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1. MBAs Regulatory Compliance Conference September 14-16, 2009 JW Marriott Washington, D.C. Understanding and Helping Your Company Defend Against the Litigation Onslaught
Robert Maddox
Bradley Arant Boult Cummings LLP
2. Overview: Busted Banks, Bankruptcy and the Borrowers Bully Pulpit Busted Banks,
Bankruptcy
&
The Borrowers Bully Pulpit
3. Busted Banks, Bankruptcy and the Borrowers Bully Pulpit Busted Banks
4. Busted Banks: Quick Historical Facts FDIC was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s
Since the start of FDIC insurance on January 1, 1934, no depositor has any money of insured funds as a result of a bank failure.
FDIC receives no Congressional appropriations it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities.
The FDIC insures deposits only.
5. Busted Banks: Current Status Insurance fund totaling more than $17.3 billion (fluctuates) the FDIC insures more than $4 trillion of deposits in U.S. banks and thrifts
Savings, checking and other deposit accounts, when combined, are generally insured to $250,000 per depositor in each bank or thrift the FDIC insures.
The standard insurance amount of $250,000 per depositor is in effect through December 31, 2013.
On January 1, 2014, the standard insurance amount will return to $100,000 per depositor.
6. Busted Banks: Failure Notes A bank failure is the closing of a bank by a federal or state banking regulatory agency.
Typically, a bank is closed when it becomes critically undercapitalized or is unable to meet its obligations to depositors and others.
The FDIC is appointed receiver and assumes the tasks of:
Disposing of the failed banks assets in a manner that maximizes their value, and
Settling the failed banks debts, including claims for deposits in excess of the insured limit.
The FDIC protects depositors' funds in the unlikely(??) event of the financial failure of their bank or savings institution.
So far in 2009, 92 banks have failed, which is less than 1% of the banks and savings assoc (8,195)
7. Busted Banks: Selling of Loans, Regulatory Compliance and Potential Litigation/Issues? The FDIC sells the loan, either at or subsequent to the time the bank is closed, the FDIC and the new owner will send notice of the transaction to the Borrower with payment mailing instructions.
The new owner of the loan:
Must comply with all state and federal laws with respect to the ownership and servicing of your loan, including the Fair Debt Collection Practices Act,
Assumes the receiver's obligations and commitments, and
9/11/9 Loss-Share Partners Forbearance for Unemployed Borrowers
In addition to FDIC Mortgage Loan Modification Program Payment DTI
8. Busted Banks: Selling of Loans, Regulatory Compliance and Potential Litigation/Issues - The Fix Steps Regulatory Compliance Professionals can take to remedy these potential issues:
1) Recognition that FDCPA still applies is half the battle
2) Most national servicers default to FDCPA compliance, regardless as to whether they originated loan or acquired loan while it was current
3) Despite circumstances with Bank failure and short fuse, FDIC loss-share partners need to board loans in similar manner as other acquired servicing because it is likely that FDCPA matrix exists across servicing platform.
9. Busted Banks, Bankruptcy and the Borrowers Bully Pulpit
Bankruptcy
10. Bankruptcy: Quick Facts About Current Environment Per the American Bankruptcy Institute, first two quarters of 2009 had the highest number of filings in years (2005 reform)
Data released by the National Bankruptcy Research Center concludes that consumers in the U.S. continue to face hard economic times, resulting in 126,434 new consumer bankruptcy cases having been filed in July 2009, which is over a 34% increase from the same period of time in 2008.
