Tag Archives: Comptroller of the Currency

Fox in The CRA Henhouse

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Law360 quoted me in Treasury’s Fair Lending Review Worries Advocates (behind a paywall). It reads, in part,

President Donald Trump’s Treasury Department said Monday that revisiting a 1977 law aimed at boosting bank lending and branches in poor neighborhoods was a “high priority,” but backers of the Community Reinvestment Act fear that any move by this administration would be aimed at weakening, not modernizing, the law.

Critics and some backers of the Community Reinvestment Act say that the law does not take into account mobile banking and the decline of branch networks among a host of other updates needed to meet the realities of banking in 2017.

While there is some agreement on policy, the politics of reworking the CRA are always difficult. Those politics will be even more difficult with the Trump administration and Treasury Secretary Steven Mnuchin, who ran into problems with the CRA when he was the chairman of OneWest Bank, leading the review, said David Reiss, a professor at Brooklyn Law School.

“A team at Treasury led by the OneWest leadership should give consumer advocates pause,” he said.

*   *   *

Across the administration, from the U.S. Department of Education to the Department of Justice, civil rights enforcement has taken a back seat to other concerns. And Mnuchin is in the process of populating the Treasury Department with former colleagues from OneWest.

Trump nominated former OneWest CEO Joseph Otting to be comptroller of the currency earlier this month and is reportedly close to nominating former OneWest Vice Chairman and Chief Legal Officer Brian Brooks as deputy Treasury secretary. Brooks is currently the general counsel at Fannie Mae.

Activists who fought the CIT-OneWest merger on CRA grounds say that the placement of those former OneWest executives in positions of authority over the law should raise alarms.

“[Mnuchin’s] bank, OneWest, also had one of the worst community reinvestment records of all the banks that CRC analyzes in California, which raises questions about his motivation in ‘reforming’ the Community Reinvestment Act. Is he interested in reforming it to help communities, or to help the industry do even less?” said Paulina Gonzalez of the California Reinvestment Coalition.

The Treasury secretary has defended his bank’s foreclosure practices and others that drew fair lending advocates’ ire, saying that most of the problems at OneWest were holdovers from IndyMac, the failed subprime lender OneWest’s investors purchased after it failed.

Discussing reforms to the CRA under any administration, particularly a typical Republican administration, would be difficult on its own for lawmakers and inside regulatory agencies, Schaberg said.

“Anybody down in the middle-management tier of any of the banking agencies, they’re not going to touch this because it’s so politically charged,” he said.

The added distrust of the Trump administration and Mnuchin among fair housing advocates makes the prospect of any legislation to reshape even harder to imagine. Even without legislation, new leadership at the regulatory agencies that monitor for CRA compliance could take a lighter touch. And that has fair housing backers on edge.

“In my mind, there’s a fox-in-the-henhouse mentality,” Reiss said.

What Is To Be Done with Mortgage Servicers?

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The Office of the Comptroller of the Currency has found that EverBank; HSBC Bank USA, N.A.; JPMorgan Chase Bank, N.A.; Santander Bank, National Association; U.S. Bank National Association; and Wells Fargo Bank, N.A. have not met all of the requirements of consent orders they had entered into because of deficiencies in how they dealt with foreclosure servicing. The details of these deficiencies are pretty bad.

The OCC recently issued amended consent orders with these banks. The amended orders restrict certain business activities that they conduct. The restrictions include limitations on:

  • acquisition of residential mortgage servicing or residential mortgage servicing rights (does not apply to servicing associated with new originations or refinancings by the banks or contracts for new originations by the banks);
  • new contracts for the bank to perform residential mortgage servicing for other parties;
  • outsourcing or sub-servicing of new residential mortgage servicing activities to other parties;
  • off-shoring new residential mortgage servicing activities; and
  • new appointments of senior officers responsible for residential mortgage servicing or residential mortgage servicing risk management and compliance.

HSBC had the most deficiencies of the six:  it did not make 45 of the 98 changes it had agreed to over the last few years. I was particularly interested in the portion of the consent orders that relate to MERS. The HSBC consent order states:

(1) The Bank shall implement its Revised Action Plan and ensure appropriate controls and oversight of the Bank’s activities with respect to the Mortgage Electronic Registration System (“MERS”) and compliance with MERSCORPS’s membership rules, terms, and conditions (“MERS Requirements”), include, at a minimum:

(a) processes to ensure that all mortgage assignments and endorsements with respect to mortgage loans serviced or owned by the Bank out of MERS’ name are executed only by a certifying officer authorized by MERS and approved by the Bank;

(b) processes to ensure that all other actions that may be taken by MERS certifying officers (with respect to mortgage loans serviced or owned by the Bank) are executed by a certifying officer authorized by MERS and approved by the Bank;

(c) processes to ensure that the Bank maintains up-to-date corporate resolutions from MERS for all Bank employees and third-parties who are certifying officers authorized by MERS, and up-to-date lists of MERS certifying officers;

(d) processes to ensure compliance with all MERS Requirements and with the requirements of the MERS Corporate Resolution Management System (“CRMS”);

(e) processes to ensure the accuracy and reliability of data reported to MERSCORP and MERS, including monthly system-to-system reconciliations for all MERS mandatory reporting fields, and daily capture of all rejects/warnings reports associated with registrations, transfers, and status updates on open-item aging reports. Unresolved items must be maintained on open-item aging reports and tracked until resolution. The Bank shall determine and report whether the foreclosures for loans serviced by the Bank that are currently pending in MERS’ name are accurate and how many are listed in error, and describe how and by when the data on the MERSCORP system will be corrected; and

(f) an appropriate MERS quality assurance workplan, which clearly describes all tests, test frequency, sampling methods, responsible parties, and the expected process for open- item follow-up, and includes an annual independent test of the control structure of the system-to- system reconciliation process, the reject/warning error correction process, and adherence to the Bank’s MERS Plan.

(2) The Bank shall include MERS and MERSCORP in its third-party vendor management process, which shall include a detailed analysis of potential vulnerabilities, including information security, business continuity, and vendor viability assessments.

These should all be easy enough for a financial institution to achieve as they relate to basic corporate practices (e.g., properly certifying officers); basic data management practices (e.g., system-to-system reconciliations); and basic third-party vendor practices (e.g., analyzing potential vulnerabilities of vendors).

It is hard to imagine why these well-funded and well-staffed enterprises are having such a hard time fixing their servicing operations. We often talk about governments as being too poorly run to handle reform of complex operations, but it appears that large banks face the same kinds of problems.

I am not sure what the takeaway is in terms of reform, but it does seem that homeowners need protection from companies that can’t reform themselves while they are under stringent consent orders with their primary regulator for years and years.