Posts tagged ‘mortgage lending’

Guess Who Has The Most Stable Housing Market In America?

Buffalo, New York, has the most stable housing market in America. According to research conducted on behalf of, Buffalo is followed by Pittsburgh, Louisville, Nashville and Raleigh, NC.

Working with Zillow, Bloomberg analyzed housing prices since 1979 for the 50 largest housing markets using a five year rolling average to calculate changes in home prices. The result shows that you may not strike it rich buying that home in Buffalo, but you won’t lose your shirt either. The data shows that over the last 35 years, Buffalo homeowners had “virtually no chance” of losing money on their house. In contrast, the same can’t be said for Hartford, Connecticut at the bottom of the list.

Some of those areas on the least stable list are awfully nice places to live so what’s the difference? One agent pointed out that your typical Buffalo buyer is planning to stay in the area for the long-term. Buffalo isn’t where you go to invest in a second home or flip houses.

By the way, in commenting to NCUA many NY credit unions argued that NCUA’s proposed risk weightings for mortgage concentrations were too severe because they didn’t take into account a credit union’s track record in making well performing mortgages. This research provides one more piece of evidence that not all mortgage loans are equal. Hopefully, NCUA will take that into account in finalizing its RBC framework.

Court Says Localities Can Block Hydro-fracking

Remember when high powered hydro-fracking was a big issue, with New York’s Department of Environmental Conservation analyzing the potential impact of its widespread use in the Southern Tier? There hasn’t been much movement on the issue since the Department of Health was tasked with analyzing its health effects in 2012 and has yet to reach its conclusions. In the meantime, a statewide moratorium on the process remains in effect.

But yesterday, the NY Court of Appeals — our highest Court — ruled that localities could use local zoning laws to block hydro-fracking even if the state authorizes it.

This may be another setback for drillers or it might actually allow the state to lift the moratorium because only towns that want the drilling are going to get it. Remember, the issue is important to credit unions that should insure their interest in mortgaged property is adequately protected in the event that a member wants to lease out their property for oil drilling.



July 1, 2014 at 8:33 am 1 comment

Are These The Biggest Threats Facing Your Credit Union?

The OCC released its semiannual review of the risks facing the banking industry and even though it doesn’t apply to credit unions it provides an excellent synopsis of the trends within the financial industry and the perceived threats highlighted by examiners. This is by no means a definitive list; I’m simply highlighting a few of the issues that might be most relevant to your credit union.

  • Cyber security continues to be on everyone’s mind. The reality is that everyone knows what hackers can do and we are waiting to see just how much more destructive and creative they can get at stealing people’s money. This is no longer just a problem for the largest big name financial institutions. As the OCC explains: “Business lines and functional areas within banks must perform thorough risk and control self-assessments, analyze operational events, and identify, assess, monitor, and mitigate emerging risks. Risk management is balancing resource constraints, retention of key talent, and overall capability to monitor the breadth of change.” Translating:  ongoing implementation of your BSA risk assessments is more important today than ever before. In addition, if your vendor contracts don’t appropriately apportion responsibility for monitoring risk, they need to be amended.


