersey’s Latest Anti-Foreclosure Efforts Continue to Complicate Modifications by Nanci L. Weissgold and Morey E. Barnes. Mortgage Banking & Consumer Financial Products Alert, July 16, 2009.

On July 2, 2009, New Jersey Governor Jon Corzine signed Assembly Bill 3821 (P.L. 2009 ch. 84; the “Amendments”) modifying the Mortgage Stabilization and Relief Act (the “Act”), a measure that took effect April 1, under which certain distressed borrowers may obtain a six-month forbearance after a foreclosure action is filed. Among other changes, the Amendments provide that a borrower is not required to pay anything during that forbearance period. Default is looking like a smart economic move in New Jersey.

A View of TILA’s July 30 Horizon by Jonathan D. Jaffe, Steven M. Kaplan and David A. Tallman. Mortgage Banking & Consumer Financial Products Alert, July 24, 2009.

The Board of Governors of the Federal Reserve (the “Board”) recently issued regulations to implement the amendments to the federal Truth-in-Lending Act (“TILA”) made by the Mortgage Disclosure Improvement Act of 2008 (the “MDIA”). These regulations will soon become effective, and while the new requirements appear straightforward, we have found that lenders and brokers are facing challenging issues as they attempt to put the new rules into practice. In light of the significant operational changes that residential mortgage lenders, brokers, and other parties may face, financial institutions might want to review how they have factored the new rules into their closing and due diligence processes.

Million Dollar Baby: The Consumer Financial Protection Agency Act of 2009 by Melanie H. Brody, Steven M. Kaplan, David L. Beam and Stephanie C. Robinson. Mortgage Banking & Consumer Financial Products, July 27, 2009.

Among the many recent efforts of Congress and the Administration to pass new financial reforms is House Bill 3126, a bill that would create a new federal regulator with the mission of protecting consumers. The new Consumer Financial Protection Agency would be endowed with broad regulatory and enforcement authority over all sorts of consumer financial products and services providers, and would fundamentally change how financial products and services are regulated in the United States.

HUD Hinders HAMP by Laurence E. Platt, Kristie D. Kully and Kerri M. Smith. Mortgage Banking & Consumer Financial Products Alert, August 5, 2009.

At the same time that the Obama Administration is cajoling loan servicers to modify more loans under the Home Affordable Modification Program (“HAMP”) by hiring more staff to meet the demand, the Department of Housing and Urban Development (“HUD”) is erecting barriers that undermine this objective. By threatening to require state licensure of loan servicer employees engaged in loss mitigation activities, HUD could effectively halt or at least slow down the pace of efforts of state licensed loan servicers to modify mortgage loans at the pace required in order to prevent those


loans from going into foreclosure. HAMP will be in a heap of trouble if HUD’s threatened action is finalized and the states follow suit. This alert discusses the efforts of HUD and state government to require loss mitigation employees to be licensed.

Analysis of Consumer Financial Protection Agency Legislation: Top Ten Issues by Stephanie C. Robinson. Mortgage Banking & Consumer Financial Products Alert, October 26, 2009.

The Obama Administration’s Financial Regulatory Reform plan is progressing through Congress. Last week, the House Financial Services Committee voted to approve H.R. 3126, the bill that would create a Consumer Financial Protection Agency (“CFPA”). As we reported in a prior publication, the agency would have extremely broad regulatory and enforcement authority over providers of consumer financial products and services, with the power to impose high penalties. See our Mortgage Banking & Consumer Financial Products Alert, Million Dollar Baby: The Consumer Financial Protection Agency Act of 2009, for a complete discussion of the bill as introduced.

Discretionary Pricing Remains in the Crosshairs by Melanie H. Brody and Stephanie C. Robinson. Mortgage Banking & Consumer Financial Products Alert, November 9, 2009.

Two fair lending settlements between the Department of Justice and a pair of banks are the first to be filed under the Obama administration. The banks denied any allegations of discrimination in their respective auto lending and mortgage lending activities, but agreed to the settlements to avoid litigation. The terms of the settlements reveal a more aggressive stance on pricing discrimination than we have seen in a while and are likely to be a harbinger of things to come.

The 411 on 404 by Steven M. Kaplan, Jonathan D. Jaffe and David A. Tallman. Mortgage Banking & Consumer Financial Products Alert, November 20, 2009.

On November 16, 2009, the Board of Governors of the Federal Reserve (the “Board”) released an interim final rule (the “Interim Rule”) to implement Section 404 of the Helping Families Save Their Homes Act of 2009 (“Section 404”). Section 404 requires any assignee of a residential mortgage loan to provide a written disclosure to

the borrower not later than thirty days after the date on which the loan is sold or otherwise transferred or assigned. Because Section 404 was enacted without substantial (or indeed any) industry input, there are a number of significant ambiguities in the statute that have led to uncertainty for institutions implementing the disclosure requirement. The Interim Rule attempts to clarify the scope of the disclosure requirement and addresses many, but not all, of the industry’s concerns.

