Posts filed under ‘New York State’
There are two prevalent attitudes in the credit union industry when it comes to technological innovations. In the one group are relative newcomers to the banking world like myself – I’ve only been doing this for a mere 10 years – who see technology fundamentally changing where and how banking is done. The other group is the crusty curmudgeons who pine for the days when underwriters didn’t use computers to figure out who qualified for a loan, but rolled up their sleeves and did their own due diligence.
The last few weeks have been heady times for the curmudgeons. Leading marketplace lender Lending Club forced out its CEO amid allegations of undisclosed interests and inaccurate loan information. The stock has taken a tumble and its supply of investors anxious to snap up its loans is drying up. Score one for the curmudgeons. I can just see the smirk widening across their faces as they read their morning news in the WSJ. They got more good news last night with reports that New York State’s Department of Financial Services is expanding its investigation of the marketplace lending industry beyond Lending Club.
But then again, what do the recent lows of online marketplace lenders really tell us about the direction lending is headed? Not as much as you might think.
First, sophisticated computer algorithms fueled by Big Data will revolutionize banking by allowing lending decisions to be made instantaneously based on information which no human could process in a lifetime. There is going to be more lending without collateral and participation agreements to spread out this risk is going to be crucial
Second, lending is going online. This is true not only of the consumer looking to refinance credit card debt or student loans but also extends to the small business owner. For small business lenders, quick and expanded access to needed capital is a lot more attractive than trudging down to the old brick and mortar.
Third, New York State’s efforts notwithstanding, the Internet has accelerated the nationalization of lending. For credit unions, this means that the industry must continue to push for greater field of membership flexibility. It also means that federal regulators have to take the lead in proposing appropriate regulations, Congress has to strengthen preemption laws and Courts have to do a better job of explaining the interplay between federal and state regulations. In an age when a consumer in New York can qualify for a loan issued by a bank in Utah that is subsequently bundled and sold to a non-depository institution based in Chicago, a state by state approach to regulation will be both ineffective and will inhibit legitimate financial evolution. For those of you that are interested in more background on this issue, here is a white paper issued by the Treasury Department.
On that note, your faithful blogger will be back on Tuesday. Enjoy your long weekend and remember, if there is more than one guy standing around the barbecue, you can guarantee the burger is going to be overcooked.
The Assembly passed a package of bills yesterday that would make New York’s cumbersome foreclosure process even more inefficient and costly and most likely exacerbate some of the very problems it is seeking to address.
Most importantly, the Assembly passed A6932a/S4781a, introduced at the request of the Attorney General, “the New York State Abandoned Property Neighborhood Relief act of 2016.” I’ve already talked about this bill extensively. It makes lienholders responsible for abandoned property on which they have not foreclosed; however doesn’t do enough to expedite foreclosures on these properties or clarify precisely how much maintenance credit unions and banks will be responsible for.
By the way, municipalities often have first lien priority on abandoned property because of unpaid tax bills. This bill is a backdoor means of shifting responsibilities to banks and credit unions that are ultimately the responsibility of localities.
Another bill, A1298/S5242 wouldn’t streamline New York’s requirement for judicially supervised settlement conferences, a proposal that would be in everyone’s best interest. Instead, it expands the explicit scope on these get-togethers by explaining that resolutions can include, but are not limited to, loan modifications, “short sales” and “deeds in lieu of foreclosure.” This goes into the “wow, why didn’t I think of that” category. Lenders have already considered and used these alternatives. There is no need to put this language into statute unless the Legislature believes it knows more about loss mitigation than the lender losing money on a delinquent mortgage. A second possibility may be that it is seeking to give judges greater authority to force lenders to accept “good faith” resolutions.
Finally, if the Legislature is going to propose all these new obligations on lenders, one would hope that it isn’t also inclined to make it even more difficult to foreclose. But, alas A247 would do just that. This bill makes it easier for defendant’s to raise a defense that a foreclosing lender lacks standing.
Taken as a whole, this package of reforms will increase legal protections for delinquent homeowners, make lienholders responsible for homes they don’t own and make foreclosing even more litigious and time consuming. Lost in all of this is the simple fact that delinquent homeowners are in homes they can no longer afford. Fortunately, none of these bills have been passed by the Senate yet. We will have to see if cooler heads prevail in the closing weeks of the session.
How best to regulate the burgeoning Ridesharing industry is one of the key issues of unfinished business as the Legislature seeks to make a quick election year exit out of Albany and prepare for the pivotal November elections for control of the State Senate. The issue is also of more than passing interest to many credit unions that want to make sure that their members who choose to become Uber or Lyft drivers have adequate insurance in the event of an accident and because Albany’s actions may well impact the value of taxi medallions financed by some institutions.
Capital Tonight’s Morning Memo reports what has been rumored for weeks: that the legislature is considering backing away from the idea of imposing a statewide system of ridesharing insurance regulation and is instead moving toward allowing individual localities to authorize the purchase of required insurance policies. It reports that Assembly Democrats conferenced on the issue yesterday. It also quotes a Uber spokeswoman as saying that: “ While a statewide comprehensive regulatory framework is best for New Yorkers who are demanding ridesharing…allowing ridesharing activity to be covered by insurance policies that are up to ten times higher than local cab companies would allow communities to start welcoming flexible economic opportunities and better transportation options.”
