FRB/FTC Issue Final Rule on Dodd-Frank Act Changes to Risk-Based Pricing, Adverse Action Notices

The Federal Reserve Board and the Federal Trade Commission (FTC) issued their final rules implementing the new credit score disclosure requirements under Dodd-Frank, specifically relating to adverse actions and risk-based pricing notices under FCRA/Regulation V and ECOA/Regulation B.


Model forms are also provided.

Copies of the Final Rules are available at:

Regulation V:

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110706a1.pdf


Regulation B:

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110706a2.pdf


Under section 311 of FACTA, if a credit score is used in setting material terms of credit or in taking adverse action, creditors must disclose credit scores and related information to consumers in notices. Section 1100F of the Dodd-Frank Act changed the content required for risk-based pricing notices. Accordingly, the final rules amend Regulation V to revise the content requirements for risk-based pricing notices, and to add related model forms that reflect the new credit score disclosure requirements.

The final rules also amend certain model notices in Regulation B, which combine the adverse action notice requirements for Regulation B and the FCRA, to reflect the new credit score disclosure requirements

The rules under Regulations V and B are effective 30 days after the date of publication in the Federal Register, which is expected shortly.

Fed Seeks Comment on Bankruptcy Of Financial Firms

http://op.bna.com/bar.nsf/id/cbre-8g5qw3/$File/fedbr.pdf
David P. Goch: "Yesterday, the Federal Reserve Board indicated it, in conjunction with the Administrative Office of the United States Courts, will seek commenton two Dodd-Frank required bankruptcy-related studies to determinewhether bankruptcy laws should be modified in light of potential financial firm failures.

According to the proposal , one study will focus on whether changes are needed to Chapters 7 and
11 of the Bankruptcy Code, the other will ask whether more international coordination is needed when the matter involves interconnected firms with operations around the globe.

Comments are due 30 days following the future publication of the proposal in the Federal Register."



http://xa.yimg.com/kq/groups/3785532/1665685215/name/fedbr.pdf

Feds Issue Proposed Rule re: Dodd-Frank "Risk Retention" Requirements

The federal financial regulators issued the widely anticipated proposed rule regarding the risk-retention requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act.


A copy of the proposed rule is available at:

http://www.occ.gov/news-issuances/news-releases/2011/nr-ia-2011-39a.pdf

As you may recall, section 15G of Dodd-Frank generally requires the securitizer of asset-backed securities to retain not less than 5% of the credit risk of the assets collateralizing the asset-backed securities.

Section 15G includes a variety of exemptions from these requirements, including an exemption for asset-backed securities that are collateralized exclusively by residential mortgages that qualify as "qualified residential mortgages" ("QRM"), a term to be defined by rule.

QRMs:

The proposed rule would define QRMs as those loans meeting certain underwriting standards, such as: (1) maximum front-end and back-end debt-to-income ratios of 28 percent and 36 percent, respectively; (2) a maximum loan-to-value (LTV) ratio of 80 percent in the case of a purchase transaction (with a lesser combined LTV permitted for refinance transactions); (3) a 20 percent down payment requirement in the case of a purchase transaction; and (4) credit history restrictions.

The proposed rule also includes investor disclosure requirements regarding material information concerning the sponsor's retained interests in a securitization transaction. According to the federal agencies, the disclosures would provide investors and the agencies with an efficient mechanism to monitor compliance with the risk-retention requirements of the proposed rules.

Certain Commercial, Auto ABS:

The proposed rule also has a zero percent risk-retention requirement for ABS collateralized exclusively by commercial loans, commercial mortgages, or automobile loans that meet certain underwriting standards. As with QRMs, the federal agencies state that the underwriting standards for such ABS were "designed to be robust and to ensure that the loans backing the ABS are of very low credit risk."

GSE Exclusion:

The proposed rule would also exempt Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Mortgage Loan

Corporation) as sponsors of mortgage-backed securities for as long as they are in conservatorship or receivership with capital support from the U.S. government.

