Posts filed under ‘New York State’
There are two reasons governments nationalize corporations: (1) The company is losing money and it is considered too important to fail; or (2) it is making lots of money and the government wants to get its hands on it. Fannie and Freddie have had such a roller coaster ride since 2008 that they have been victimized by both impulses. Since credit unions have a vital stake in the future of the secondary market, they shouldn’t shy away from voicing their opinion.
Yesterday, Freddie Mac announced a $200 million loss for the first quarter. It attributed the loss to those blasted GAAP accounting rules. (If only companies could come up with their own financial statements without accountants getting in the way, the economy would be so much stronger.) Specifically they explained that interest rate volatility, combined with the way they book their derivatives, made things look worse than they actually are. Yada, yada, yada. http://www.freddiemac.com/investors/er/pdf/2016er-1q16_release.pdf
Freddie’s announcement raises questions about the continued wisdom of an aspect of US housing policy, which has thus far received too little attention. In September, 2008 the Government handed the GSEs a lifeline and $187 million was drawn from the treasury. Congress also empowered the FHFA to act as conservator or receiver of Fannie and Freddie, and to take over the rights of any stockholder, officer, or director. The Government originally took preferred stock; but, stating in 2012, the Government started sweeping all GSE profits exceeding capital buffers. Considering that the GSEs have made lots of money in recent years, this was a good deal for the Government. In fact, it was such a good deal that the Treasury is being sued by private stockholders claiming that the Government is taking money that belongs to them. Perry Capital LLC v. Lew, 70 F. Supp. 3d 208, 217-18 (D.D.C. 2014).
But, does this policy make sense if the GSEs are losing money? “This development reinforces my concern over current federal policy regarding the GSEs, who have more than fully repaid the funds they borrowed during the 2008 financial crisis,” said Rep. Michael Capuano, D-Mass. He is a member of the House Financial Services Committee, who has emerged as a level headed voice of reason on housing policy and was quoted in this morning’s American banker as saying. “Despite this, they must continue sweeping all their profits to the Treasury Department. The policy needlessly prevents them from building a capital reserve, which leaves taxpayers vulnerable in the event of a future crisis.” http://www.americanbanker.com/news/law-regulation/freddies-quarterly-loss-renews-cries-to-end-profit-sweep-1080807-1.html
A lot happened yesterday in NYS politics. Long-serving Southern Tier State Senator Thomas W. Libous, whose career terminated following a federal perjury conviction, passed away after battling prostate cancer.
Hugh Farley has announced he is leaving the State Senate after 40 years. For decades, Farley was one of the most influential banking policy makers as Chairman of the Senate Banks Committee.
And, of course, Sheldon Silver was sentenced to 12 years in jail, in addition to a hefty fine, and ordered to pay restitution of over $5 million.
Ridesharing a Top Legislative Priority
When the Legislature returns from its late April slumber, the regulation of the emerging ride sharing industry will be a top priority according to Assembly Democrat John McDonald. In an interview published yesterday, the Cohoes Legislator argued that expanded ride sharing options and the traditional taxi medallion industry can co-exist.
“I don’t look at ridesharing as the threat to the (taxi) industry that most people think it is. Most of the taxi business here is medical transport. That’s what they do, 80 percent of it,” McDonald said. “We’re working on a parallel path with the taxi industry to Uber-ize them as well, bring them into the 21st century. It’s the technology.”
The Assemblyman’s comments are worth noting for a few reasons. First, with the biggest issues taken care of (paid family leave and the minimum wage) in the budget, ride sharing has certainly moved up the Legislative to-do list. Furthermore, the fact that an upstate Assemblyman is highlighting the issue demonstrates why it is so complex. Whereas, down-staters are understandably concerned about the regulation of New York’s existing medallion system, up-staters view ride sharing as a means of expanding transportation options. Your blogger will attest that the taxi service in the Albany area is nothing short of atrocious.
Remember that for credit unions the two big issues are proper insurance to protect the value of their auto loans and the value of medallion loans.
CFPB to Make Further Changes to TRID
In a letter to industry stakeholders yesterday, the Bureau said that it would be incorporating much of its informal guidance into proposed amendments to the TRID regulations by late July.
The Bureau has been doing a fair amount of letter writing lately. It recently responded to a letter from Tennessee Republican Senator Bob Corker, who asked the Bureau four questions:
- What is the CFPB doing to address the borrower confusion due to the discrepancies between federal and state law regarding the disclosure of title insurance premiums?
- What steps is the CFPB taking to prevent lenders from shifting liability to settlement agents?
- Will the CFPB consider forming an internal task force to identify and address issues arising from the implementation of the TRID rule? And
- Will the CFPB release technical guidance regarding what constitutes a technical error and potential remediation method?
