Top Story Compliance Related

The OCC yesterday announced its approval of a final rule to implement quality control standards for automated valuation models used by mortgage originators and secondary market issuers in valuing residential real estate collateral securing mortgage loans.

The rule was reportedly also approved yesterday by the Board of the FDIC. It is to be jointly issued by the OCC, Federal Reserve Board, FDIC, NCUA, CFPB, and the Federal Housing Finance Agency following approval by each of the agencies. It will be effective at the start of the first calendar quarter following the date that is 12 months after the rule is published in the Federal Register

The FDIC has updated its Consumer Compliance Examination Manual. The June 2024 updates were made to sections II-14.1 (Violations Codes), IV-1.1 (Truth in Lending Act), and XI-1.1 (Community Reinvestment Act).

FinCEN recently issued a report of efforts through May 2024 to educate small businesses and other key stakeholders about new beneficial ownership reporting requirements. The report also included a list of upcoming events at which FinCEN representatives will provide information on the regulation.

The OCC has reported the key issues facing the federal banking system in its Semiannual Risk Perspective for Spring 2024.

The OCC reported that the overall condition of the federal banking system remains sound. However, the maturing economic cycle may cause consumer headwinds. It is important for banks to continue identifying material risks and their interconnected impacts. Continuous risk management improvement remains appropriate as this allows banks to guard against complacency.

The OCC highlighted credit, market, operational, and compliance risks as the key risk themes in the report.

The CFPB on Tuesday announced it had filed a proposed stipulated order, which, if entered by the court, would impose injunctive relief designed to prevent Freedom Mortgage from violating the law in the future, including requirements to regularly audit, test, and correct the company’s HMDA data. It would also require Freedom to pay a $3.95 million civil money penalty.

In October 2023, the CFPB sued Freedom Mortgage, a nonbank mortgage company headquartered in Boca Raton, Florida, for violating both the Home Mortgage Disclosure Act (HMDA) and a 2019 CFPB order.The CFPB proposed the order because Freedom Mortgage has submitted incorrect mortgage data in violation of HMDA, the 2019 order, and the Consumer Financial Protection Act. Freedom Mortgage’s HMDA data submission for 2020 contained widespread errors across numerous data fields because of systemic problems with its compliance management systems. The company’s HMDA violations occurred while Freedom Mortgage was subject to the 2019 law enforcement order.

On Tuesday, the CFPB ordered a reverse mortgage servicing operation to stop illegal activities that harmed older homeowners and caused them to fear losing their homes. The CFPB found that the customer service operation of Sutherland Global, its subsidiaries Sutherland Government Solutions and Sutherland Mortgage Services, and NOVAD Management Consulting had inadequate resources and staffing to handle as many as 150,000 borrowers. This caused systematic failures to respond to thousands of homeowner requests for assistance, and caused financial harm to borrowers, including losing out on home sales and paying unnecessary costs.

The orders permanently ban Sutherland Global, Sutherland Government Solutions, and NOVAD from engaging in reverse mortgage activities, imposes strict compliance requirements on future reverse mortgage activities of Sutherland Mortgage Services, requires the Sutherland companies to pay $11.5 million in redress to affected consumers, and requires all companies to pay a civil penalty of approximately $5 million, which will be deposited in the CFPB’s victims relief fund.

Sutherland and NOVAD formed a loan servicing operation to service reverse mortgages on behalf of the Department of Housing and Urban Development. The loan servicing operation existed from 2014 through 2022, and was responsible for servicing reverse mortgages for as many as 150,000 older borrowers every year.

Under federal law, a servicer must respond to consumer requests for information about their loan in a timely manner. That requirement is important to protect reverse mortgage borrowers, who remain responsible for property taxes, insurance, and other applicable fees and assessments. However, many borrowers could not get in contact with anyone at the loan servicing operation. In fact, the companies systematically failed to respond to thousands of homeowner requests for loan payoff statements, short sales, deeds-in-lieu of foreclosures, lien releases, and requests for general information. The companies allowed problems to fester to critical points, which resulted in borrowers losing out on home sales, paying unnecessary costs, and fearing foreclosure.

The CFPB found that Sutherland and NOVAD violated both the Consumer Financial Protection Act and the Real Estate Settlement Procedures Act. Specifically, the companies harmed older adults with a reverse mortgage by failing to communicate with homeowners, thus preventing homeowners from being able to prove occupancy, obtain loan payoff statements, and complete alternatives to foreclosure. The CFPB also found that the companies sent false repayment letters to older adult homeowners stating that their reverse mortgage loans were due and must be paid within 30 days due to a default condition, when no such trigger event had occurred. The companies would then improperly ignore attempts by reverse mortgage borrowers to address and correct the “due and payable” letters.