Continuing trend of increased number of class actions being filed Bankruptcy courts across America
11. Bankruptcy: Class Actions focusing on Regulatory Compliance Issues Common themes in Ch. 13:
Alleged Misapplication of escrow accounts
Alleged Violation of Fair Debt Collection Practices
Alleged Proof of Claim discrepancies regarding escrow amounts included in P&I but also sought and categorized separately
Alleged violation of state laws regarding affidavits and notarization
Class action attorneys will find favorable hot jurisdictions and continue to file similar matters based on alleged failure to follow state laws
12. Bankruptcy: Class Actions focusing on Regulatory Compliance Issues - Example
13. Bankruptcy: Class Actions focusing on Regulatory Compliance Issues - Example Hot Jurisdiction Same jurisdiction as the previous matter, class action attorney found a favorable jurisdiction and judge and will continue to file.
04-01037
Brannan Et Al V. Wells Fargo Home Mortgage Inc. Fka Norwest Mortgage
Adversary - Lead Case: 02-16647
06-01139
Taylor Et Al V. Chase Home Finance, LLC F/K/A Chase Manhattan Mort
Adversary - Lead Case: 01-15305
06-01167
Angle Et Al V. Bank One
Adversary - Lead Case: 02-16868
14. Bankruptcy: Class Actions focusing on Regulatory Compliance Issues - Example
15. Bankruptcy: Future regulatory battleground: Cramdown legislation tied to loan modification success/failure Rep. Frank Considers Cramdown Law
UPI September 10, 2009
Frank, chairman of the House Committee on Financial Services, said Congress should revisit the issue of allowing bankruptcy judges to modify mortgages if the banking industry does not increase the pace of its help to homeowners, The Washington Post reported Thursday.
The federal Making Home Affordable program, relying on industry cooperation, has lowered payments for 360,165 homeowners since March, the Treasury reported. Its goal was to help 500,000 homeowners by Nov. 1.
"I am disappointed at the pace of this program. The best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a very good job of getting mortgages modified," Frank said.
An effort to provide bankruptcy judges with the power to modify home loans -- a practice called "cramdown" -- failed earlier this year, passing narrowly in the House, but failing in the U.S. Senate, the Post said
Frank's comments came during a hearing on mortgage modifications before the House Financial Services Subcommittee on Housing.
16. Bankruptcy: Class Actions focusing on Regulatory Compliance Issues - The Fix Steps Regulatory Compliance Professionals can take to remedy these potential issues:
1) Recognition that Bankruptcy courts are trending to be more Debtor oriented.
2) As to Procedural (i.e. Affidavit) violations of state regulatory framework, partner with internal .Bankruptcy/Foreclosure department to devise outline of common practice and procedure.
3) As to hot bankruptcy jurisdictions partner with vendor or Legal department to track class actions of other industry members, coordinate review of class allegations and determine if the allegations could apply to your company and then take steps to assure compliance.
4) As to renewed Cramdown legislation, continue to work with the MBA on education and lobbying efforts.
17. Busted Banks, Bankruptcy and the Borrowers Bully Pulpit The Borrowers Bully Pulpit
18. The Borrower Bully Pulpit History of the term Bully Pulpit
This term stems from President Theodore Roosevelt's reference to the White House as a "bully pulpit," meaning a terrific platform from which to persuasively advocate an agenda.
C-SPAN Congressional Glossary
This historic economic downturn in a global recession coupled with the access to world wide media and the foreclosure crisis provided borrowers with communication vehicles to project their stories.
Chat rooms, Twitter, Facebook, email, individual websites blogs all have been used to raise the visible level of the foreclosure crisis.
Limitless media also allows the dissemination of half-truths, speculation and bullying for lack of a better term to spread unchecked.
19. The Borrower Bully Pulpit The Issues People are unable to make mortgage payments because of:
Unemployment
Divorce
Overextended Financial Obligations
Death of family member
Health matter
Our Companies are:
Expanding Loss Mitigation Options
Working on Loan Modifications
Extending foreclosure, where allowed
Taking unprecedented positions on the servicing side
20. The Borrower Bully Pulpit The Pressure Borrowers, consumer groups, government, plaintiff law firms have all used the media as the Bully Pulpit to attempt to define our industry.
As with most financial industries, we are sensitive to media scrutiny.