  • Banks are already feeling the pressure to reduce underwriting standards not only for their mortgage loans but for car loans as well. Why is this so intriguing to me? Because, contrary to popular belief, nothing in Dodd-Frank or the CFPB’s regulations prevents financial institutions from making exactly the type of mortgage loans that got us into this mess in the first place. Instead, the regulations are designed to incentivize better underwriting standards both by increasing penalties such as foreclosure defenses and monetary damages and providing incentives such as “safe harbors.” Credit unions can benefit from banker uncertainty if they are willing to make the same loans that they have in the past, particularly if they had the ability to hold on to more of their mortgages. It also means that credit unions, like banks, have to have clearly delineated underwriting standards, as well as an understanding of when it is appropriate to make exceptions to the standards. As for car loans, could financial institutions be pushing out loan terms so far that we could experience a car loan bubble?
  • Not surprisingly interest-rate risk remains a primary concern of the OCC, as it is with the NCUA. Yes, someday the sky will fall. As a result, the OCC is concerned by “increased exposure to interest rate risk (IRR) at some banks related to concentrations of agency-issued mortgage-backed securities (MBS) and unsupported non-maturity deposit assumptions.”  It’s the last part of that statement that intrigues me the most. Let’s face it, credit unions aren’t seeing record membership growth just because people are annoyed with banks or because credit unions provide great service.  There aren’t many places to safely put your money these days and get a decent return. Like corporations, consumers are hoarding their cash. While we can all disagree about how far and how quickly interest rates will rise, two questions your credit union should be asking are: how much and how quickly could your credit union stand to lose its core deposits? And, what steps is your credit union taking to convert short-term depositors into longer-term contributors to the credit union?


Of course, the issue of core deposits would not be quite so important to credit unions if they could all have access to secondary capital. But that’s a blog for another day.

Incidentally, everyone should be allowed to take an early lunch today and root for a tie against Germany. A tie gets the United States into the single elimination knockout round. Why am I rooting for a tie? Because I’m a realist. All Germany has to do is tie to guarantee a spot in the next round. Sure, a win would be nice but the U.S. beating the Germans in soccer is about as likely as Munich cancelling Oktoberfest.

June 26, 2014 at 9:09 am 1 comment

How Much Does That Fraudster Owe You, Anyway?

This morning’s award for chutzpah goes to Benjamin Robers and his attorney, who got all the way to the Supreme Court claiming that a federal court made him pay too much in restitution after pleading guilty to mortgage fraud.

In 2005, Mr. Robers, acting as a straw buyer, submitted fraudulent loan applications to two banks.  The banks gave him a total of $470,000 for two mortgages.  No payments were ever made on either mortgage and Mr. Robers ultimately plead guilty to federal charges related to his fraud.  In the meantime, the banks foreclosed on the properties and housing prices tumbled.  Eventually,one house sold for $120,000 in 2007 and the other sold in 2008 for $160,000.

Here’s where the chutzpah comes in.  The Mandatory Victims Restitution Act of 1996 requires persons convicted of certain offenses, including mortgage fraud, to compensate victims for their property loss.  Specifically it provides that the offender must pay the victim “an amount equal to. . . the value of the property less the value as of the date the property is returned.”  The sentencing judge ordered our fraudster to pay $220,000, which was approximately the difference between the loan amount and the amount the houses sold for plus some banking expenses.

Notwithstanding the fact that Mr. Robers avoided jail time, he cried foul.  Specifically, he argued that the amount of money he owed to the banks in restitution should be based on the value of the property at the time the banks foreclosed on it, not when it sold.  Needless to say, because of the time period we are dealing with, the value of the houses dropped dramatically before the banks could find a buyer.

One of the primary reasons the Supreme Court decides to take cases is to resolve disputes between the federal circuits as to how a statute is to be interpreted.  Our good friends over on the West Coast, in the 9th circuit, have interpreted the statue the way Robers thought it should be interpreted.  In contrast, the 7th circuit flatly rejected Robers argument.  Fortunately, the Supreme Court did, as well.  It explained in a decision by Justice Breyer that “the import of our holding is that a sentencing court must reduce the restitution amount by the amount of money the victim received when selling the collateral, not the value of the collateral when the victim [i.e. the bank] received it.”  While the Court’s ruling was unanimous, Justice Sotomayor explained in a concurring opinion that banks had an obligation to try to sell foreclosed property “within a reasonable time.”  For her, this case would have been decided differently had the banks not made an effort to sell the property and instead held on to it in the hopes of getting a better price in the future.

This is an extremely narrow ruling and applies only in those case in which the mortgage fraud is prosecuted in federal court.  But given the surge of SARS filings involving mortgage fraud over the last five years, it will undoubtedly benefit some credit unions down the line.


