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California has enacted SB 133, a law further restricting title insurers from providing rebates in exchange for referrals.  The law primarily addresses “title marketing representatives” and appears to be aimed at rebates to real estate agents and brokers.

The preamble to the bill provides in part:

This bill would prohibit a person from being employed as a title
marketing representative unless he or she holds a valid certificate
of registration as a title marketing representative issued by the
commissioner for a 3-year period. This bill would exempt specified
activities from its scope. Violation of these provisions would be a
misdemeanor, pursuant to provisions of existing law.

The California Department of Insurance issued a press release regarding the new law stating in part:

SB 133 is the culmination of several years of effort by the Department of Insurance to address the growing problem of title marketing representatives using illegal rebates. While such practices are illegal, the Department of Insurance currently has no enforcement authority over the individuals who are using them. Enticing agents and brokers to promote a specific title insurer may result in persons paying higher title insurance costs.

The bill clearly identifies the marketing activities that are illegal for title marketing representatives to use for title insurance business inducement purposes. Additionally, it provides the Department of Insurance regulatory oversight of title marketing representatives by establishing a process for registering them and disciplining those who fail to abide by the law.

Mortgage Law Blog readers will recall that the California DOI, along with a number of other states’ regulators, have aggressively pursued title insurers over the past several years, often alleging illegal kickbacks under state insurance laws and the Real Estate Settlement Procedures Act of 1974. 

Title insurers and others in recent years have paid many millions of dollars to various state regulators and the Department of Housing and Urban Development to settle illegal kickback allegations in the title reinsurance area.

To access the text of the new law, please click here.

To read the California DOI’s press release, click here.

Tags: Consumer Protection, HUD & FHA, Legislation, RESPA, Regulations, State Enforcement, Title Insurance by the Editor
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Mortgage Law Blog reminds readers that the Mortgage Bankers Association’s Legal Issues and Regulatory Compliance Conference is April 28 to May 1.

The conference, held this year in Carlsbad California, is one of the premier events for lawyers in the mortgage banking industry.

The MBA describes the conference as follows:

This year has brought an unparalleled array of new legislative, regulatory and litigation developments to the mortgage industry.  MBA’s Legal Issues and Regulatory Compliance Conference 2008 at La Costa Resort and Spa in Carlsbad, Calif., will provide you with an in-depth understanding of all that is new and all that is anticipated so that you can meet the legal and regulatory challenges of today and tomorrow.

No other conference offers the mortgage industry as comprehensive a legal and regulatory program. At this conference — designed for managers, industry lawyers and compliance officers — industry experts present conference participants with the entire complement of legal and regulatory developments facing the industry, including:  

New Federal Anti-Predatory Lending Legislation 

New Home Ownership and Equity Protection Act (HOEPA) Regulations

New RESPA and TILA Reform Proposals

New State Laws

New Servicing and Loss Mitigation Standards

New Litigation Cases and Class Actions

New Secondary Market - GSE and Investor Requirements

New Initiatives to Protect Lenders Against Mortgage Fraud

New HMDA and Fair Lending Developments

New Data Security, ID Theft and Privacy Initiatives

New FCRA and FACTA Developments

New FLSA/Employment Law Cases

New Risk Mitigation Strategies

Legal Ethics

New issues in the legal, regulatory and compliance spheres

The conference is packed with excellent speakers and attendees from industry and government, including from the Department of Housing and Urban Development, state Attorneys General offices, Fannie Mae, Freddie Mac, numerous mortgage banking companies and others. 

For more information about the conference, please click here.

Mortgage Law Blog will not post during this period due to the Editor’s attendance at the conference.

Tags: Association Activities, Conferences & Events, Federal Bank Regulators, Fraud, HUD & FHA, High Cost Loans, Industry Involvement, Legislation, Litigation, Loan Modifications/Workouts, Loan Servicing, Loss Mitigation, Mortgage Banking - General, RESPA, Regulations, State Enforcement, State Regulation, Truth in Lending Act, Unfair or Deceptive Acts by the Editor
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The Conference of State Banking Supervisors issued a press release stating that industry attempts to prevent foreclosures are insufficient.

The release stems from the second report entitled “Analysis of Subprime Mortgage Servicing Performance” issued by the State Foreclosure Prevention Working Group (led by 11 states attorneys general and banking regulators, and the CSBS).  The report includes data from subprime servicers for the period from October 2007 to January 2008.  A prior report was issued February 7, 2008. 

The report acknowledged that the number of homeowners receiving loss mitigation help has increased.  But so have the number of homeowners delinquent on payments.  Private initiatives are “barely keeping pace” CSBS noted.

CSBS notes the following major findings from the report:

Seven out of ten seriously delinquent borrowers are still not on track for any loss-mitigation outcome.  The number of borrowers in loss mitigation has increased, but it has been matched by an increasing level of delinquent loans; thus, the relative percentage has remained about the same.  Given creative servicer outreach efforts and increased public awareness of the HOPE Hotline during Oct.-Jan., this large gap suggests a more systemic failure of servicer capacity to work out loans.  

Data suggests that servicers’ loss-mitigation departments are severely strained in managing the current workload.   The report noted that almost two-thirds of all loss-mitigation efforts started are not completed in the following month.  We are concerned that servicers overall are not able to manage the sheer numbers of delinquent loans.  Data suggests that the burgeoning numbers of delinquent loans that do not receive loss-mitigation attention are clogging up the system on their way to foreclosure.  We fear this will translate to increased levels of vacant foreclosed homes that will further depress property values and increase burdens on government services.

