“Man is the only animal that laughs and has a state
legislature.” Samuel Butler (1835-1902)
I may have used the quote above before, but it is such an
appropriate statement, it is hard to wear it out. By the time you read this, the New Mexico
Legislature will probably be in session for the so-called “short session”. We will be in touch on that.
In the meantime, it may be helpful to deal with other
pressing matters and not-so-pressing matters which you may nevertheless want to
think about.
The Consumer Financial Protection Agency (“CFPB”) continues
to churn out regulations. On January 10,
2014 most—if not all— of the CFPB’s mortgage rules became effective.
Knowledgeable legal counsel from Wall Street has predicted that the mortgage
rules will tend to force lenders to focus on “plain vanilla” mortgages that
fall within the “qualified mortgage” guidelines. A hidden risk in this trend is the potential
for running afoul of other regulatory traps.
For example there is no safe harbor in the CFPB’s mortgage rules for
allegations that lending practices promoting qualified mortgages have a
disproportionate impact on minority borrowers—exposing lenders to Equal Credit
Opportunity Act or Fair Housing Act charges.
Although the CFPB has made statements that lenders “should not worry” so
long as they meet the needs of low-income lenders, such statements provide no
real comfort. Some commentators wonder
if the CFPB rules will effectively drive community banks out of the mortgage
business.
CFPB has published a Dodd-Frank Mortgage Rules Readiness
Guide on its website. I expect most
mortgage lenders have downloaded the Guide and spent countless hours cross
referencing the Guide to the many references to the amended regulations on
qualified mortgages, escrow requirements, home ownership counseling, mortgage servicing,
appraisal requirements and the scary loan originator compensation requirements
(which were effective earlier this year).
I recommend that bank management consult the “Readiness Questionnaire”
which is part of the Guide and insure (if not done before) that their
institution is on track. No matter how
sophisticated a bank’s consumer mortgage department is, remember that the CFPB rules were written by government
personnel with little realization of the burdens caused by the new rules. For example, one Wall Street lawyer has
stated that the mortgage servicing rules are so onerous that many banks will
cease servicing and cede the market to specialty loan servicing companies that
are not subject to regulatory capitol requirements.
I will now repeat matters dear to my heart but I think
important to bankers.
First, why not use Deeds of Trust in commercial
transactions? Although the current
version of the Deed of Trust Act has flaws because the Deeds of Trust cannot be
used in consumer transactions (due to another statute), there is really no
downside in using a Deed of Trust. Most
lawyers who question the use of Deeds of Trust voice concern that there has
been no court challenge to the procedure.
What if such a challenge happens?
Worst case, the court forces you to treat the Deed of Trust as a
mortgage and engage in judicial foreclosure.
What is the benefit: “time is money”.
Mike Altum, one of the most skilled workout artists in New Mexico
estimates the time for a foreclosure with any opposition to be 12 months to
possession in our courts. In surrounding
states with Deed of Trust procedures, he estimates the time to closure and
possession averages about 6 months—and he has worked in Arizona and Colorado. Like all estimates, the time may vary by the
facts of the property and financing but there is no question that New Mexico
banks in commercial transactions should use Deeds of Trust. After the first challenge, I predict the Deed
of Trust will be the common land security instrument.
Second, all bank management should look at carefully
at cyber insurance coverage in addition to the usual several other forms of
liability and D&O coverage. In the
wake of the Target and Neiman Marcus hacker invasions, it becomes clear that an
epidemic of hacking is taking place. In
Target’s and Neiman’s cases, class action lawsuits will follow by the usual
class action attorneys. Cyber Insurance is becoming more necessary. Legal counsel should work with management on
the coverage limits and cost. In many
cases, there are no actual invasions of customer data but rather an exposure of
the data. In such cases, normal damages
from litigation may not occur but the bank will have to enter into remedial
action. The cost of remedial action may
or may not be recoverable by insurance and the difficulty of calculating such
costs are great.
Beware bankers; you may find a union banner in front of your
branch or main office. Most people in
Santa Fe and Albuquerque are used to seeing a gaggle of somewhat unkempt males
standing behind a large banner which proclaims, “Shame of __{name of
business}____for engaging in unfair labor practices….” or stating that the
business has done something equally offensive to the working class. Who is doing this: the Carpenters Union (not
a local union, but one run out of Los Angeles). For the first time the Carpenters have
attacked a local financial service business.
During the week of January 14, the Carpenters posted banners claiming
that NM Educators Federal Credit Union was engaged in shameful anti-union
practices. The Carpenters banner was
posted in front of the credit union’s Paseo del Norte branch. Robert Tinnin, the dean of New Mexico’s labor
and employment bar, explained to me that the Carpenter’s bannering activity
does not violate the secondary boycott restrictions of the National Labor
Relations Act. The activity is not
picketing and that is apparently why the guardians of the banner stand mutely
behind it. The bannering is permitted under
a “publicity proviso” to the Act’s restrictions on secondary boycotts. The Carpenters have carried out their
bannering against restaurants, grocery stores, apartment buildings and a
prominent church. It is important to
note that there is no evidence of any union organizational activity in any of
these cases. Advice: if the Carpenters
show up ignore them. They appear to have
had little impact on the business of those “bannered”.
Do good.
MARSHALL G MARTIN
505 228 8506