• Consent order against Sutherland
• Consent order against NOVAD

Yesterday, the Treasury Department reported that OFAC has designated a network of two individuals and seven entities that provide major sources of revenue for U.S.-designated Republika Srpska President Milorad Dodik and his family. Dodik has used his official position to accumulate personal wealth through companies linked to himself and to Igor Dodik.

For the names and identification information of the designated parties and links to new Balkans-related General Licenses, see the June 18, 2024, BankersOnline OFAC Update.

• A Formal Agreement with Credit Suisse AG New York Branch, New York, NY, to address deficiencies in the branch’s compliance related to the Bank Secrecy Act and other anti-money laundering laws and regulations. The branch’s execution of this formal agreement was a condition for the branch’s conversion to a federal license. The provisions of the formal agreement are substantially the same as a December 2020 written agreement between the branch and the Federal Reserve Bank of New York and the New York State Department of Financial Services.
• A Formal Agreement with Touchmark National Bank, Alpharetta, GA, for unsafe or unsound practices, including those relating to the bank’s strategic planning, board and management oversight, liquidity risk management, interest risk management, credit risk management, audit, and information technology.

• Manuel Alejandro Ramirez Perez, former relationship banker and credit solutions advisor at Bonita Springs and North Naples, Florida, branches of Bank of America, N.A., Charlotte, NC, for improperly accessing customer accounts and providing information on those accounts to a third-party individual.
• Aviana Rivera, former personal banker at a Bryan, Texas, branch of First National Bank Texas, Killeen, TX, for embezzling $11,500 from the account of a bank customer.

The Treasury Department has announced that OFAC has designated two individuals and five entities that have facilitated weapons procurement for Ansarallah, commonly referred to as the Houthis. OFAC is also designating one individual and one company, as well as identifying one vessel, that have facilitated the shipment of commodities, the sale of which provides an important funding stream to the Houthis that aids in their weapons procurement. This action targets key actors who have enabled the Houthis to generate revenue and acquire a range of materials to manufacture the advanced weaponry they are now using to conduct ongoing terrorist attacks against commercial ships.

For the names and identification information of the designated parties, see the June 17, 2024, BankersOnline OFAC Update.

The CFPB yesterday filed a proposed stipulated judgment and order to resolve its lawsuit against James R. Carnes and Melissa C. Carnes for fraudulent transfers to avoid paying restitution and penalties. In April 2023, the CFPB sued James and Melissa Carnes for hiding money, through multiple fraudulent transfers over two years, in an effort to avoid paying more than $40 million owed by James Carnes. Yesterday’s stipulated judgment and order, if entered by the court, would require James and Melissa Carnes to pay $7 million to the CFPB.

James Carnes was the chief executive officer of Delaware-based Integrity Advance, a short-term, online lender. James Carnes and Melissa Carnes reside in Mission Hills, Kansas, which is also the principal place of administration of their revocable trusts. The CFPB previously sued Integrity Advance and James Carnes in 2015 for lying to consumers about the cost of short-term loans. They also withdrew money from borrowers’ accounts despite not having permission from consumers to do so. The CFPB’s lawsuit resulted in an agency order requiring Integrity Advance and James Carnes to pay $38 million to make harmed consumers whole. The order also required Integrity Advance to pay a civil money penalty of $7.5 million and James Carnes to pay a civil money penalty of $5 million.

In the fraudulent transfer action filed in April 2023, the CFPB alleged that James Carnes and Melissa Carnes transferred funds to hinder, delay, or defraud the CFPB, in violation of the Federal Debt Collection Procedures Act. Between 2013 and 2015, James Carnes fraudulently transferred $12.3 million to his wife through a series of revocable trusts. James Carnes was co-trustee of the trusts, so he could access their funds for personal and business use.

Yesterday’s order, if entered by the court, would require James and Melissa Carnes to pay $7 million of an imposed $12.3 million judgment, with the remaining amount suspended due to demonstrated inability to pay more. The payment will be applied toward satisfying James Carnes’ existing $43 million judgment, which includes consumer redress and civil money penalties. The CFPB will continue its efforts to collect the remaining amount of the $43 million judgment.