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October
2001
Senator Gramm
to Retire
The announcement Wednesday by Sen. Phil Gramm
(R-TX) that he will not seek re-election in 2002 is very significant for
the mortgage industry. Sen. Gramm has had a
huge influence on banking and lending legislation, both as Chairman of
the Banking Committee and as Ranking Member since May. As one of the
co-authors of the Gramm-Leach-Bliley Act of
1999, Gramm has the clout to prevent
significant changes to the new law. Such changes, including changes to
the privacy provisions and the definition of financial services, might be
more likely to pass in the Senate after Sen. Gramm
departs. In addition, Sen. Gramm opposes new
legislation such as that favored by Chairman Paul Sarbanes (D-MD) to
place additional restrictions on certain lending terms and practices
considered to be "predatory" or abusive. He famously pronounced
last year that if the problem of "predatory lending" could not
be defined, it could not be prevented or eliminated by legislation. While
he was Chairman, no such legislation would have been considered by the
Senate, and it is still considered unlikely given the support for Gramm's position by a number of more conservative
Democrats on the Committee. Sen. Gramm's likely
successor in 2003 as either Ranking Member or Chairman is Sen. Richard
Shelby (R-AL).
HUD Proposes Rule to Prohibit Property
Flipping of Single Family Properties
HUD has proposed a rule that would address property "flipping."
Specifically, the proposed rule would establish certain new requirements
regarding the eligibility of properties for FHA mortgage insurance. This
proposed rule is one of several actions HUD is taking to address property
flipping. This proposed rule would amend HUD's FHA single family mortgage
insurance regulations at 24 CFR part 203 by
establishing a new Sec. 203.37a. The new requirements include: 1.
Six-month restriction on sales. HUD believes that the proposed 6-month
restriction on resales is of sufficient
duration to preclude such short-term property flipping. HUD specifically
invites public comment by Nov. 5, on the appropriateness of the 6-month
period. 2. Owner of record. Only those properties purchased from the
owner of record are eligible for FHA mortgage insurance. 3. Exceptions to
property flipping restrictions. This would authorize HUD to grant
exceptions, on a case-by-case basis.
Petition Denied in YSP Case
The U.S. Court of Appeals for the 11th Circuit has denied Irwin
Mortgage's petition for rehearing en banc in the case of Culpepper v.
Irwin Mortgage Corp. This latest development is a major blow to the
industry's efforts to ward off the threat of class action suits based on
payment of yield spread premiums (YSPs) to
mortgage brokers. It is the first class certification in such a case to
survive the full extent of possible Court of Appeals review. Short of a
successful petition for certiorari to the U.S. Supreme Court by Irwin, a
highly unlikely development at this stage, this final denial of Irwin's
petition leaves nothing further in the way of a trial in the District
Court as a class action.
There
is no indication that Irwin will attempt to seek Supreme Court review.
The full Appeals Court's decision to deny
Irwin's petition, though a setback, is not
surprising. Rehearing en banc petitions usually are denied by full
Circuit Courts. At this time, there is no clear information as to what
Irwin's next step will be. Its alternatives are not attractive: It must either (1) seek Supreme Court review, which is
unlikely; (2) return to the District Court for trial on the merits in a
class action, which entails significant risk; or (3) seek a settlement
with the plaintiffs to put an end to the litigation, which could be very
costly. This case remains very important to the industry at large, and
what happens next will have a great impact on the status of the YSP
controversy.