Proposed Gift Card Rules: Act Now, or Terms and Conditions May Apply by Steven M. Kaplan and David L. Beam. Mortgage Banking & Consumer Financial Products Alert, December 7, 2009.

Does the new proposal from the Federal Reserve Board (the “Board”) to regulate gift card issuers and sellers make the Board more like Santa Claus or the Grinch? Consumer advocates may liken the Board to Old Saint Nick, although they might complain that it didn’t leave quite enough toys under the tree. But retailers and banks that issue or sell gift cards might be more inclined to think that, like the Grinch, the Board’s heart is two sizes too small.

Increased Net Worth and Lender Liability Shake Up FHA Landscape by Phillip L. Schulman and Krista Cooley. Mortgage Banking & Consumer Financial Products Alert, December 8, 2009.

Last week, the U.S. Department of Housing and Urban Development (“HUD” or “Department”) issued proposed regulations to the Federal Housing Administration (“FHA”) loan program that will have an enormous impact on the delivery of FHA-insured loans to the public. These changes would remove approval requirements for loan correspondents, increase lender liability, and create a tenfold increase in the net worth requirement for FHA-approved mortgagees. HUD claims the modifications will not have a significant economic impact on program participants. But, in fact, these changes will alter the FHA landscape for both FHA-approved lenders and former loan correspondents for years to come. Comments regarding the proposed regulation are due on December 30, 2009.

In this client alert, we summarize the proposed regulatory changes and discuss some of the implications for FHA-approved loan correspondents and mortgagees if adopted.

America’s Next (Privacy) Model: Federal Agencies Release Model GLBA and FCRA Privacy Notice by Jonathan D. Jaffe, Melanie H. Brody, and David A. Tallman. Mortgage Banking & Consumer Financial Products Alert, December 28, 2009.

After a multi-year process of consumer testing and public comment, the federal banking agencies recently released a two-page model form that financial institutions may use to satisfy their privacy disclosure obligations under the Gramm-Leach-Bliley Act and the Fair Credit Reporting Act. The central feature of the Model Form is a table that is intended to enable consumers to quickly assess a financial institution’s information sharing practices and compare those practices to those of other institutions. While financial institutions are not required to use the new Model Form, those who do will be deemed to have complied with stated sections of the Acts, provided the form accurately describes the institution’s actual practices.

The safe harbor from liability only applies if the financial institution uses the Model Form exactly as written. Because the Model Form covers only the most common types of information sharing, smaller institutions or institutions that limit the way in which they share information may find it useful. The same may not be true for larger institutions with numerous and diverse affiliates that want to share one policy, or that offer more complicated privacy choices.

Articles:Navigating the Foreclosure Process: Here Are Some Tips That Could Help Protect Lenders Faced With Foreclosing on Condominium Projects by Scott B. Osborne and Brian L. Lewis. Mortgage Banking, April 2009.

This article provides an overview of the protections afforded lenders under the laws governing condominiums, how to identify risks in acquiring title to condominium development and alternative ways to structure the foreclosure transaction to minimize risk and maximize protection. Posted with permission.


Obama Order on Preemption Could Expose Banks to State Regulation by David L. Beam. BNA Banking Report, June 2009.

On May 20, President Obama ordered federal agencies to review their preemption regulations and take “appropriate action” if the rules do not meet certain requirements (92 BBR 1195, 5/26/09). This order could affect almost every segment of the consumer finance industry. National banks, federal savings associations, and the operating subsidiaries of both could be most affected. This article was originally published and reproduced with permission from BNA’s Banking Report.

The New Good Faith Estimate by Phillip L. Schulman and Holly Spencer Bunting. Mortgage Banking, December 2009.

For most people, Jan. 1, 2010, will mark the optimistic start of a new year, with resolutions and new resolve to make 2010 better than the year before. But for mortgage lenders and mortgage brokers, Jan. 1, 2010, brings a new challenge. It is the date that the Department of Housing and Urban Development (HUD) will implement the final segment of its rule to reform the Real Estate Settlement Procedures Act—the new Good Faith Estimate (GFE) and HUD—1 Settlement Statement. With less than one month remaining before the GFE form becomes effective, mortgage lenders are scrambling to update their software and train their employees to use the new form. The attached article, published in Mortgage Banking magazine, provides insight into compliance with the new GFE. Posted with permission

To view the complete text of any of the included alerts or articles, please visit our Mortgage Banking & Consumer Financial Products Newsstand on our web site.