Speaking of money laundering, the NCUA announced that it would be hosting a Webinar on anti-money laundering compliance on Wednesday, May 21 at 2:00 p.m.

On that note, protect that money and have a good day!




May 6, 2014 at 8:53 am Leave a comment

Are you making a subprime loan?

One of the most amazing things about watching the legislative process in New York State is that, as a friend of mine once explained, key staff people in the Capitol tend to draw their powers from the night.  As a result, almost all the important legislation passed in New York State is negotiated in the wee small hours of the morning when any normal group of people would be in bed.  Therefore, it is amazing to me that there arent’ as many drafting mistakes as you would expect given New York’s proclivity for late night hijinks.

This came to my mind yesterday as I read a recently finalized regulation from the State’s Department of Financial Services, which provides guidance for the interpretation of Section 6-m of the Banking Law — New York’s subprime loan law.  As anyone who has tried to comply with the myriad of disclosures tied to mortgage loans these day knows, timing is everything.  For instance, in New York State, a subprime loan is a first lien mortgage, the rate for which exceeds the weekly primary market survey for comparable mortgages by one and three quarters percentage points. 

According to the statute, you would review the survey posted in the week prior to which the lender provided the good faith estimate.  The new regulation provides useful guidance as to how this should be interpreted on an operational level.  For example, let’s say a member comes in on a Friday afternoon.  Do you base your subprime loan determination on the survey posted a day ago or a week ago?  Since the primary mortgage market survey is posted on Thursdays, the relevant survey to be used for purpose of determining whether or not a loan is sub-prime “is the one published on the Thursday prior to receiving the Good Faith Estimate.”  This means that, for the example above, you would look at the survey published the day prior.

What happens if a new GFE is provided to the member?  That triggers a new look back period to determine whether or not we have a subprime loan on our hands.

I apologize for giving you this information before you have had your second cup of coffee, but there is no area of lending where attention to detail matters as much as in mortgage lending..

March 25, 2014 at 8:40 am Leave a comment

FHA Insurance Creating “Subprime” Loans

Greetings from the Turning Stone where I will shortly be going downstairs to attend the second day of the Association’s Annual Legal and Compliance Conference.  To no one’s surprise, the biggest issue in the room is how to comply with the Dodd-Frank mandated, CFPB proposed mortgage regulations.

Even before these changes, however, the regulatory environment continues to result in unintended consequences.  For example, on August 30th New York State’s Department of Financial Services extended a temporary order excluding FHA mortgage premium increases that took effect earlier this year from subprime loan calculations under New York State law.

As I have written in previous blogs, the FHA has been running short on cash, raising concerns that it would have to get a bailout from the U.S. Treasury.  One of the things it has done to put itself on firmer footing is to increase the premiums FHA borrowers pay.  These increased premiums are included in the APR calculations used under New York State law to determine if a loan is subprime.  As a result, if these new calculations are included in the terms, there are many New York lenders making subprime loans without any change in underwriting policy, violating section 6-m of the Banking Law.

Fortunately, the Department of Financial Services has issued an order excluding these new premiums from the subprime loan calculation.  But clearly, this is a problem in search of a long term solution.  My hope is that when the CFPB comes out with its combined posting disclosures, which are expected to include new fees in the calculation of the APR, that both federal and state regulators will raise the threshold for what constitutes so-called “high-cost” or “subprime” loans.  In the meantime, keep your eyes open.  There are an awful lot of moving parts and things probably won’t settle down for the next several months.

September 11, 2013 at 8:29 am 1 comment

On The Oscars And The CFPB

It makes absolutely no sense to give Argo the award for Best Picture, while refusing to even nominate Ben Afleck for Best Director.  It’s like saying you did a great job, but then passing out the raises to the other slubs in the office.  Come to think of it, it’s the type of things our well-intentioned friends at the CFPB would do.

