Attorney's Input on Cyber-Security and Servicing

By rchrisman@robchrisman.com

"Lexophile" is a word used to describe those that have a love for words, such as "you can tune a
piano, but you can't tuna fish", or "to write with a broken pencil is pointless." A competition to see who can come up with the best lexophiles is held every year in an undisclosed location. Here are some recent entries - there are some darned clever people out there. (Part 1 of 2.)

When fish are in schools, they sometimes take debate.   
A thief who stole a calendar got twelve months.   
When the smog lifts in Los Angeles U.C.L.A. 
The batteries were given out free of charge.   
A dentist and a manicurist married. They fought tooth and nail.   
A will is a dead giveaway.
With her marriage, she got a new name and a dress.   
A boiled egg is hard to beat.
When you've seen one shopping center you've seen a mall.   
Police were summoned to a daycare center where a three-year-old was resisting a rest

Welcome to the first business day of the 4^th quarter! For another first, on this date in 1955 the first episode of Captain Kangaroo aired. Just think of how many people in our biz watched that series when they were kids! Heavens to Murgatroyd! (Yes, I know, different show.)

Although not related to mortgages, but more to "when it rains it pours," last week the DOJ and OCC announced separate settlement agreements with Wells Fargo regarding alleged violations of the Servicemembers Civil Relief Act (SCRA). The DOJ's complaint alleged that the bank repossessed vehicles owned by active duty service members without the required court orders. Under the DOJ consent order, the bank agreed to pay $10,000 to each affected service members whose vehicles were repossessed between from January 2008 to July 2015 not in compliance with SCRA, plus any lost equity in the repossessed vehicle, with interest. The DOJ identified 413 affected service members and the bank agreed to set aside $4,130,000 (or more if needed) to pay the required compensation.

 On the mortgage side, a federal judge has thrown out FDIC lawsuits against Citigroup Inc, Bank of New York Mellon Corp and U.S. Bancorp to recoup some of the more than $695 million that the regulator said it lost by selling soured mortgage debt once owned by Texas' Guaranty Bank. (Guaranty Bank failed.) From New York word came that U.S. District Judge Andrew Carter said the FDIC, the receiver for Austin-based Guaranty Bank, lacked standing to sue after selling the debt in question through a March 2010 resecuritization transaction. "Any claims that plaintiff might have held, travelled with the bonds when they were transferred," Carter wrote.

 The FDIC had argued that the right to sue was a "personal" claim that it did not give away in the resecuritization. The FDIC had accused the defendant banks of failing, in their roles as bond trustees, to ensure that mortgages backing $2.7 billion of securities bought by Guaranty were properly underwritten, or to require lenders to fix or buy back troubled loans. The securities were issued from 2005 to 2007, and sponsored by EMC (Bear Stearns) or by Countrywide. (As a reminder for anyone who wasn't in the residential lending business before 2009, in 2008 JPMorgan Chase bought Bear Stearns, and thus EMC, and Bank of America bought Countrywide.)

 Senior Deutsche Bank officials are expected in the U.S. this week to negotiate a settlement with the Department of Justice over a $14 billion fine for mis-selling mortgage-backed securities. Reports suggest that American authorities are considering cutting the penalty to $5.4 billion.

 Addressing the current legal environment for cyber-security and servicing, Anthony Sharett, Partner, National Co-Chair Financial Services Industry Group with BakerHostetler, writes, "Lenders need to be aware of consumer suits facing lenders and servicers under the Fair Credit Reporting Act, TCPA, and other consumer statutes. For example, we now know that in the cyber-security area, the Sixth and Seventh Circuits have held that plaintiffs have standing to sue due to an 'increased risk' of future identity theft resulting from a data breach. The Third Circuit, however, previously determined that plaintiffs have no standing to sue based on an 'increased risk' of future identity theft explaining that reason alone is too speculative to establish standing.

 "Mortgage servicers are seeing increased litigation under the Fair Credit Reporting Act (FCRA) as plaintiff's lawyers are bringing more nuanced claims concerning how servicers are reporting certain borrower activity to credit reporting agencies, particularly where there is a bankruptcy involved. Yesterday, in a 6-2 decision, the Supreme Court of the United States issued its decision in Robins v. Spokeo, No. 13-1339, 578 U. S. ____ (2016), putting to rest months of speculation as to whether the Court could come to a meaningful decision (that would be anything other than 4-4) in the aftermath of Justice Scalia's passing in February. In a ruling that both defense and plaintiffs' lawyers alike are heralding as a victory, the Court held that to satisfy the injury-in-fact requirement to bring a lawsuit under the FCRA, the plaintiff must allege an injury that is both "concrete and particularized."  With that, the Court vacated the Ninth Circuit decision and remanded the case to the trial court to consider both aspects of the injury-in-fact requirement.  

