United States: Nutter Bank Report - May 2015

The Nutter Bank Report is a monthly electronic publication of the firm's Banking and Financial Services Group and contains regulatory and legal updates with expert commentary from our banking attorneys.


  1. Banking Agencies Issue Final Rule on Appraisal Management Company Standards
  2. Fannie Mae and Freddie Mac Issue New Eligibility Requirements for Seller/Servicers
  3. Recent U.S. Supreme Court Decision Enhances Creditor Rights in Bankruptcies
  4. Mass. AG Adopts Transitional Safe Harbor for Earned Sick Time Law
  5. Other Developments: Certificates of Insurance and Housing Discrimination

1. Banking Agencies Issue Final Rule on Appraisal Management Company Standards

The federal banking agencies and the CFPB have issued a final rule that implements the minimum requirements in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") to be applied by participating states in the registration and supervision of appraisal management companies ("AMCs"). The final rule released on May 18 also implements the Dodd-Frank Act requirement for states to report to the Appraisal Subcommittee of the Federal Financial Institutions Examination Council the information required by the Appraisal Subcommittee to administer a new national registry of AMCs ("AMC National Registry"). According to the final rule, an AMC is defined to mean a person or business that provides appraisal management services to lenders or to participants in the secondary mortgage markets. These appraisal management services include contracting with licensed and certified appraisers to perform appraisal assignments, including providing administrative services such as receiving appraisal orders and appraisal reports, submitting completed appraisal reports to creditors and secondary market participants, collecting appraisal fees and paying appraisers for services performed. Under the final rule, states may elect to register and supervise AMCs. Although states are not required to establish an AMC regulatory structure, any AMC operating in a state that has not established such a regulatory structure within 36 months after the effective date of the final rule will be barred from providing appraisal management services for federally related home mortgage loans unless the AMC is owned and controlled by a federally regulated depository institution. The final rule will become effective 60 days after publication in the Federal Register, which is expected shortly.

Nutter Notes: Under the final rule, participating states must apply certain minimum requirements to the registration and supervision of AMCs. For example, the final rule requires that an AMC may not be registered by a state or included on the AMC National Registry if that AMC is owned in whole or in part, directly or indirectly, by any person who has had an appraiser license or certificate refused, denied, cancelled, surrendered in lieu of revocation, or revoked in any state for cause, as determined by the appropriate state agency. An AMC that is a subsidiary of an insured depository institution and is regulated by a federal financial institution regulatory agency must meet the same minimum requirements as state-regulated AMCs except for the requirement to register with a state. The final rule also clarifies that a credit union service organization ("CUSO") that provides AMC services is not considered to be a federally-regulated AMC, and therefore would be regulated by, and registered with, the state or states in which the AMC CUSO operates. The Massachusetts Board of Registration of Real Estate Appraisers licenses qualified professional appraisers under Title XI of the Federal Financial Institution Reform, Recovery and Enforcement Act of 1989, but does not currently license or regulate AMCs.

2. Fannie Mae and Freddie Mac Issue New Eligibility Requirements for Seller/Servicers

Fannie Mae and Freddie Mac (the "GSEs") have jointly announced new operational and financial eligibility requirements for all current and potential single-family mortgage seller/servicers, including banks. The new operational requirements announced on May 20 will become effective on September 1, 2015 and the new financial requirements will become effective on December 31, 2015. The GSEs will make the new operational requirements available through seller/servicer guides and best practices documents that will clarify the GSEs' expectations for the execution of transfers of contractual mortgage servicing rights between servicers and provide examples of different processes to review as part of servicer oversight. For example, the GSEs will now require mortgage loan servicers to perform an interior inspection every 30 days on foreclosed properties until the foreclosure sale date after a servicer has confirmed a property has been abandoned. The best practices documents will communicate the servicing obligations owed by master servicers and their subservicers to the GSEs, such as conducting audits and quality control reviews on subservicers for compliance with GSE requirements.

Nutter Notes: The GSEs originally proposed new minimum financial eligibility requirements in January. The final minimum financial eligibility requirements did not substantively change from the proposed requirements. The new minimum financial requirements include a minimum net worth requirement for all seller/servicers equal to $2.5 million plus 25 basis points of total unpaid principal balance ("UPB") for all 1-4 family residential mortgage loans serviced. The new minimum financial requirements also include minimum capital ratio and liquidity requirements for all seller/servicers other than insured depository institutions. Non-depository seller/servicers will be required to maintain a ratio of tangible net worth to total assets of at least 6%. Non-depository seller/servicer liquidity requirements will depend on the total amount of UPB serviced for the GSEs and Ginnie Mae. The GSEs said that they may require certain seller/servicers to comply with requirements beyond the published minimum financial requirements due to situations including but not limited to overall complexity of the portfolio serviced, or other evidence of heightened risk embedded in the seller/servicer's business model or financial condition.

3. Recent U.S. Supreme Court Decision Enhances Creditor Rights in Bankruptcies

The U.S. Supreme Court recently decided that a bankruptcy court order denying confirmation of a Chapter 13 debtor's proposed bankruptcy plan is not a final and appealable order. As a result of the May 4 decision, a Chapter 13 debtor may not appeal as a matter of right a denial of a proposed bankruptcy plan but must instead seek the court's permission to file an interlocutory appeal. In the case before the Supreme Court, the individual Chapter 13 debtor had proposed a bankruptcy plan that attempted to "bifurcate" the lender's mortgage claim. That is, the debtor sought to designate as "secured" only the portion of the claim equal to the value of the underlying collateral. The debtor sought to designate the balance (the portion of the loan exceeding the value of the collateral) as "unsecured." When presented with this proposed treatment in the debtor's proposed plan, the debtor's lender objected. The federal bankruptcy court sustained the objection and refused to confirm the debtor's plan. The debtor then sought to appeal the decision and the Supreme Court agreed to take the case. In a unanimous decision, the Supreme Court determined that an order denying confirmation of a Chapter 13 plan could not be final and appealable because the debtor can file an amended plan.