HR 2531 Seeks to Amend HMDA and TILA
HR 2531, sponsored by Rep. Schakowsky (D-IL), seeks to amend the Home
Mortgage Disclosure Act (HMDA) and the Truth in Lending Act (TILA). The
bill amends HMDA by requiring lenders to add the annual percentage rate
to the set of data they are required to report. In addition, HR 2531 would
cease the reporting requirement exemption currently extended to lending
institutions whose total dollar amount of purchase loans originated in
any year does not exceed 10 percent of the total dollar amount of all
loan originations in the same year. HR 2531 amends the TILA by lowering
the threshold for high cost loans. The bill defines a high cost mortgage
as a loan with an "annual percentage rate that exceeds by 5 or more
percentage points the yield on U.S. Treasury securities with comparable periods
of maturity." Also, a loan is high cost if the "total points
and fees payable on the transaction exceed the greater of 3 percent of
the total loan amount or $1,000." Moreover, HR 2531 proposes to hold
creditors liable to the consumer for any violation of TILA by a mortgage
broker. HR 2531 was referred to the Subcommittee on Financial
Institutions and Consumer Credit on July
31, 2001.
http://thomas.loc.gov/cgi-bin/query/C?c107:./temp/~c107hZWLIX
Feds Lift Mandatory Compliance Date on
Electronic Disclosures
The Federal Reserve Board has published a notice lifting the mandatory
compliance date for its interim rules concerning electronic disclosures.
On March 30, and April 4, the Board published interim rules under
Regulations B (Equal Credit Opportunity), E (Electronic Fund Transfers),
M (Consumer Leasing), Z (Truth in Lending), and DD (Truth in Savings), in
which compliance was made mandatory by October 1, 2001. Many observers
felt that the interim rules imposed additional, unwarranted requirements
beyond those of the Electronic Signatures in Global and National Commerce
Act (E-Sign), that they unduly restricted flexibility in methods of
electronic delivery, or both. Under the new notice, compliance will not
be mandatory until some reasonable period after the Board publishes
permanent final rules. The Board sought public comment on the interim
rules, and apparently it received considerable comment from industry on
the practical problems associated with complying. Accordingly, the Board
has indefinitely suspended the mandatory compliance date. In addition,
the notice states that "[t]o address commenters'
concerns, the Board is considering adjustments to the rules to provide
additional flexibility." This implicit recognition of some of the
unworkable aspects of the interim rules is encouraging and may indicate
that comments received have been heard.
HUD Takes Action Against 55 Lenders
HUD Assistant Secretary for Housing/Federal Housing Commissioner John C. Weicher this week announced that HUD's Mortgagee
Review Board has taken administration action against 55 lenders in 22
states for violating federal lending regulations. The actions include
withdrawing FHA lending authority, and imposing sanctions ranging from
indemnifications of loans to payments of almost $3 million in fines.
"These administrative actions show that HUD is serious about
protecting the American homebuyer," Weicher
said. "Lenders who think about breaking the rules should take notice
and understand that the consequences can be severe." www.hud.gov/news/release.cfm?content=pr01-074.cfm
Connecticut's Abusive Home Lending
Practices Act Effective Oct. 1
Connecticut's Abusive Home Lending Practices Act will go into effect Oct.
1, despite the efforts of the Connecticut Society of Mortgage Brokers and
member Peter Spalthoff, legislative contact for
the association. Modeled almost verbatim after the Massachusetts and New Jersey bills, under the
law, high cost loans may not include negative amortization, advance
payments, increased interest following default, prepayment penalties,
mandatory arbitration provisions or call provisions. The legislation
would also prohibit any high-cost loan that exceeds 50 percent of the
borrower's monthly gross income, prepaid finance charges that exceed the greater of 5 percent of the principal or $2,000, and
the making of the loan unless the lender reasonably believes the borrower
will be able to make the scheduled payments.
California's Proposed Financial Information Privacy Act Amended
California's proposed Financial Information Privacy Act, Senate Bill
773, was amended Aug. 23. The Bill is intended to provide "greater
privacy protection" than the federal Gramm-Leach-Bliley
Act. The California Bill is an "opt-in" law with respect to
disclosures to non-affiliates, and the amendment extends the time period
in which compliance with a consumer's choice to "opt-out" of
the release of information to affiliates. Additionally, the amendment
creates a prescribed form that must be sent to all of a financial
institution's consumers. Finally, the amendment prohibits requiring
consumers to "opt-in" as a condition of obtaining the financial
institution's services.
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