Pre-litigation complaints to various government agencies state and federal, which in turn at least make inquiry with the mortgage company, cost the company time, employee resources and possibly professional fees.
From a business and financial standpoint, the easier decision may be to attempt to resolve the matter rather than defend the companys position.
However, our foreclosure portfolio is aging, the loans at issue are not all subprime or option ARMs.
21. The Borrower Bully Pulpit Hollywoods Example Christine Brown is responsible for loans in a bank and expects to be promoted to the open position of assistant manager after dealing a big contract. When Mrs. Ganush, an old gypsy with appearance of witch that has been evicted by the bank, requests a third extension of her mortgage, Mr. Jacks tells Christine that it is her call. Christine denies the loan to prove her boss that she can take tough decisions. Mrs. Ganush begs for the loan but Christine shames the woman calling the security. In the night, Christine is stalked by Mrs. Ganush in the parking lot and they struggle. Out of the blue, Mrs, Ganush removes a button from Christine's coat, curses it, returns the button to her and vanishes. Later, while going home with her psychologist boy-friend Clay Dalton, they pass by the fortune teller Rham Jas, and Christine decides to consult him. He advises her that Christine has the fiend Lamia, the Black Goat, upon her. When Christine is haunted by the dark spirit during the night, at home, she tries to fix the situation releasing the loan of Mrs. Ganush.
22. The Borrower Bully Pulpit Real Life Examples Bates, a 42-year-old out-of-work interior designer, had scraped together late lump-sum payments on her $1,350 mortgage through 2007 and most of 2008. Though talks with had long since soured, she was holding out hope for the federal Home Affordable Modification Program, which lowers mortgage payments and pushes lenders to modify home loans. And if not, she figured she could sell the home, which still had about $200,000 in equity.
Instead came the men from 101 Geneva LLC, which buys and resells foreclosed homes.
State officials referred her to lawyers with the Maryland Legal Aid Bureau, who filed suit in Montgomery County Circuit Court to overturn the sale. At a hearing last month, Vicky Taitano and Kathleen Skullney pointed to a recent case in Frederick where the judge cited a higher standard for lenders to meet in resolving payment problems with Bates's type of loan, which is backed by the Federal Housing Administration. If the foreclosure was improper, the lawyers said, the home's sale was, too.
Lawyers for countered that the mortgage giant did everything it could to work with Bates.
On Sept. 2, Judge Mary Beth McCormick rejected Bates's claim, finding "no procedural irregularity" in XXXs steps to foreclose. "This shows that the courts are not willing to stand up to lenders and say You can't do this to the citizens of Maryland,'" she said.
23. The Borrower Bully Pulpit Real Life Examples "These are not time-bomb loans. We're seeing more and more of them that weren't destined for failure out of the gate," said Mark Kaufman, deputy director of financial regulation for the Maryland Department of Labor, Licensing and Regulation. "The problems are much more people like Sonja Bates than the guys with the subprime loans. It's continuing to evolve more towards your normal homeowners, and you're seeing it in cases like hers.
"The problems are more intractable. When a homeowner's income has been permanently impaired, giving the guy three months to get back on his feet, that's helpful, but you need a permanent solution," he said. " You can't repayment plan your way out of this. You need [loan] modifications and to some extent, we're not seeing enough modifications."
And as Bates's case shows, foreclosure and litigation cannot be avoided.
24. The Borrower Bully Pulpit The Fix
Compliance is the backbone of our industry as the mortgage industry is highly regulated.
Real estate transfer, origination docs, servicing history, default, REO are all based in some form on regulatory platform.
As an industry and individual companies, once we have exhausted all possible Loss Mitigation options and if they were unsuccessful, then it is time to take the contractually provided for remedy.
A solid regulatory compliance program will allow our companies to illustrate to the borrowers, consumer groups, government, plaintiff law firms and courts that we followed policy, procedure and the law.
25.
QUESTIONS