Today’s the day comments are due on CFPB’s proposal to give certain institutions added flexibility while still qualifying for the full legal protection given to providers of so-called qualified mortgages.  Qualified mortgage protection is a big deal because if the system works as envisioned, so long as a lender can prove that a mortgage was underwritten in conformity with qualified mortgage standards, he will be given a safe harbor from legal actions such as foreclosure defenses and monetary damages.  The most important exemption that would be granted to credit unions and community banks would be exemption from 43% monthly debt-to-income ratio.  This is a big deal and I don’t want to sound ungrateful, but in order to qualify a credit union would have to have no more than $2 billion in assets, make no more than 500 covered mortgage transactions a year and hold them in its own portfolio.

Why?  CFPB Director Cordray has spoken passionately about the fact that credit unions and community banks have a unique connection to their membership that insulates them from many of the practices that necessitated the creation of the CFPB in the first place.  He recognizes the danger that increased regulatory burden and legal risks pose to the continuation of mortgage lending on the part of these institutions.  So why the Rube Goldberg like distinctions to qualify for exemptions?  By exempting all credit unions from these regulations as well as the recently promulgated servicing requirements, irrespective of size, and their loan portfolios, CFPB would be ensuring that credit unions don’t pay the price for problems for which they are not responsible and more importantly, would be ensuring that there is not a credit union that has to choose between complying with these new regulations and providing mortgages to their members.  Without a more forceful and clear-cut exemption, CFPB may very well end up diagnosing the problem without providing an adequate cure.

February 25, 2013 at 8:19 am Leave a comment

On Alabama and the Big Banks

imagesCACIKNZ2Yesterday was a good day for Alabama and the big banks.  For those of you who may have missed it, Alabama crushed the Pontiff’s Maulers 42-14 for their second consecutive national championship.  It was clear by the end of the first quarter who was going to win the game and by the third quarter, my brother texted me to watch the end of the Knick game, which was much more entertaining, even though they lost.

Yesterday was also the day that the federal government effectively ended the parole that big banks had been on in this country in the aftermath of the banking induced Great Recession.  In the same day, Bank of America settled allegations with Fannie Mae that it had sold them mortgages that did not comply with secondary market standards; the OCC announced it is ending its monitoring of banking foreclosure processes in return for cash payouts to impacted home owners, most of which aren’t large enough to allow these home owners to afford a decent downpayment on a new house, let alone make up for a lost home; and international banking regulators agreed to scale back liquidity regulations that they proposed in 2010 in order to prevent another financial crisis.  In contrast, NCUA recently announced its lawsuit against major banks, this time J.P. Morgan, in an attempt to hold them responsible for their own sloppy underwriting standards and the CFPB will most likely be rolling out new mortgage regulations on Thursday.

To anyone watching the game last night it quickly became apparent that although Alabama and Notre Dame were playing in the same game, they didn’t belong on the same field.  And anyone who has now taken a serious look at the government’s reaction to banker malfeasance realizes that although community banks, credit unions and the behemoths like J.P. Morgan and Bank of America are treated as if they are playing the same game, they aren’t.  At least Notre Dame can get new recruits.  But credit unions have to abide by mortgage regulations that are going to make it more expensive for smaller institutions to offer homes to their members while the institutions that necessitated these regulations in the first place will either have the expertise and resources to deal with these regulations or they will simply work behind the scenes to get them watered down.

To the extent that Congress doesn’t care that only the largest banks can cope with the regulatory burden that has been imposed on the banking industry over the past five years, then the system is working great.  But unless Congress wants those institutions that caused the Great Recession to actually benefit from it, while doing nothing to prevent similar crises from recurring, then this is the chance for credit unions and community banks to actually work together.