Nutter Notes: Chapter 13 of the U.S. Bankruptcy Code governs individual wage-earner reorganizations (in contrast to Chapter 7, which governs liquidation proceedings, and Chapter 11, which governs reorganizations for companies and individuals with more substantial assets and liabilities). The Supreme Court decision resolved a split between federal circuits on a hotly contested issue. In a non-bankruptcy case, a federal court order is considered final and appealable if it finally resolves the case. However, court orders in bankruptcy cases generally may be immediately appealed if they "finally dispose of discrete disputes within the larger case." Specifically, the U.S. Bankruptcy Code provides that appeals as of right may be taken not only from final judgments but from "final judgments, orders, and decrees . . . in cases and proceedings." As a result of the decision, a Chapter 13 debtor may not appeal as a matter of right a denial of a proposed plan but must instead seek permission to file an interlocutory appeal – a much less valuable right than an appeal as of right. The decision may also have implications for proposed Chapter 11 plans. By refusing to allow an immediate appeal by a debtor of a proposed plan, the Supreme Court has enhanced the rights of creditors in bankruptcy proceedings.

4. Mass. AG Adopts Transitional Safe Harbor for Earned Sick Time Law

The new Earned Sick Time Act, approved by Massachusetts voters on November 4, 2014, requires private employers, including banks, to provide paid sick leave to their employees beginning on July 1. Massachusetts Attorney General Maura Healey issued a "safe harbor" notice this month to employers with paid time off policies for a transitional period from July 1 to December 31, 2015. Under the terms of the safe harbor notice, any employer that had a paid time off policy in place on or before May 1, 2015, and that provides employees the right to use at least 30 hours of paid time off during the 2015 calendar year, will be deemed to be in compliance with the new earned sick time law. The transitional safe harbor applies both to those employees who are eligible for time off under an existing, qualifying paid time off policy and to other employees who previously were not eligible for paid time off under the employer's policy, but to whom the employer extends the use of at least 30 hours of paid time off under the same conditions. To remain in compliance with the law, any paid time off, including sick time, used by an employee from July 1 to December 31, 2015, must be job protected leave subject to the law's non-retaliation and non-interference provisions according to the transitional safe harbor notice.

Nutter Notes: During the transition period from July 1 to December 31, employers may continue to administer paid time off under policies in place as of May 1, 2015 in accordance with any other terms of the policy not inconsistent with the requirements of the Attorney General's transitional safe harbor notice. Each Massachusetts employer operating under the safe harbor must adjust its paid time off policy to conform to the requirements of the new earned sick time law by January 1, 2016. The new law will require employers to allow employees to accrue one hour of sick time for every 30 hours worked, up to a maximum of 40 hours in a calendar year. For employers with 11 or more employees, the sick leave must be paid at the same hourly rate the employee earns from employment at the time the employee uses the paid sick time. The employee must be permitted to carry over up to 40 hours of accrued leave into a subsequent year, though the employer may limit an employee's use of sick time to 40 hours in a calendar year. The new law provides that an employee is entitled to use accrued sick leave to care for a physical or mental illness, injury or medical condition affecting the employee or the employee's child, spouse, parent, or parent of a spouse. Accrued sick leave may also be used to attend routine medical appointments and to address the effects of domestic violence. Paid vacation or paid time off will satisfy the requirements of the new law if a sufficient amount is accrued and may be used for the purposes described above.

5. Other Developments: Certificates of Insurance and Housing Discrimination

  • Massachusetts DOI Issues Guidance on Issuance of Certificates of Insurance

The Massachusetts Division of Insurance ("DOI") issued Bulletin 2015-02 (Implementation of Massachusetts General Laws Chapter 175L, Concerning Certificates of Insurance) on May 8 to clarify that Massachusetts law requires that all certificates of insurance must be both true and accurately reflect the policy they represent. The guidance applies to all licensed insurance producers, including banks, and others that prepare certificates of insurance.

Nutter Notes: Chapter 175L became effective on April 7, 2015. The law regulates and standardizes the practice of using certificates of insurance. The DOI's guidance on the new law recommends that insurance producers establish procedures to ensure that all certificates of insurance accurately evidence the property or casualty insurance coverage at issue, and do not alter, amend or extend the coverage provided by the underlying referenced policies.

  • CFPB Publishes Guidance for Mortgage Lenders on Avoiding Discrimination Against Consumers Receiving Public Housing Assistance

The CFPB published a bulletin on May 11 advising mortgage lenders, including banks, to implement underwriting policies and provide employee training to avoid illegal discrimination against loan applicants whose income includes vouchers from the Section 8 Housing Choice Voucher ("HCV") Homeownership Program. The guidance also recommends that lenders regularly monitor for compliance with their underwriting policies and procedures to help manage fair lending risk.

Nutter Notes: The Equal Credit Opportunity Act ("ECOA") prohibits lenders from discriminating against an applicant because some or all of the applicant's income is from a public assistance program, such as the Section 8 HCV Homeownership Program. Excluding or refusing to consider these types of vouchers as a source of income, or accepting the vouchers only for certain types of mortgage loans, may violate ECOA and its implementing regulation.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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