It’s always dangerous to speculate about what may or may not happen in Albany before an actual bill has been introduced. After all, many strange things can happen in the wee small hours of the morning when most of the really important stuff gets negotiated. But we may have the makings of a classic political compromise. Upstate Mayor’s like Albany’s Kathy Sheehan argue that ridesharing would be a boom to local businesses whose patrons are handicapped by a lack of transportation options. Conversely , NYC Mayor Bill de Blasio has been less than enthusiastic about Ridesharing. NYC’s established system of Medallion cabs could be undermined by statewide regulation of livery insurance
Whether any of these machinations have an impact on the price of medallions remains to be seen. Here some of the latest sales information provided by the NYC Taxi and Limousine Commission.
Momentum appears to be growing for zombie property legislation. Legislation has advanced to the Assembly floor (A.6932A/ S.4781A) that would make mortgage lenders responsible for maintaining “vacant and abandoned” property on which they have not yet foreclosed. It would also make lenders responsible for property they are in the process of foreclosing on because the borrower has failed to maintain the property.
The bottom line is that financial institutions would be on the hook for maintaining property even if they haven’t completed or even started New York’s byzantine foreclosure process, an obstacle course that takes several years to complete.
This is a lousy idea for several reasons. For instance, it effectively denies the lender the right to determine whether or not vacant and abandoned property is worth foreclosing. It also creates even more foreclosure complexities and opens the door for lenders to indirectly subsidize maintenance projects for which localities should be responsible.
The sponsors deserve credit for proposing to streamline foreclosures for zombie property. However, if legislators feel the need to go forward, the legislation should be amended to mitigate its shortcomings. Most importantly, the legislation should clearly stipulate that “vacant and abandoned” property is not subject to foreclosure defenses so that lenders can at least quickly obtain title to property for which they are responsible. Currently, the legislation is needlessly ambiguous on this point. It creates a streamlined foreclosure for vacant property, but also provides that this fast track system “shall not abrogate any rights or duties pursuant to this article.” Why not? The property is abandoned.
Furthermore, the fast track won’t apply in instances where the defendant has responded to the foreclosure. This makes sense, except the legislation should make clear that if a homeowner mounts a foreclosure defense only to subsequently abandon the property, lenders can still fast track the foreclosure.
There also needs to be responsible parameters describing what proper maintenance entails. Anyone involved in mortgage lending has heard stories of foreclosed property being gutted by the delinquent homeowner. Should a foreclosure come with a huge price tag for repairing these properties? I don’t think so.
Happy Days For MBL Lenders
NCUA sent out a notice yesterday reminding credit unions that they no longer have to get a personal guarantee when making Member Business Loans. This change is the first step in implementing amendments to give credit unions greater flexibility when making MBL loans. Remember NCUA still considers personal guarantees a good idea, so you should have a policy explaining the circumstances under which they will not be required by your credit union.
Albany is getting down to its post-budget business, especially now that the seat vacated by former Senate Majority Leader Dean Skelos has been won by Democrat Todd Kaminsky. This week’s Senate Banks Committee agenda includes legislation important to credit unions.
Most importantly, legislation sponsored by Senator Savino (S.7183) would clarify when a mortgage is considered consummated under New York State Law. Under the TRID regulations, closing disclosures must be received by a homebuyer at least three business days before a mortgage loan is consummated. Currently, there is no statutory definition of consummation and there is case law that suggests that consummation actually occurs at the time that the credit union or bank sends a commitment letter to a mortgage applicant. The bill clarifies that for purpose of compliance with federal law, consummation occurs when a mortgage applicant signs a promissory note and mortgage. Here is a previous blog I’ve done on the topic.
A second bill on the Committee’s agenda, S.7434, mandates the creation of a state-wide data base of vacant foreclosed property. Under this bill, when a bank or credit union obtains a judgement of foreclosure on residential property that is or has become vacant or has been abandoned, the mortgagee is required to provide notice of the vacancy to the Department of Financial Services within ten days. The Attorney General (AG) and municipalities would have access to the database and the hope is that it will make it easier to hold mortgagees responsible for maintaining the property. The AG will have the authority to fine institutions that violate this section. Unlike a proposal previously put forward by the Attorney General, this bill does not seek to impose responsibilities on financial institutions for vacated property on which they have not obtained a judgement of foreclosure.
CFPB Unveils Class Action Protection Proposal
At a New Mexico field hearing yesterday, the CFPB formally unveiled a proposal that would prohibit banks and credit unions from including arbitration clauses in account agreements that prohibit consumers from joining class action lawsuits. The CFPB is taking this step pursuant to the Dodd-Frank Act which mandated that it study the use pre-dispute arbitration clauses and make regulatory changes where appropriate.
This is a big deal for many industries that have turned to arbitration clauses as a means of controlling liability risks. It is not clear to me how many credit unions use arbitration clauses, but at the hearing yesterday it was suggested that the use is growing in the industry, particularly by larger credit unions. If you would like to know my personal opinion of the CFPB’s proposal, here is a blog I did on arbitration clauses earlier this week for CU Insight (how’s that for a shameless plug, I figure if I take the time to write this stuff, I might as well encourage people to read it).
Here is a question for you to ponder over the weekend. Can a bankruptcy court overseeing a Chapter 13 reorganization vest legal title in residential property in a bank or credit union over the objection of a bank or credit union holding the mortgage on which it has not yet foreclosed? Or, put another way, you know that abandoned piece of property that simply isn’t worth foreclosing? Can you be made to take legal title? I’ll be providing the answer to this question next week. I am sure you can’t wait, but enjoy your weekend nevertheless.
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, starting 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.