Anand S. Raman Bank Counsel Conference. November 13, Skadden

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1 Fair Lending Update Anand S. Raman Louisiana Bankers Association 2008 Bank Counsel Conference November 13, 2008

2 Loan Modification Becomes Central Focus FDIC IndyMac plan Massachusetts AG action against Option One AG Task Force Report Multi-state AG Task Force letters to major servicers Barney Frank letter to major servicers 1

3 Loan Servicing/Appraisal Practices Loan servicing i and collection practices FTC settlement with Bear Stearns/ EMC Appraisal i l practices NYAG settlement with Fannie Mae and Freddie Mac 2

4 Unfair and Deceptive Practices Litigation Municipal lawsuits by Cleveland and Buffalo Class action lawsuits alleging TILA, RESPA and State UDAP Claims Massachusetts AG lawsuits alleging g Structural Unfairness 3

5 HMDA Pricing Enforcement Actions DOJ settlement and investigations First Lowndes Bank settlement Active HMDA pricing investigations More settlements/litigation expected New York AG Greenpoint Settlement 4

6 HMDA Pricing Enforcement Actions FTC has active end-stage HMDA pricing investigation HUD Systemic Investigation Unit has several active investigations Federal Banking Regulators have many active examinations and steady stream of potential DOJ referrals 5

7 HMDA Pricing Litigation Numerous HMDA pricing class actions NAACP multi-defendant case Many individual cases throughout the country Plaintiffs defeat several motions to dismiss No classes certified 6

8 Recent HMDA Amendment October 2008: Regulation C amended to more closely tie the price-reporting requirement to mortgage rates prevailing in the markets Lenders will now report: the spread between the Freddie Mac Prime Mortgage Market Survey rate, plus 150 basis points for first-lien loans, or 350 basis points for second-lien loans. Applies to applications taken after October 1, 2009 and all loans closed after January 1,

9 Federal Reserve Reports on HMDA Data The Federal Reserve reports on lending patterns annually. The reports on the 2006 and 2007 data observed: a reduction in the number of applications a contraction in the availability of credit Factors t found dto have caused these changes included: 8 slower home price escalation substantial turmoil in the markets

10 Federal Reserve Reports: Implications for Individual id llenders The Fed has transmitted the results of its analyses to: federal banking regulators the U.S. Department of Housing and Urban Development The Fed has cautioned that the HMDA data lacks several important factors that may affect loan pricing, including: credit scores loan-to-value ration debt-to-income to ratio the product selected 9

11 Lender Risk Management Analyzing Data Trigger rate analysis Frequency Magnitude APR consistency Broker/loan officer pricing consistency Discretionary pricing analyses Denial rates 10

12 Lender Risk Management Analyzing Data Methodology issues Obtaining credit-related information not in HMDA Absolute difference versus ratio Assigning each application to one class for analysis (e.g., g White, African-American, Hispanic, etc.) 11

13 Increased Focus on Redlining/Reverse Redlining and Denial ldisparity it Rates Bank regulator examination focus DOJ investigation focus HUD investigation focus City y of Baltimore lawsuit 12

14 Credit Card Lending Focus Boston Fed Study Federal Reserve Bank of Boston study Credit Card Redlining (February 26, 2008) found: [Q]ualitatively large differences in the amount of credit offered to similarly qualified applicants living in Black versus White areas That observed differences in credit lines by racial composition of neighborhood are largely driven by issuer decisions rather than by demand Study likely to generate significant further scrutiny of credit card lenders pre-screening ee and risk-based pricing decisions. 13

15 Credit Card Lending Focus - Congressional Legislation Rep. Maloney s Credit Card Holder Bill of Rights Sen.. Dodd s Credit Card Accountability, Responsibility and Disclosure Act 14

16 Credit Card Lending Focus Interagency Guidance Federal Reserve/OTS/NCUA Proposed Joint Unfair and Deceptive Credit Practices Rule 15 Marks a fundamental shift from requiring disclosure to regulating g actual fee practices and payment allocation. Addresses: Payment allocation methods Freezes rate increases on outstanding balances except upon default on the card or in connection with clearly disclosed variable and promotional rates Limits over-limit fees and advance fees Prohibits double cycle billing

17 Fair Lending Forecast November 2008 October 2009 Focus on Loan modification as re-default rate soars Criminal prosecutions for mortgage fraud Issue of lender responsibility for broker pricing decision becomes ripe for judicial decision Regulatory g yexaminations become more difficult Credit card default rate increases causing greater focus on lending practice 16

18 For further information contact: Anand S. Raman, Arps, Slate, Meagher & Flom LLP 1440 New York Avenue, N.W. Washington, DC (202)

Loss Mitigation: Fair Lending Implications in Servicing and Modifications

Loss Mitigation: Fair Lending Implications in Servicing and Modifications Jonice Gray Tucker Partner BuckleySandler LLP November 9, 2010 Overview Unprecedented levels of defaults and foreclosures have