 "In practical terms, the Supreme Court decision means that a consumer cannot sue companies, including mortgage lenders and servicers, under the FCRA for mere technical violations of the law.  This decision could curtail individual litigation against mortgage lenders and servicers under the FCRA and reduce class action litigation. But while creditors and lenders may celebrate this decision, so are plaintiff's lawyers and consumer advocates. As Justice Alito stated, 'the violation of a procedural right granted by statute can be sufficient in some circumstances to constitute injury-in-fact,' Justice Alito wrote. 'In other words, a plaintiff in such a case need not allege any additional harm beyond the one Congress has identified.' It remains to be seen how this ruling may impact litigation involving other consumer statutes such as the TCPA. Finally, the cybersecurity community was closing watching the Spokeo decision because in cybersecurity cases, 'concrete injury' rarely is addressed and the courts have been divided on standing. 

 "Thus, the post-Spokeo landscape is still evolving and, in the future, the U.S. Supreme Court could clarify Spokeo particularly in the cyber-security area (an increasing risk area for lenders, servicers and vendors). Finally, consider how all of this will impact compliance measures under the new HMDA rules and data reporting requirements." Thank you Anthony!

 Are consumers involved with these legal matters, or insurance claims? Sure they are. Lenders must incur costs for "lawyering up," and these costs are passed on to borrowers. On the insurance claim side of things, personal finance reporter Daniel Goldstein did a write up titled, "Why Hermine may make it tough for homeowners to get insurance repair checks." (One hopes that the mortgage servicers get it right this time and have people on site in Louisiana who can co-sign insurance checks.)

 In response to Hurricane Hermine in Florida and in response to a Federal Disaster Declaration, M&T Bank will enforce the Disaster Reinspection Policy for all properties located in the affected parishes in the following designated areas: Counties of Citrus, Dixie, Hernando, Hillsborough, Leon, Levy, Pasco, Pinellas. Re-inspection policies remain in effect per M&T's matrix. Applicable dates refer to Appraisals Completed prior to 9-11-2016.

 In reference to the FEMA announced assistance granted to 8 Florida counties to supplement individual, state, and local recovery efforts in the areas affected by Hurricane Hermine from 8/31-9/11/2016; AmeriHome's Seller Guide Section 10.10 covers its Disaster Policy for property inspection requirements. Re-inspection requirements are expected to remain in place for all properties with appraisal dates prior to the incident end date or for at least 90 days following the incident end date for loan transactions where an appraisal inspection is not otherwise required, unless otherwise announced by AmeriHome.  the area covered by the declaration, if a Seller has reason to believe that a property might have been damaged in a disaster the Seller must take appropriate action to ensure that the property is free from damage and meets AmeriHome requirements at the time of purchase by AmeriHome. Employment re-verification requirements for declared disaster areas are not necessary at this time.  

 Turning to the bond markets, can you believe we're starting the 4th quarter of the year? Rates are steady, which is fine by many. Looking back to Friday we saw a little intra-day volatility in the bond market due to Deutsche Bank news (of a potentially smaller settlement). The usual sellers are selling, although many are reporting lighter lock volumes, and the usual buyers are buying, most notably the Fed to the tune of $1-2.5 billion a day of various securities and coupons. For now, the talk of the NY Fed ceasing purchasing agency MBS has stopped - but it is always in the back of our minds. Friday the 10-year note price worsened nearly .5 and it closed with a yield of 1.61%. Agency MBS prices and the 5-year T-note ended the day worse about .125.

 Jobs and housing move the economy, and this week it's a job data week. Scheduled news includes today's Markit US Manufacturing PMI, Construction Spending, car sales and a block of the Institute of Supply Management figures - none big market movers. Tomorrow is zip, but Wednesday the 5^th things pick up with the MBA's application data for last week, the ADP Employment Change numbers, trade balance, Factory Orders, and Durable Goods - a big morning! Thursday we'll see Initial Jobless Claims and Challenger Job Cuts. Friday we have the whole set of employment data including Non-Farm Payroll, Hourly Earnings, and the Unemployment Rate. In the early going the 10-year is hovering around a 1.60% yield and agency MBS prices are roughly unchanged from Friday afternoon.