Here is the Bureau’s response.
By the way, while lenders remain ultimately responsible for ensuring proper disclosures, there is nothing to prevent them from spreading the cost of liability to third parties, nor should there be.
Justice Department Oks KeyCorp Merger
KeyCorp and First Niagara Financial Group Inc. have agreed to sell 18 of First Niagara’s branches in and around Buffalo, New York, with approximately $1.7 billion in deposits, to resolve antitrust concerns that arose from KeyCorp’s planned acquisition of First Niagara,the Justice Department announced yesterday. Here is a list of the branch locations to be divested. https://www.justice.gov/opa/file/846646/download The Department said that with these branch sales it will no longer oppose the merger. Both Senator Schumer and Governor Cuomo have urged the federal government to block the merger which has to ultimately be approved by the Federal Reserve. They argue that it will result in a loss of jobs and financial services in the impacted regions.
Given its size and complexity, it’s not surprising that just about every year there is a provision or two in New York State’s budget that has unintended consequences. Unfortunately for those of you with escrow accounts, this year there is a glitch that affects you (See A.9009-c, Part A).
Under New York’s STAR program, property owners are exempt from paying a portion of their school property tax on their primary residence (see generally Section 425 of the Real Property Tax Law). The way the program has traditionally worked, the school property tax bill that the homeowner receives, usually in early September, reflects the amount of taxes they owe after the exemption is calculated, i.e. already taken out. This means that escrow accounts reflect the amount the member owes.
Here’s where things get complicated. At the urging of Governor Cuomo, this year’s budget begins a transition converting the STAR tax exemption into a STAR tax credit. Under the new approach, taxpayers will be billed on the full amount of their school tax assessment and then receive a tax credit reflecting the amount of their STAR exemption. In other words, they will bear the upfront costs of the assessment and get reimbursed when they file their taxes.
These changes are generally meant to apply to new homeowners, but because of the way the language was drafted if you weren’t in your new home on tax levy day of the 2015-2016 school year, they apply to you.
As an astute reader of my blog recently pointed out, this change creates a whole bunch of issues for mortgage escrows. For instance, since the amount in escrow has to reflect the amount of taxes due, members will have to put more money into their escrow account than they will need. Furthermore, holders of escrow accounts will presumably have to return this extra money to members.
This is one we will be keeping an eye on. Stay tuned.
Late last week, Uber announced it had settled two class action lawsuits brought by drivers claiming, among other things, that the ride sharing service was violating the labor law by classifying drivers as independent contractors. For those of you with either a direct or indirect stake in the taxi industry through the financing of medallions, the settlement of these lawsuits is another blow. Here’s why.
The Uber model is based fundamentally on the assumption that the company is nothing more or less than the provider of an App that enables individuals in need of a ride with those willing to provide one. In Uber’s view of the world, ride sharing allows the mom on the way to the store to make a few extra dollars by taking Sally down the street along for the ride. Under this best case scenario, our mom is an independent contractor picking and choosing what rides to take as she makes her way through her busy day.
To critics of Uber and other ride sharing services, the mom is not so much an independent contractor as a poorly paid employee. For instance, under Uber’s model drivers who consistently turn down rides can be dropped from the service and each ride comes with a suggested price and gratuity.
If the critics are correct, the Uber model is illegal and the traditional taxi medallion model is alive and well. This is why the settlement is such a big deal. Uber agreed to pay drivers up to $100 million and end its practice of automatically removing drivers who refuse too many rides. At the same time, the drivers will continue to be classified as independent contractors in Massachusetts and California.
Uber is by no means out of the woods. Similar lawsuits are still pending. And just last week California’s Commissioner of Labor ruled that an Uber driver was an employee rather than an independent contractor. But this ruling is being appeal and is not binding on anyone beyond the employee involved.
While the settlement of the Massachusetts and California cases leaves the independent contractor issue undecided, in my ever so humble opinion, anyone looking for the courts to provide a silver bullet, at least in the near future, when it comes to regulation of ride sharing businesses is likely to be disappointed. For those of you who feel that the system should be better regulated in order to put medallion taxi and ridesharing service on an equal footing, the places to look for relief are State legislatures.
I’m back blogging this morning after attending the State Governmental Affairs Conference all week. Kudos to those of you who attended. I understand why most of you are too sane to want to do this type of thing for a living, but a few of your stories to well-place legislators and staff go a long way toward getting things done. Ok, no more Mr. Nice Guy.
