How Divorce Complicates Your Mortgage Disclosures

Divorce increases the number of pitfalls for lenders who have the audacity to attempt to collect delinquent debt. Nowhere is this more true than in the great state of New York,  where a series of legal landmines masquerading  as consumer protection statutes  are waiting to attack the unaware lender.  Consistently applied and well drafted policies and procedures are crucial when it comes to loss mitigation and foreclosures .

The latest example of the dangers posed by New York’s foreclosure defense laws comes from M&T Bank v. Farrell, 2014-1913 decided July 12 in which the bank moved to foreclose on property  that a separated  Binghamton Dr. and his wife had jointly purchased in 1994.

I’ve talked about NY’s Real Property Actions and Proceedings Law Section 1304 before but it’s worth talking about again. It requires that mortgage lenders “ give notice to the borrower” at least 90 days before commencing a foreclosure. It’s  also important to keep in mind that the notice must be sent “by registered or certified mail and also by first-class mail to the last known address of the borrower, and if different, to the residence that is the subject of the mortgage. Such notice shall be sent by the lender, assignee or mortgage loan servicer in a separate envelope from any other mailing or notice “(N.Y. Real Prop. Acts. Law § 1304 (McKinney).

Remember the pre-foreclosure notice is in addition to the traditional summons and complaint required to start a foreclosure action. Courts have demanded strict compliance with 1304 and as more attorneys get involved in foreclosure defense 1304 defenses are  becoming more frequent.

In this case, at the time the pre-foreclosure notice was sent to the mortgaged property  Dr. Farrell no longer lived at the family  home and a separate  pre-foreclosure. notice was not  sent to his new address.  This invalidated the foreclosure.   M&T argued that it complied with the statute by sending the notice to the mortgage address. But the prevailing view of New York’s courts is that, as explained by the judge in this case,  the 1304  notice must be sent to the borrower’s last known address which may or may not be the mortgaged property. M & T had to start from scratch without passing Go and collecting $200

The case also underscores why it’s crucial to properly coordinate between your staff and your foreclosure attorney.  In this case M & T’s attorney submitted an affidavit stating that the 1304 notice was sent by personal and first class mail.  But this statement was inadequate to demonstrate compliance with the law since the attorney had no “first hand” knowledge of the mailing.

Cases like this demonstrate why your credit union should  have the person who prepares and sends out the 1304 notice on behalf of your credit union to swear out an affidavit the day the notice is sent to the delinquent members demonstrating compliance with 1304 based on her personal knowledge.


July 12, 2016 at 9:30 am Leave a comment

Younger Americans Spurring Economic Growth

wsjAs I scoured this morning’s clips for news you could use to start your credit union day I settled on an article that reminded me of one of my favorite movie quotes courtesy of Prince   Faisal: “virtues of war are the virtues of young men – courage and hope for the future. Then old men make the peace, and the vices of peace are the vices of old men – mistrust and caution.”

A bit overstated for a credit union blog? You bet but an analysis in this morning’s WSJ  pinpoints yet another reason why the economy continues to underwhelm even as the jobs market continues to grow:  Young people are a heck of a lot more optimistic about the economy than Baby Boomers.  According to the WSJ: Americans 55 of years of age and older have  pulled back on their spending over the last year while younger Americans have been spending more. As a result  “All the growth is being driven by young people, and in fact the older people are dragging down growth,”

According to the paper, this divide, “helps explain why consumer spending decelerated in 2015 and early this year despite low-interest rates, cheap gasoline and falling unemployment.”

It seems to me that this is yet another great reason why your credit union should be trying extra hard to attract younger people into the fold.

Remember that about 70% of the economy is driven by consumer spending so a growing divide in economic perception could have a big impact on the economy. It’s great that not everyone is hording their cash  but these  young optimists   simply don’t have the spending that the Baby Boomers do.  Millennials are carrying record amounts of student debt,  for example  and this might be one reason why they are holding off from buying that first house.

Is it Time to Make More Private Student Loans?

Since we are on the subject of debt and young people, did you know that n the first quarter of this year the percentage of private student loans that were at least 30 days past due dropped  to its lowest level since the Great Recession  but that,  lending growth  remains flat according to the American Banker? Here is another factoid: Lenders have learned some lessons and are taking more precautions.  During the 2015-2016 academic year, 89.7% of private student loans were co-signed, usually by a family member. During the 2008-2009 school year, only 74.6% of private student loans were co-signed.

July 11, 2016 at 9:22 am Leave a comment

The House Takes The Right Approach To Spotting Elder Financial Abuse

I haven’t had many positive things to say about federal legislation over the last five years so I’m sure the sponsors of the   “Senior Safe Act of 2016” will be overjoyed and relieved to that I actually think their proposal is a good one.

The legislation is a federal attempt to address elder financial abuse.  Most states  have already mandated reporting requirements in this area.   New York’s DFS has issued a guidance on the issue. NY law  protects any person who  reports suspected financial abuse to the Department of the Aging, a local Social services department or a law enforcement agency   based on a   good faith belief  that “appropriate action” will be taken. N.Y. Soc. Serv. Law § 473-b (McKinney).  This protection isn’t quite as expansive as what would be protected under the House bill.