Most importantly, the CFPB is here to stay, but Congress has the authority, last I checked, to make common sense distinctions for institutions based on asset size.  Why not, for instance, impose tougher lending standards on institutions with $25 billion or more in assets, since these are the institutions whose shoddy underwriting standards have the ability to bring down the entire system.  Why not mandate that CFPB regulations presumptively apply only to institutions over a certain asset threshold?  The CFPB has implicitly recognized this by exempting institutions that engage in minimal mortgage servicing and remittance transfers from some of its proposals.  But these exemptions don’t go far enough.  Notre Dame is like the Yankees, you either love them or hate them and I don’t love them, but when a game gets as lopsided as last night’s game, it’s no fun to watch, but all you have to do is change the channel.  When it comes to lopsided oversight of our financial system, the American public can’t change the channel and credit unions are forced to play in the game that’s getting harder and harder to win.


January 8, 2013 at 7:52 am 2 comments

A.C.L.U. v. Investment Banks

NCUA is not the only organization going after investment banks for their role in the mortgage meltdown.  On Monday, the American Civil Liberties Union filed a lawsuit in the Southern District of New York contending that investment bank Morgan Stanley violated federal law by enabling and directing New Century  Mortgage to engage in mortgage lending and underwriting practices that discriminated against African-Americans in Detroit by encouraging them to enter into subprime loans.

The members of the Class allege that Morgan Stanley has discriminated against them on the basis of their race.  Morgan Stanley deployed policies and practices that enabled the origination of exceedingly high-cost and high-risk residential mortgage loans for the purpose of purchasing, pooling and securitizing those loans at a profit.  Morgan Stanley’s aggressive development of these loan pools disproportionately impacted members of the Class, who were more likely to receive these categorically harmful loans than white borrowers.  As a result, the members of the Class faced a greater risk of default and foreclosure.  [quoted from the complaint, nature of the action]

While New Century is by no means the only originator to be sued over loan origination practices and NCUA, among others, has sued investment bankers over the underwriting standards for mortgages bundled together as mortgage-backed securities, the ACLU lawsuit is the first to effectively combine these two basic arguments and try to hold an investment bank directly responsible for allegedly discriminatory lending practices.  The ACLU is arguing that even though  New Century was the one doing the mortgage lending, it was Morgan Stanley who controlled its actions by demanding subprime mortgages for its mortgage-backed securities.

In order to win, the ACLU will have to prove not only that the lending policies engaged in by New Century were discriminatory against African-Americans but that Morgan Stanley knew of these polices and exercised enough control over New Century that it should be held directly responsible for the discriminatory conduct.  This case could provide an important precedent that ultimately makes investment banks more directly accountable for the role they play in the mortgage market.


October 17, 2012 at 7:44 am Leave a comment

Is Your Credit Union Just Paying Lip Service To Compliance?

Sometimes I think that credit unions get so frustrated with feeling picked on by regulators and overwhelmed by the mountain of regulations with which they have to comply that they overlook the fact that regulations are sometimes put in place for good reason.  Complying with them is no more or less a cost of doing business than is paying for a teller or employing a loan underwriter.  Two recent examples show why due diligence and vendor management are so important.

On Monday, New York’s Attorney General Eric Schneiderman, who is leading a task force of state and federal prosecutors charged with looking into mortgage lending practices, unveiled its first legal action, a civil suit seeking unspecified damages against J.P. Morgan for the sins of Bear Stearns and a subsidiary that JP Morgan took responsibility for when it bought the companies in 2008.  The defendants are accused of  peddling mortgage-backed securities comprised of residential mortgages it knew were shoddy.  In fact, the banks pointed to their due diligence practices as a reason why investors could be confident they were making a good investment. According to the AG:

“Defendants failed to use due diligence as a tool to identify and eliminate the many defective loans that they purchased from originators. Rather, and in order to preserve their relationships with loan originators, Defendants routinely overlooked defective loans that were identified through the due diligence review and ignored deficiencies that they knew existed in the due diligence review process itself.  Furthermore, Defendants failed to disclose to investors the defects in the loans that they purchased and the deficiencies in their due diligence process.”

