Presenting a live 90-minute webinar with interactive Q&A Loan Modification and HAMP Litigation Against Lenders and Loan Servicers Defending Individual and Class Action Modification Litigation and Navigating Evolving Regulatory Obligations TUESDAY, SEPTEMBER 11, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Thomas M. Schehr, Member, Dykema Gossett , Detroit Michael S. Waldron, Partner, Ballard Spahr , Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Loan Modification and HAMP Litigation Against Lenders and Loan Servicers Michael S. Waldron waldronm@ballardspahr.com 202.661.2234
Navigating the Landscape • To navigate litigation risk, you need to understand the regulatory and enforcement landscape • Transformation of Default Servicing and Loss Mitigation – from the back room to the forefront • Understanding the Impact of the “robo - signing” Consent Orders, the National Mortgage Settlement and the CFPB’s Proposed Servicing Rules 6
No Coordinated Regulatory Framework • Fair Debt Collection Practices Act. • Fair Credit Reporting Act. • Federal Trade Commission Act. • Real Estate Settlement Procedures Act/Regulation X. • Truth in Lending Act/Regulation Z. • Omnibus Appropriations Act, 2009. • Dodd-Frank. - RESPA/TILA amendments related to servicing. - General power to CFPB regarding unfair, deceptive and abusive acts or practices. 7
FTC Rulemaking • Omnibus Appropriations Act, 2009: - Act directed FTC to initiate rulemaking under Federal Trade Commission Act with regard to mortgage loans. - Clarified by Credit Card Accountability, Responsibility and Disclosure Act of 2009. Rulemaking to relate to unfair or deceptive acts or practices regarding mortgage loans. Rulemaking power does not extend beyond entities FTC may regulate. - FTC issued ANPR in June 2009 on mortgage advertising, marketing, appraisals, origination and servicing. (FTC also issued separate ANPR on mortgage assistance relief services.) - FTC finalized rules regarding mortgage assistance relief services and advertising, but did not reach proposed rule stage on mortgage servicing or other matters practices before authority under Omnibus Appropriations Act was transferred to the CFPB. 8
FTC Observations • In the ANPR on mortgage servicing and other mortgage-related functions the FTC the observed that: The scope of current federal regulation of servicing is “limited.” - “The relationship between mortgage servicers and consumers is - vulnerable to abuse.” • “[S]ervicers have financial incentives to impose fees on consumers.” • “[T]he process of acquiring, securitizing, and transferring large volumes of loans on the secondary market has raised concerns about the integrity of consumers’ loan information and the mistakes that can occur due to mishandling or lack of documentation.” - “For example, courts have dismissed foreclosure cases against borrowers because the companies failed to show proof of ownership.” “The FTC’s experience in this area suggests that there is a need for - comprehensive rules with respect to mortgage servicing.” 9
FTC Settlements • In the ANPR the FTC also addressed the settlement with Fairbanks Capital (and its CEO) in 2003 (which was modified in 2007) and the settlement with EMC Mortgage in 2008. • In the settlements, the FTC addressed various matters, including: - Compliance with FDCPA, FCRA, RESPA, TILA and the FTC Act. - Fee practices. - Data integrity and record keeping. - Review of records before commencing foreclosure. • The FTC requested comments on whether it should incorporate any prohibitions or restrictions of the settlements into a proposed rule. 10
Why We All Need to Focus "Know that this is neither the beginning nor the end of our work to hold banks and other institutions accountable for the destruction they've caused our families, communities and country. Today's settlement should serve as a warning for financial institutions: there are consequences for engaging in practices that jeopardize the stability of our communities and our economy." Illinois Attorney General Lisa Madigan February 9, 2012 Press Conference Announcing Settlement at The Department of Justice 11
Why We All Need to Focus “...on July 21st, the Bureau will receive transferred authority from existing regulators to administer federal consumer financial protection laws. And on that day, mortgage servicing will be one of the CFPB’s priorities.” “The two key consequences of this flawed regulatory structure have been the lack of comprehensive federal standards for mortgage servicers, and the lack of any direct federal oversight on non- depository servicers….Congress vested [the CFPB] with sufficient jurisdiction and powers to protect consumers in all mortgage servicing activity – regardless of the servicer’s charter or locale.” Raj Date July 7, 2011 Testimony Before the Subcommittee on Financial Institutions and Consumer Credit and the Subcommittee on Oversight and Investigations 12
NMS Financial Elements • Cited as a $25 billion settlement, but actual number is higher. • $1.5 billion to persons foreclosed on after January 1, 2008 and before December 31, 2011. - Approximately $2,000 per consumer. • Approximately $2.6 billion to the states. • Approximately $766 million imposed by Fed in civil money penalties. - Paid to government to the extent not used for borrower assistance or other permitted purposes. - OCC separately imposed $394 million in civil money penalties against four banks. • Commitment of $3 billion to refinance underwater borrowers who are current on mortgage payments. • Commitment of $17 billion minimum to foreclosure relief efforts, including principal reductions. - Various loss mitigation efforts will be credited toward commitment at less than 100 cents on the dollar. - Actual benefits estimated to be approximately $32 billion. 13
NMS Comparison with OCC/Fed Orders • April 2011 federal banking agencies (OCC, OTS, Fed) issue consent orders against 14 banks. - Includes the 5 banks that are part of the national mortgage settlement and 9 additional banks and affiliates (27 total entities). • Aurora Bank, Everbank, HSBC, MetLife Bank, One West Bank, PNC Bank, Sovereign Bank, SunTrust Bank and US Bank - OTS consent orders moved over to OCC. • OCC and Fed are not parties to the settlement agreements under the national mortgage settlement. - Between February 9 and 13, 2012 Fed issued civil money penalty orders against the 5 bank parties for $766.5 million in conjunction with April 2011 consent orders. 14
NMS Comparison with OCC/Fed Orders • OCC (OTS)/Fed consent orders cover certain deficiencies and unsafe and unsound practices in residential mortgage servicing and the initiation and handling of foreclosure proceedings for loans with foreclosure actions or proceedings pending at any time from January 1, 2009 to December 31, 2010. - Covers residential mortgage loans serviced, whether or not owned by the bank. • For past actions, orders provide for: - Foreclosure look-back review of portfolio samples by independent consultants. Consumer complaint process — consumers can obtain reviews of loan - files by independent consultants. - Remediation for servicing or foreclosure errors that directly caused financial harm. 15
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