Maryland Legal Alert for Financial Services
Maryland Legal Alert March 2011
In this issue:
COUNTDOWN TO ORIGINATOR COMPENSATION CHANGES BEGINS
Assuming the Federal Reserve Board regulations become effective as scheduled, significant changes in residential mortgage loan originator compensation programs must be in place by April 1, 2011. While still trying to understand what the rule requires, mortgage brokers and creditors should not lose sight of the documentation changes that will be needed to comply with the rule. Form mortgage broker agreements should be revised to reflect the “dual compensation” prohibition (that loan originator compensation may be paid either by the lender or by the consumer, but not both). Employee compensation agreements must be revised to reflect not only the “dual compensation” prohibition, but also the restrictions on how compensation may be computed. Loan brokers and creditors also must consider whether and how to “present loan options” to take advantage of the new “safe harbor” that protects against claims of “steering” (directing consumers to certain loan products). Click here for a general overview of the new rule. If you are using a form broker agreement that we prepared, please consider contacting us for an update. If you just want to commiserate about the rule, Margie Corwin has a shoulder to lean on.
TOO SOON TO CONSIDER DODD-FRANK’S MORTGAGE PROVISIONS?
Title XIV of the Dodd-Frank Actcontains all sorts of provisions intended to “reform” the residential mortgage lending industry. Whether these provisions really reform the industry is debatable. However, what is not debatable is that many changes are coming. Some changes are worth considering before they become effective. For example, it may make sense for your business to consider the Dodd-Frank Act mortgage originator compensation rules, found in Sections 1400 – 1406, in connection with implementing the Federal Reserve Board loan originator compensation rule (discussed above). Click here for a general overview of Dodd-Frank Act Title XIV. Please contactMargie Corwin if you would like to discuss this subject in greater depth.
HAVE CONCERNS ABOUT THE RESULTS OF YOUR FDIC EXAMINATION?
Acknowledging criticism that FDIC examination findings have been overly harsh, on March 1, 2011 the FDIC reminded banks about the informal and formal channels available to voice concerns over examinations and other supervisory determinations. Banks are reminded to start with the field examiners, move to the field or regional office, and then to the appropriate Division Director for an informal review. If informal discussions do not work, the FDIC reminds banks that a formal appeals process is available. The guidance stresses that FDIC policy prohibits any retaliation or retribution by an examiner against a bank that pursues an appeal.We encourage banks to review this guidance and to pursue the informal and formal channels of communication concerning examination findings and other supervisory determinations with their regulators, including the formal appeals process if appropriate. Examination mistakes are made and can be corrected through these channels. For examination questions or to discuss a formal appeal, please contact Carla Witzel.
DEFAULTING PURCHASER AT FORECLOSURE SALE HAS LIMITED LIABILITY
Recently, in Simard v. Burson, the Court of Special Appeals of Maryland clarified the extent of liability that a person has for defaulting on a purchase made at a foreclosure sale. In the case, David Simard purchased a property at a foreclosure sale with a high bid in the amount of $192,000. However, Mr. Simard defaulted on the purchase by failing to go to settlement. The property was then resold at another foreclosure sale, at the price of $163,000. That purchaser, however, also defaulted on the purchase. In a third sale, the property was finally sold to a third purchaser for $130,000 and settlement was completed. The Circuit Court held Mr. Simard liable for the entire $62,000 difference in sale prices, from his initial purchase price of $192,000 to the final sale price of $130,000. Mr. Simard appealed the Circuit Court’s decision, arguing that he should be liable only for the difference in price (or “shortage”) between his original purchase price and the first resale price of $163,000. Based upon its analysis of the applicable Maryland Rules and general contract law, the Court of Special Appeals agreed with Mr. Simard’s position and reversed the trial court’s judgment. If you have any questions about this case, please contact John Morton.