What does your credit union have in common with one of the largest banks in the world?  Every day your credit union has to balance the benefits of complying against the costs.  The defendants had an impressive due diligence framework complete with an outside third party that sampled loan documents for compliance.  But in its quest to make money and keep up with the competition (the old “everybody does it” argument), they chose to ignore clear warning signs.  If your credit union does not invest in compliance,  or simply pays lip service to performing due diligence, you are doing the same thing.

Then there is the case of American Express.  This week it became the latest of a growing list of  credit card companies whom the CFPB – this time working jointly with the FDIC –  fined for deceptive marketing and debt collection practices.

American Express could have saved about eighty million dollars and a hit to  its reputation had it simply kept better track of what third-party vendors were doing in its name. It was these service providers that  exhibited many of the practices that most troubled the regulators. For instance, it was third party marketers who used deceptive telephone scripts to get people to become cardholders.

Of course this didn’t let the company off the hook.  It was guilty of “deficient management oversight” and was given 60 days to “develop policies to maintain effective monitoring, training, record-keeping and audit procedures to review each aspect of the Bank’s agreements with its Service Providers and the services performed for the Bank pursuant to these agreements.”

Does your credit union use vendors to provide financial services? Are they complying with the law? And how do you know? These are all legitimate questions for your examiner to ask.

October 3, 2012 at 7:27 am Leave a comment

On gambling and the CFPB. . .

Not that you would have found the regulation if you went to the Federal Register on Friday, or even if you went to the regulation section of CFPB’s website, but the Bureau out to save America from itself by January 1, 2013 posted yet another regulatory proposal.  You can find a link to the material in the Bureau’s newsroom section as one of its latest press releases.  Comments are due in October.  This is the latest example of the CFPB’s regulation by press release.  The Federal Register is so 20th Century.

I have to admit that I did not get to read the entire proposal over the weekend, but from what I’ve read so far, this one is rather clever.  The Dodd-Frank Act sought to ban the use of up-front points and fees in mortgage loans, where such points and fees were being used to compensate brokers and originators based on the size of the loan.  That means, for instance, that an originator isn’t supposed to receive a higher commission for getting a $500,000 home loan through the mortgage lending process than he is for an $80,000 loan.  The problem is, the legislation is written so restrictively that it isn’t clear where any points and fees can legitimately be charged. 

Under the CFPB’s proposal, consumers would be given a comparison that allowed the option of a mortgage with points and fees paid up-front or the same mortgage where the points and fees would instead be included in the financing of the mortgage.  In announcing the proposal, Richard Cordray explained that many consumers face a bewildering array of points and fees and are confused by the mortgage process. This proposal would give them an easy way to compare the cost of a mortgage loan.  Remember that the credit union would still be allowed to recover its legitimate costs.  It is simply a question of making sure the member understands which approach is most cost effective.  

Incidentally, I went to the Saratoga Racetrack yesterday and I think the CFPB’s approach to ensuring that the daft American public knows what is it actually doing with its money should be applied to the betting industry.  For instance, I observed that 10s of 1000s of people were staring down at race forms with loads of numbers they couldn’t possibly understand and then using those same number to throw away their money.  The CFPB should mandate that horses with long odds be given names in the program such as “get ready to tear up your ticket,” “what about the college fund?” or “who needs to pay the mortgage, anyway.”  Those horses with shorter odds should be named things such as “keep you fingers crossed” and “don’t forget, the house always wins”.  Such improvements to the gambling industry would not prohibit anyone from gambling, but simply point out how foolish they are for doing so. 

Not for nothing, but the Meier family came back in the black, thanks to the expert prognostication of my nearly 10 year old daughter.  Take that, Richard!

August 20, 2012 at 7:51 am Leave a comment

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Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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