I’ve always been uneasy about legislation in this area because poorly drafted legislation could make credit unions liable for not recognizing financial abuse; SAR’s can already be used to report suspected  criminal activity involving financial exploitation; and  the issues raised are best handled by  family and friends. But if there is going to be legislation in this area than the House bill provides a good framework.

The bill, which passed with overwhelming support  on  Tuesday, would authorize supervisors,   compliance  and BSA officers to report possible financial exploitation of   a person 65 years of age or older to law  enforcement  and government  agencies.  The institutions and individuals making these reports would get legal immunity  for doing so if  they train employees  on identifying and reporting elder financial abuse and they take “reasonable care” to avoid unnecessary disclosures.

There are three things I really like about this bill: First, it just authorizes a supervisor, a compliance officer  and BSA officers to report suspected elder abuse but enables any employee to spot it.  One of my concerns has always been that elder abuse is difficult to define and even though frontline employees are best positioned to spot elder abuse  the ultimate call on reporting should be made by senior personnel.

Second it places no affirmative obligation on financial institutions to report suspected abuse.  it simply protects them if they choose to do so provided they have appropriate training.

Finally, it provides a baseline of immunity for institutions that report suspected abuse.

A Most interesting Jobs Report

Any minute now  we should be getting the jobs report for June.  It’s more important than usual because May’s jobs report witnessed paltry growth of 38,000 jobs. In addition with fallout from the Brexit vote continuing,  the report will either further the narrative of an economy slowing down or be used as proof that growth is still alive and well.



July 8, 2016 at 8:50 am Leave a comment

What We Can Learn From Hilary’s Email Shenanigans

Hilary Clinton has inspired me.

hillaryThis morning, as I was scrubbing the  home  server I have so I can pick and choose which of my  communications are  private and which  are  worthy of public disclosure,  I realized that her handling of email can be instructive for all of us.

The truth is, that, with smartphones,  it is getting harder and harder to delineate between work communications and private ones.  Ambiguity is a breeding ground for litigation. If you don’t have policies and procedures for dealing with work related emails on personal devices  here  two reasons  why you should:

Violations of the Fair Labor Standards Act:  With the Department of Labor’s decision to increase the minimum salary threshold for a supervisor to be considered non- exempt, credit unions  may well  be faced with situations  where that branch manager who  responds  to  work related emails late into the night is suddenly  a non-exempt  salaried employee.  Anytime she spends responding to that email is time counted against her 40 hour work week and overtime pay.

Appropriate Record retention policies: Of course, no matter how big or small you are you should have a policy that addresses  electronic storage of information; regulators expect them and  If you are ever sued by an employee,  or investigated be an agency,  your credit union is going to expected  to have policies in place explaining what information is stored electronically, how it is stored and for how long.  These policies will vary in size depending on the size, complexity and legal exposure  of your credit union but everyone should have one.  It’s something I would certainly work on with your attorney

A good example of why is  Small v. Univ. Med. Ctr. of S. Nevada, No. 2:13-CV-00298-APG, 2014 WL 4079507, at *5 (D. Nev. Aug. 18, 2014).  The university was sued by non-exempt employees  who claimed that their  work time was not being appropriately credited in violation of the Fair Labor Standards Act.  When they sued  they asked for  the production of  electronically stored information including   any documents and data relating to time worked, labor allocation, and budgeting. The university initially responded that it didn’t  send  workplace requests to private phones and made no effort to access this information   In fact, additional investigation revealed that several custodians were sent work requests on personal phones.  The court concluded that personal phones had to be searched for relevant information.  In addition,  the University was sanctioned for having inadequate electronic storage procedures.

We have been dealing with email for two decades now and the days when you could simply neglect to properly classify these communications  are over.  The blending of personal devices into the workplace is inevitable and you should make sure that you have  policies and procedures in place to demonstrate you are addressing issues raised by their proliferation.

July 7, 2016 at 9:34 am 2 comments

Are NCUA’s Capital Requirements Outdated?

In 2015, NCUA reacted to risk-weighting imposed on banks under the BASEL III framework by creating a capital risk-weighting system for federally insured credit unions with $100 million or more in assets.  Wouldn’t it be funny if by its effective date in 2019, regulators and policy makers decide that the whole risk-weighted approach to protecting against systemic risk makes no sense, or, at the very least, needs to be substantially reformed?  This could happen.  Over the last month:

  • Jeb Hensarling (R), Chairman of the House Finance Committee, proposed giving banks mandate relief from certain Dodd-Frank requirements in return for maintaining a 10% leverage ratio in which a firm’s capital is measured against its assets without including risk-weightings in the calculation.
  • Federal Reserve Chairwoman Yellen indicated that she also supported higher capital requirements in return for simpler regulation, but added that the option should be open to community banks.
  • And, an influential European advisory board urged regulators last Friday to use a leverage ratio as a primary means of measuring a bank’s capital strength instead of risk-weighted assets.

