Mortgage Lending Regulation & Enforcement

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Mortgage Lending Legal Authority

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Mortgage Lending Regulation & Enforcement

  1. 1. Mortgage Lending: Regulation and Enforcement Katherine Worthman Attorney Federal Trade Commission Division of Financial Practices June 3, 2008 The views expressed are those of the speaker and not necessarily those of the FTC or any other person.
  2. 2. Players in the Mortgage Market - Primary Market Mortgage Lenders vs. Mortgage Brokers Mortgage Originators Depository Institutions Banks Savings and Loans Credit Unions
  3. 3. Players in the Mortgage Market - Primary Market Mortgage Originators Non-Depository Institutions Mortgage companies Mortgage brokers
  4. 4. Players in the Mortgage Market – Secondary Market Secondary Market Conduits Federal National Mortgage Association (“Fannie Mae”) Federal Home Loan Mortgage Corporation (“Freddie Mac”) “Government National Mortgage Association (“Ginnie Mae”) Private Investment Banks
  5. 5. Mortgage Backed Securities – Market Share 400 350 300 250 200 150 100 Ginnie 50 Freddie 0 Fannie 2003 2003 2003 2003 2004 2004 2004 2004 2005 2005 2005 2005 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Private Label Source: Mortgage Bankers Association
  6. 6. Players in the Mortgage Market – Secondary Market Investors Pension Funds Life Insurance Companies Commercial Banks Savings and Loans
  7. 7. Who Has Enforcement Authority Over the Primary Market? The Federal Trade Commission Mortgage Companies Mortgage Brokers Finance companies Units of bank holding companies
  8. 8. Who Has Enforcement Authority Over the Primary Market? The Federal Banking Agencies Banks Savings and Loan Institutions National Credit Unions State Regulators
  9. 9. Who’s Who of Federal Banking Regulators Office of Comptroller of the Currency Board of Governors of the Federal Reserve Federal Deposit Insurance Corporation Office of Thrift Supervision National Credit Union Association
  10. 10. Who Regulates the Secondary Market? Office of Federal Housing Enterprise Oversight (OFHEO) Fannie Mae Freddie Mac
  11. 11. Who Regulates the Secondary Market? Securities and Exchange Commission Securities firms (JP Morgan Chase, Merrill Lynch, Morgan Stanley, etc.) Credit rating agencies State Regulators
  12. 12. FTC and the Federal Banking Agencies The Federal banking agencies have supervisory, regulatory and enforcement authority. In contrast, the Federal Trade Commission is a law enforcement agency – not a supervisory agency.
  13. 13. FTC - Scope of Enforcement Only federal agency with both consumer protection and competition jurisdiction in broad sectors of the economy Enforces the FTC Act prohibiting unfair or deceptive acts and practices and 50 other statutes and more than 30 rules governing specific industries and practices
  14. 14. FTC - Scope of Enforcement Federal district courts and administrative litigation No criminal authority
  15. 15. Banking Agencies – Scope of Enforcement Banking practices that threaten a financial institution’s safety and soundness or violate a federal law or regulation. Supervisory, Regulatory and Enforcement Authority Administrative litigation, No criminal authority
  16. 16. Federal and State Regulatory Collaboration Pilot Project with Federal and State regulators Purpose – To conduct targeted consumer- protection compliance reviews of select non- depository lenders with significant subprime mortgage operations
  17. 17. Federal and State Regulatory Collaboration Federal Board of Governors of the Federal Reserve System Office of Thrift Supervision Federal Trade Commission State State Members of the Conference of State Bank Supervisors American Association of Residential Mortgage Regulators
  18. 18. Federal and State Regulatory Collaboration Focus Underwriting standards Senior management oversight Deceptive or unfair practices
  19. 19. Federal and State Regulatory Collaboration Goal Share information about the reviews and investigations Take action as appropriate Collaborate on the lessons learned Seek ways to better cooperate in ensuring effective and consistent reviews of these institutions
  20. 20. What We Do at the FTC All stages of mortgage lending Authority with respect to mortgage lending
  21. 21. Areas of Mortgage Lending Advertising Marketing Servicing
  22. 22. Authority with respect to mortgage lending Among other authority: The Truth in Lending Act (“TILA”) The Home Ownership and Equity Protection Act (“HOEPA”) The Equal Credit Opportunity Act (“ECOA”)
  23. 23. FTC Actions in the Mortgage Lending Area Past decade: 22 actions More than $320 million
  24. 24. Key Enforcement Areas Deception re: loan terms “Packing” Lack of accurate and timely disclosures Servicing
  25. 25. “Packing” Adding “extras,” such as credit insurance as part of the loan, without adequately disclosing the cost of existence of the product Lenders often stand to make significant profits Single-premium credit insurance
  26. 26. Lack of Accurate and Timely Disclosures Costs and terms of home equity loans Consumers’ right to cancel
  27. 27. Servicing Money not owed under the loan terms Practices that inhibit refinancing with other lenders
  28. 28. Investigating Mortgage Cases Locating Consumers Interviewing Consumers Consumer Documents Target Companies
  29. 29. Locating Consumers Consumer Response Center and state complaint intake CID/Subpoena Mortgage Recordings - MERS
  30. 30. Consumer Complaints Consumer Response Center/Sentinel Legal aid attorneys/housing counselors/consumer groups
  31. 31. Consumer Response Center Via phone, mail and website 31,000 complaints/inquiries per week
  32. 32. Consumer Sentinel FTC’s fraud and identity theft complaint database Accessible to 1,650 law enforcement agencies
  33. 33. Consumer Interviews Broker/Lender representations Consumer’s understanding of the mortgage loan
  34. 34. Target Companies Former Employees Corporate Documents
  35. 35. Mortgage Lending: Regulation and Enforcement Katherine Worthman, Attorney Federal Trade Commission Division of Financial Practices June 3, 2008

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