Press:ABA Banking Journal

AMB Blog

American Banker

American Banker’s Bank Think Blog

BankInvestmentConsultant.com

Bankruptcy Law360

BNA Daily Report

BrokerUniverse.com

CFO.com

Congressional Documents

Consumer Financial Services Law Report

CQ Congressional Testimony

Credit Union Journal

Daily Deal

DowJones Newswire

Distressed Marketplace.com

Finance.SharpNews.Info

Financial-Planning.com

Financial Services Law360

Florida Title Agent.com

Fulton County Daily Report

Home Equity Wire

Housing Wire.com

IDD Magazine.com

Inman News.com

Insurance Networking News

Law.com

Memphis Business Journal

Miami Today

Morningstar.com

Mortgage Banking

Mortgage Banking News

Mortgage Loan Compliance Blog

Mortgage Servicing News

Mutual Fund Directors Forum Blog

National Law Journal

National Mortgage News

OnWallStreet.com

Origination News

Puget Sound Business Journal

RESPA News.com

Reverse Mortgage Daily

RISMedia (Real Estate Information Systems)

Sarasota Herald-Tribune, HeraldTribune.com

Securities Law360

Stockton Record, RecordNet.com

The Am Law Daily

The American Lawyer

The Washington Daybook

Trading Markets.com

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K&L Gates’ Mortgage Banking & Consumer Financial Products practice provides a comprehensive range of transactional, regulatory compli-

ance, enforcement and litigation services to the lending and settlement service industry. Our focus includes first- and subordinate-lien, open- and

closed-end residential mortgage loans, as well as multi-family and commercial mortgage loans. We also advise clients on direct and indirect

automobile, and manufactured housing finance relationships. In addition, we handle unsecured consumer and commercial lending. In all areas,

our practice includes traditional and e-commerce applications of current law governing the fields of mortgage banking and consumer finance.

For more information, please contact one of the professionals listed below.

Lawyers Boston

R. Bruce Allensworth [email protected] +1.617.261.3119

Irene C. Freidel [email protected] +1.617.951.9154

Stephen E. Moore [email protected] +1.617.951.9191

Stanley V. Ragalevsky [email protected] +1.617.951.9203

Nadya N. Fitisenko [email protected] +1.617.261.3173

Brian M. Forbes [email protected] +1.617.261.3152

Andrew Glass [email protected] +1.617.261.3107

Phoebe Winder [email protected] +1.617.261.3196

Charlotte

John H. Culver III [email protected] +1.704.331.7453

Los Angeles

Thomas J. Poletti [email protected] +1.310.552.5045

Miami

Paul F. Hancock [email protected] +1.305.539.3378

New York

Philip M. Cedar [email protected] +1.212.536.4820

Elwood F. Collins [email protected] +1.212.536.4005

Steve H. Epstein [email protected] +1.212.536.4830

Drew A. Malakoff [email protected] +1.216.536.4034

San Francisco

Jonathan Jaffe [email protected] +1.415.249.1023

Seattle

Holly K. Towle [email protected] +1.206.370.8334

Washington, D.C.

Costas A. Avrakotos [email protected] +1.202.778.9075

Melanie Hibbs Brody [email protected] +1.202.778.9203

Daniel F. C. Crowley [email protected] +1.202.778.9447

Eric J. Edwardson [email protected] +1.202.778.9387

Steven M. Kaplan [email protected] +1.202.778.9204

Phillip John Kardis II [email protected] +1.202.778.9401

Rebecca H. Laird [email protected] +1.202.778.9038

Laurence E. Platt [email protected] +1.202.778.9034

Phillip L. Schulman [email protected] +1.202.778.9027

Nanci L. Weissgold [email protected] +1.202.778.9314

Kris D. Kully [email protected] +1.202.778.9301

Morey E. Barnes [email protected] +1.202.778.9215

David L. Beam [email protected] +1.202.778.9026

Emily J. Booth [email protected] +1.202.778.9112

Holly Spencer Bunting [email protected] +1.202.778.9853

Krista Cooley [email protected] +1.202.778.9257

Elena Grigera [email protected] +1.202.778.9039

Melissa S. Malpass [email protected] +1.202.778.9081

David G. McDonough, Jr. [email protected] +1.202.778.9207

Stephanie C. Robinson [email protected] +1.202.778.9856

Kerri M. Smith [email protected] +1.202.778.9445

David Tallman [email protected] +1.202.778.9046

Director of Licensing

Washington, D.C.

Stacey L. Riggin [email protected] +1.202.778.9202

Regulatory Compliance Analysts

Washington, D.C.

Dameian L. Buncum [email protected] +1.202.778.9093

Teresa Diaz [email protected] +1.202.778.9852

Jennifer Early [email protected] +1.202.778.9291

Robin L. Gieseke [email protected] +1.202.778.9481

Allison Hamad [email protected] +1.202.778.9894

Brenda R. Kittrell [email protected] +1.202.778.9049

Dana L. Lopez [email protected] +1.202.778.9383

Patricia E. Mesa [email protected] +1.202.778.9199

Jeffrey Prost [email protected] +1.202.778.9364

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©2009 K&L Gates LLP. All Rights Reserved.

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