One of the areas of unfinished business is housing policy reform. An article that came out earlier this week in the Housing Wire reports that New York Attorney General Eric Schneiderman wrote a letter to the Federal Housing Finance Administration urging it to adopt mortgage principal reduction as a policy. According to Schneiderman, in 2013 alone there were 60,000 homeowners in New York who were delinquent in mortgages controlled by Fannie Mae and Freddie Mac. He goes on to argue that “there is significant evidence that homeowners who are seriously delinquent on their mortgages are most likely to avoid foreclosure and remain in their homes when reduction of principal balance is part of the loan modification offer. . .while virtually all of the large, commercial single family lenders now include principal reduction in their foreclosure mitigation options,” Fannie and Freddie do not.
First, I would love to know how much an academic researcher got paid for figuring out that people who get a reduction in their mortgage principal are more likely to be able to afford their house. Next thing you know, we will have conclusive proof that the sun rises in the East and sets in the West. Secondly, having just watched The Big Short, calls for principal reduction have a certain facial appeal. You wouldn’t know it from watching the movie, but Fannie and Freddie were willing participants and contributors to the securitization frenzy that indirectly led to the Great Recession. Surely, giving a little back is the “right thing to do.”
But then, let’s get back to reality. First, Fannie and Freddie are bankrupt entities and like any trustee administering a bankrupt estate, the FHFA has a fiduciary obligation to maximize its value. Furthermore, as my Mother taught me growing up, two wrongs don’t make a right. Should policy makers do more to reign in the big banks? Absolutely. But, for the life of me I don’t understand why taxpayer supported entities should be on the hook for bailing out the bad financial decisions of other taxpayers.
I believe that if we don’t learn from our mistakes, we are bound to repeat them. The American public wasn’t a victim of excessive real estate zeal so much as a willing accomplice. I, for one, don’t want to see taxpayer supported institutions, which shouldn’t even exist at this point, bail out one set of taxpayers at the expense of others who were able to pay their bills. Foreclosures are a tragedy, but they shouldn’t be avoided at all costs.
So in a blatant attempt to keep your interest when discussing an incredibly bland subject, I have a question for you: what does consummation – in the biblical sense – and a mortgage loan in New York State have in common? Simply put, neither is legally binding until it is consummated. For marital purposes, that means that the ceremony notwithstanding, the wedding night is what seals the deal. Unfortunately, for mortgage purposes, when a mortgage loan is consummated is not all that clear, which brings me to the purpose of today’s blog.
Of course we all know that under the new mortgage regulations, members are now entitled to have mortgage disclosures at least three days before a mortgage loan is consummated. This, of course, means that for purposes of complying with the regulation, it is crucial to know when a mortgage loan is consummated. The Truth in Lending Law and Regulation Z have always deferred to a state’s definition of when a mortgage loan is consummated. This makes sense since mortgage loans are contracts and contracts are interpreted pursuant to state law.
The problem is that New York State has never defined in statute when a mortgage loan is consummated. In addition, things get even more dicey because an argument can be made that as a matter of case law, a mortgage loan is consummated when a commitment letter is signed and sent to the borrower. Murphy v. Empire of Am., FSA, 746 F. 2d 931, 934 (2d Circ. 1984). That would that you have to make sure that closing disclosures are in the member’s hands three days before they receive a commitment letter from your credit union, as opposed to three days before the excited couple closes on their new home.
Fortunately, the Legislature, at the urging of the Association, and with the support of the banking industry, has a fix on the way. Legislation was recently introduced, S.7183 (Savino) and A.9746 (Richardson) that would define consummation as the point at which “the applicant for the mortgage loan executes the promissory note and mortgage.” Since this typically happens at the closing, it should remove any confusion as to when consummation has occurred.
On that note, have a good weekend, and I expect to see many of you bright eyed and bushy tailed next week for our Annual State Government Affairs get together.
One of the terms you may be hearing more about in the coming days is an open charter. An open charter allows a credit union to serve members without Field of Membership restrictions. Federal, natural person credit unions have never had open charter authority. In contrast, until 1929, New York State Law authorized such charters. This charter authority was eliminated but existing credit union authority was grandfathered. Montauk was incorporated with an open charter in 1922.
According to an article, as part of its agreement to acquire Montauk, Bethpage also acquired its open charter, which means that the community chartered credit union is now authorized to service members without geographic restrictions. However, the article also said that Bethpage has no immediate plans to expand beyond the New York City area.
Here is an opinion letter from the Banking Department, which provides some background on the open charter’s history and application.
If you’re interested in finding out more. . .
We are understandably already getting questions about New York’s paid family leave benefits law, enacted in this year’s State budget. On the off chance that some of you want to take a look yourselves, but don’t enjoy plowing through New York State’s budget bills, you can find pertinent information in Part SS of S.6406-C. This is one of the so-called Article VII bills, which provide programmatic language to support budget appropriations.