Options for Meeting the 5% Risk Retention:

The proposed rule provides several ways in which a securitizer might meet the 5% risk retention requirement, including:

(1) "Vertical risk retention": whereby the sponsor or other entity retains a specified pro rata piece of every class of interests issued in the transaction;

(2) "Horizontal risk retention": whereby the sponsor or other entity retains a subordinate interest in the issuing entity that bears the first losses on the assets, before any other classes of interests;

(3) "L-shaped risk retention": whereby the sponsor essentially uses an equal combination of vertical risk retention and horizontal risk retention as a means of retaining the required five percent exposure to the credit risk of the securitized assets;

(4) "Revolving asset master trusts" or "seller's interest": whereby the sponsor or other entity holds a separate interest that is pari passu with the investors' interest in the pool of receivables (unless and until the occurrence of an early amortization event); or

(5) "Representative sample": whereby the sponsor retains a representative sample of the assets to be securitized that exposes the sponsor to credit risk that is equivalent to that of the securitized assets.

The rule is proposed by the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the U.S. Securities and Exchange Commission, the Federal Housing Finance Agency, and the Department of Housing and Urban Development.



The agencies request comments on the proposed rule by June 10, 2011.

HUD Deploys Nearly $200M in Emergency Funds for the Unemployed

The U.S. House of Representatives voted to pull the plug on HUD's Emergency Homeowner Loan Program last month, but that hasn't stopped HUD from moving ahead to put the money into the hands of distressed homeowners. The fund was established to provide zero-interest bridge loans of up to $50,000 for unemployed homeowners to continue making their mortgage payments while they look for a new job. HUD just deployed nearly $200 million of the $1 billion allotted to state agencies
http://www.dsnews.com/articles/hud-deploys-nearly-200m-in-emergency-funds-for-unemployed-homeowners-2011-04-04

Federal Reserve Must Face Bank Suit over Credit Card Fee Rules

Federal Reserve Chairman Ben S. Bernanke lost a bid to end a bank lawsuit challenging the legality of forthcoming rules limiting the amount of money the largest U.S. banks can collect for debit card transactions, Bloomberg New reported today. U.S. District Judge Lawrence L. Piersol in Sioux Falls, South Dakota, yesterday denied the U.S. government's request to throw out the case filed last year by TCF National Bank. He also rejected the bank's request to block the regulations and allowed the case to move forward while Congress debates the issue. TCF bank, a unit of Wayzata, Minnesota-based TCF Financial Corp., sued Bernanke and the Fed's Board of Governors in October challenging the legislation appended to last year's Dodd-Frank financial regulation overhaul bill. The provision, sponsored by Democratic U.S. Senator Richard Durbin of Illinois and known as the Durbin Amendment bars banks with more than $10 billion in assets from collecting from retailers more money per debit-card transaction than the actual cost of providing that service.

http://washpost.bloomberg.com/story?docId=1376-LJ3PXT07SXKX01-48EHHUQPFG0J5D1V26EGBPA3TJ

Congressional Panel Report Says Foreclosure Mitigation "Largely Failed"

The final report released Wednesday by the Congressional Oversight Panel (COP) paid special attention to foreclosure prevention initiatives, particularly the Home Affordable Modification Program. The COP analyzed several foreclosure mitigation efforts that have been implemented since as far back as 2007, and made it very clear that none of the programs have been as successful as hoped, mainly because of poor planning, poor regulation, and poor data collection.   The report focuses  uses of money under the Troubled Asset Relief Program (TARP) paid special attention to foreclosure mediation programs, particularly the Home Affordable Modification Program (HAMP). http://cop.senate.gov/images/button-readreport.gif





The report says “The TARP is now widely perceived as having restored stability to the financial sector by bailing out Wall Street banks and domestic automotive manufacturers while doing little for the 13.9 million workers who are unemployed, the 2.4 million homeowners who are at immediate risk of foreclosure, or the countless families otherwise struggling to make ends meet.”


After pointing out that the federal government is not an official sponsor of the HOPE NOW alliance, the COP says that while the alliance reports it has modified more than 3 million loans, little information is available about the actual savings the modifications are providing to homeowners.


Of the HOPE for Homeowners program that was established in July 2008, the COP says it “managed to refinance only a handful of loans,” most likely because the program had “poor initial design, lack of flexibility, and … [relied] on voluntary principal write-downs, which lenders were very reluctant to make.”

House Votes to Rescind $1B in Neighborhood Stabilization Grants

The U.S. House of Representatives voted Wednesday to pull the plug on HUD's Neighborhood Stabilization Program (NSP) and rescind $1 billion in grant money that has not yet been awarded. The NSP Termination Act (H.R. 861) passed the House with a 242-182 vote. It now moves to the Senate, where it is not expected to be met with such favor. White House officials again indicated that President Obama will veto the bill should it make it that far.