Homeowners who do receive loss-mitigation help are most likely to receive some form of loan modification.  The Group said such modifications are a solution that seems to offer better long-term prospects for successful resolution of problem loans.  Many servicers are replacing their use of repayment plans in favor of loan modifications.

To solve the perceived problems, the report suggests that industry and state officials work on:

Developing a more systematic loan work-out system to replace the intensive, individual, “hands-on” loss-mitigation approach.  Initial efforts to develop systemic approaches are far too limited to make a difference in preventable foreclosures.  Without a systematic approach, we see little likelihood that ongoing efforts will make a serious dent in the level of unnecessary foreclosures.  The Group will continue to work with servicers to promote systematic solutions to modify loans in a more streamlined and efficient manner.

Slowing down the foreclosure process to allow for more work-outs.  Targeted efforts to slow down subprime foreclosures may give homeowners and servicers more time to find solutions to avoid foreclosure.  Many states have enacted or are considering such measures, the report noted.

Mortgage Law Blog notes that “barely keeping pace” is still keeping pace.  This would seem to be an accomplishment if the numbers of delinquent borrowers continue to surge as the report suggests.  This is not to suggest that industry sit on its hands, but the industry’s side of the story continues to be lost in the maelstrom.

The Ohio AG, among others, will speak at the Mortgage Bankers’ Association’s Legal Issues and Regulatory Compliance Conference next week.  It will be interesting to hear the views presented.

For a copy of the CSBS press release, click here.

For a copy of the State Working Group’s reports, click here.

Tags: Association Activities, Conferences & Events, Consumer Protection, Foreclosure, Industry Involvement, Loan Modifications/Workouts, Loan Servicing, Lobbying, Loss Mitigation, Mortgage Banking - General, Regulations, State Enforcement, State Regulation by the Editor
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As reported yesterday, the President has signed the Economic Stimulus Act of 2008 (HR 5140). 

Among other things, the Act temporarily boosts the cap for loans Fannie Mae and Freddie Mac buy from $417,000 to as much as $729,750 (depending on the particular market).  Specifically, the Act raises the caps to the greater of (i) $417,000 (i.e., the current limit), or (ii) 125 percent of the “area median price” for a residence of applicable size, not to exceed $729,750. 

The Secretary of the Department of Housing and Urban Development must publish the applicable “area median prices” within 30 days.

One side effect is that the increased caps also result in an increase in the numbers of loans covered by “high-cost” loan laws in a number of states, because some states exclude from coverage “jumbo” loans.  By raising the jumbo threshold, more loans become covered by these laws. 

High cost loan laws in California, Texas, New York and a number of other states are affected.  Loans not previously subject to these laws may now be covered, and should be scrutinized under a high-cost analysis.   

The cap increase is retroactive to July 1, 2007 and lasts until December 31, 2008.  Due to this retroactive application, one can imagine some regulators or plaintiffs’ lawyers asserting that loans already closed are retroactively subject to the state high cost loan laws.  Lenders have strong defenses in this regard, but must remain vigilant about such claims. 

Until HUD establishes the area median prices, however, lenders must decide whether to treat all loans up to the maximum cap as potentially covered.

Tags: Consumer Protection, Economic Stimulus, High Cost Loans, Legislation, Mortgage Banking - General, Regulations, State Enforcement by the Editor
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In another example of how costly state and local hyper-regulation of the mortgage banking business can be, the City of Cleveland announced that it was suing “21 Wall Street companies who financed and cultivated the sub-prime market.” 

 What is the legal basis for suing these 21 companies whose apparent transgression was giving money to subprime borrowers (i.e., people who had previously shown a lack of fiscal discipline by not paying their bills on time)?  The alleged offense is (drum roll) Public Nuisance.   This is better than fiction. 

In the words of the City:

Today, Mayor Frank Jackson confronted the foreclosure crisis at its very core; along with his Law Director Lawrence Triozzi, he announced that the City of Cleveland is seeking damages from some 21 Wall Street companies who financed and cultivated the sub-prime market.  The defendants violated the Ohio public nuisance law which is what the City of Cleveland will use to seek damages.

“Cities can rebound, however it is extremely costly to do so given that declining tax revenues are part of the fallout of foreclosures,” said Mayor Jackson.

Public nuisance is a longstanding, well-established legal concept.  It allows recovery for circumstances created by the defendant that interfere with the public’s “rights and interests”.  The unscrupulous lending practices that are part of the sub-prime market have devastated Cleveland neighborhoods which clearly demonstrate a public nuisance.

“There has been a national conversation about how the banks recover from the foreclosure crisis but no one is talking about what should be done to support Cities who have the challenge of managing this situation,” said Triozzi. 

In the words of one commenter, “I don’t know whether to laugh or cry.” 

The point is a number of regulators and “enforcers” are pointing at lenders and saying you should not have made these loans.  The fact of the matter is lots of lenders in a very broad and diverse marketplace gave lots of borrowers lots of money.   A relatively small percentage of these borrowers are not paying that money back.  “Enforcers” like Cleveland therefore claim that Lenders should not have made these loans. 

A 5 percent rate of people failing to pay their mortgages on time, however, should not result in the other 95 percent of homebuyers being shut out of the market.  That would be far more than a nuisance - that would be a simple outrage.

Tags: Consumer Protection, State Enforcement, Subprime Lending by the Editor
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