To me, this growing realization that risk-weightings may not be the best way of gauging capital adequacy comes in the better late than never category.  Between World War I and World War II, the French built a huge trench called the Magnot Line to protect themselves against future German attacks.  But when World War II came, the Germans used tanks to maneuver around this trench and crush the French.

Risk weightings are the financial equivalent of the Magnot Line.  For instance, weightings are, by definition, an assessment of an assets risk based on historical experience.  The problem is that we don’t know what the equivalent of the mortgage backed security is going to be by the time the next financial crisis rolls around.  Risk-weighting actually allows financial institutions to engage in regulatory arbitrage.  Hopefully, the momentum will continue to grow and we can develop a system that places emphasis on capital and not guesses as to what banking products and investments are safe.

One more thing, in my dream world, an emphasis on capital leverage ratios would be coupled with a breaking up of the big banks.  No amount of capital can adequately protect us against the need to bail out the Goldman Sachs or BoAs of the world.  However, a more rigorous emphasis on capital requirements is a step in the right direction that would provide relatively small banks and credit unions greater flexibility and, I believe, just as much protection against severe downturns as does the existing risk-weighted framework.

July 6, 2016 at 9:11 am Leave a comment

Why July 22nd Matters To You

If your credit union is a card issuer then July 22nd is a day your calendar should be marked.

Responding to merchant complaints about the length of time it is taking to get their EMV compliant Point- Of- Sale terminals  certified, Visa announced in June  that it  is limiting chargebacks that  issuers can impose on merchants. Amex has also   announced similar changes as has  MasterCard.  Here is a technical  breakdown of the specifics.

Remember that, effective October 2015, liability  for counterfeit  card transactions shifted from always being the responsibility of the issuing bank or credit union to merchants  whose POS terminals  could not process EMV chip enabled transaction.

Even though this liability shift was announced in 2011,  a last second rush by merchants has created a bottleneck.  One of the main problems is that the terminals must be certified as  EMV compliant and this process is taking longer  than anyone anticipated.  Starting   July 22nd and lasting until April 2018 Visa will block all U.S. counterfeit fraud chargebacks under $25. In addition, effective October 2016, issuers will also be limited to” charging back 10 fraudulent counterfeit transactions per account, and will assume liability for all fraudulent transactions on the account thereafter.” Visa estimates that these changes  will result in  40 percent fewer counterfeit chargebacks, and a 15 percent reduction in U.S. counterfeit fraud dollars being charged back.

Merchants have been complaining about the volume of chargebacks since the change took effect. They even sued Visa and MasterCard to block chargebacks based, in part, on complaints about the certification process.

July 5, 2016 at 9:35 am Leave a comment

Anti-Trust Settlement Thrown Out


For those of us in the financial industry, three things are certain: Death, taxes and merchant antitrust litigation.

Yesterday, the Court of Appeals for the Second Circuit threw out  the $7.5 billion 2012 settlement between merchants and Visa and MasterCard intended to put an end to a decade of antitrust litigation and brihttps://fred.stlouisfed.orgng about peace in our time.  Considering how long it dragged on and that the settlement was the largest antitrust payout in history, perhaps it is only fitting that the decision came down the day before the 100th Anniversary of the Battle of the Somme, the bloodiest battle in World War I that resulted in over a million deaths and casualties.

What happens now? The case goes back to the trial court and merchants are likely to push for even more money and a narrower ban on future litigation.  The National Association of Convenience Stores  cheered the court’s decision to scuttle the settlement because “the relief it offered was inadequate and the release [from future litigation] was overbroad.”  The National Retail Federation predicted that the Card firms could face even more pressure from retailers to change their fee structures.

Among the defects cited by the court was that there were too many competing merchant interests represented by the same attorneys. The court explained that “Unitary representation of separate classes that claim distinct, competing, and conflicting relief create unacceptable incentives for counsel to trade benefits to one class for benefits to the other in order somehow to reach a settlement.”  The court was also concerned that the settlement barred all future claims against Visa and MasterCard but only placed temporary restrictions on the card companies.

The merchants were divided into two classes: one class consisting of merchants that accepted Visa and/or MasterCard from January 1, 2004 to November 28, 2012, which was eligible to receive part of the $7.25 billion; the other consisting of merchants who joined the networks after that late, who were only entitled to injunctive relief in the form of changes to Visa’s and MasterCard’s network rules. For example, Visa and MasterCard agreed to change their network rule to allow merchants to surcharge credit card purchases.  But the court noted that in States such as New York surcharge bans are still illegal under state law.

Brexit Fallout



This chart highlights what’s happened to the yield on 10-year Treasuries in the aftermath of the decision of Great Britain to leave the Eurozone.(Tap it for a better view).  Needless to say, with yields tumbling, it’s hard to see why the Feds would want to raise interest rates any time soon.

On the bright side, this continues to be the Golden Age to buy a home, assuming you can qualify for a mortgage.

By the way, I made this chart after visiting the Fred Website, a phenomenal resource of which all you number junkies out there should be aware.  On that note, have a nice Fourth!

July 1, 2016 at 9:02 am Leave a comment

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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