FDIC Releases Details on Its Liquidation Authority

The board of the Federal Deposit Insurance Corp. is offering more details on how it plans to treat certain creditor claims under its new authority to liquidate failed nonbank financial institutions, including when the FDIC will seek to claw back compensation of executives and directors, the Deal Pipeline reported today. In one new element approved yesterday, a company's receiver could seek up to two years of compensation from executives and directors who are "substantially responsible" for the financial condition of a failed company. While the receiver would have to consider whether lower level executives performed their responsibilities with the requisite degree of skill and care, and whether they caused a loss that materially contributed to the failure, it would be far easier to get clawback from top executives and board chairmen. The Dodd-Frank Act allows for the FDIC to be appointed receiver for a financial company if the entity's failure cannot be dealt with under the U.S. Bankruptcy Code without posing significant risk to U.S. financial stability.

Lucas Demands CFTC's Review of Dodd-Frank Costs

House Agriculture Committee Chairman Frank Lucas (R-Okla.) has asked the inspector general of the Commodity Futures and Exchange Commission to investigate the agency's cost-benefit analyses of implementing the derivatives title of the Dodd-Frank Act, the Deal Pipeline reported yesterday. "Now is not the time to impose poorly vetted regulations on this economy," Lucas said. "Taking the time to understand the consequences of the rules will not weaken them - it will only strengthen the CFTC's ability to deliver on the objectives of Dodd-Frank."

House Subcommittees Examine Termination of HAMP, Effect of Dodd-Frank on Small Businesses

House Subcommittees Examine Termination of HAMP, Effect of Dodd-Frank on Small Businesses




The House Financial Services Subcommittee on Insurance, Housing & Community Opportunity will hold a hearing today titled "Legislative Proposals to End Taxpayer Funding for Ineffective Foreclosure Mitigation Programs," while the Financial Institutions & Consumer Credit will hold a hearing titled "The Effect of Dodd-Frank on Small Financial Institutions and Small Businesses." The Insurance, Housing & Community Opportunity hearing will take place at 2 p.m. ET and information including prepared witness testimony can be found here  http://financialservices.house.gov/Hearings/hearingDetails.aspx?NewsID=1782   . The Financial Institutions & Consumer Credit Subcommittee hearing will also take place at 2 p.m. ET and the witness list and further information can be found at http://financialservices.house.gov/Hearings/hearingDetails.aspx?NewsID=1779

FRB Issues Final Rule on Escrow Accounts for Certain First-Lien Jumbo Mortgage Loans, Additional Proposed Escrow Account Rule

The Federal Reserve Board issued a final rule revising the escrow account requirements for certain first-lien jumbo mortgage loans, implementing provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act's amendments to the Truth in Lending Act.


The final rule is available at:

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110223b2.pdf



The final rule implements a provision of the Dodd-Frank Act that increases the annual percentage rate threshold used to determine whether a mortgage lender is required to establish an escrow account for property taxes and insurance for first-lien, jumbo mortgage loans.

As you may recall, in July 2008, the FRB issued final rules requiring creditors to establish escrow accounts for first-lien higher-priced mortgage loans. A first-lien mortgage is considered a higher-priced mortgage loan if its APR is 1.5 percentage points or more above the current average prime offer rate. Under the final rule being issued today, the escrow requirement will apply to first-lien jumbo loans only if the loan's APR is 2.5 percentage points or more above the average prime offer rate. The APR threshold for non-jumbo loans remains unchanged.

The final rule is effective for covered loans for which the creditor receives an application on or after April 1, 2011.

The FRB also requested public comment on a second proposed rule to implement certain provisions of the Dodd-Frank Act's amendments to TILA that would lengthen the minimum period for mandatory escrow accounts for first-lien, higher-priced mortgage loans from one to five years, and longer under certain circumstances such as when the loan is delinquent or in default.

The proposed rule is available at:

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110223b1.pdf

The proposal also would implement new disclosure requirements of the amendments. Disclosures would be required at least three business days before consummation of a mortgage loan to explain, as applicable, how the escrow account works or the effects of not having an escrow account if one is not being established. The proposed rule also would require consumers to receive disclosures three days before an escrow account is closed.

The proposed rule also would exempt certain loans from the statute’s escrow requirement. The primary exemption would apply to mortgage loans extended by creditors that operate predominantly in rural or underserved areas, originate a limited number of mortgage loans, and do not maintain escrow accounts for any mortgage loans they service.

The Board is soliciting comment on the proposed rule for 60 days after publication in the Federal Register, which is expected shortly.