June 1: USB ports suspect? Relationships matter for vendors; state lending law maneuvers; cool business cards

Web security

Thank you to Brian B. who sent along this story on 9 Signs You Might Get Hacked. “62% of small and medium sized companies have been hit by a data breach. Make sure you’re not one of them.” (Although I didn’t see “sending out a free daily mortgage commentary” listed as increasing the probability of being hacked, I’m sure it’s up there.)

And the Knowledge Coop put out an entertaining video on why you should use your own charger instead of a USB port found in airports or hotels. Yup, data is transferrable over a USB connection, so plugging your phone into an unknown charging port puts it at risk. Avoiding the risk of an attack known as “juice jacking” is easy enough that it won’t inconvenience you. Current iPhones and Android phones usually require your permission to share things. Your iPhone will prompt you to “Trust This Computer” when a device you’re plugged into wants access. On Android, you must enable transferring files over the connection. Even if you have USB debugging enabled, you must permit the device to access it.

But there are bigger issues out there than your phone. Andrew Liput with Secure Insight writes, “Phishing emails are circulating purportedly from First American Title with instructions to open a link to complete a DocuSign process. The attempts may be attempting to capitalize on the recent announcement of the alleged exposure of nearly 850 million data records through a company website. The email contains the First American logo and indicates in the body that it is from the ‘processing department’ however the email address itself is a dead giveaway to a careful examiner. In one case we saw the return address was ‘Mia Manning mmanning@lohmanapartments.com’ (do not follow this link), clearly a disconnect between what is purportedly being transmitted.

“Cyber risk of this nature is more widespread now than ever before, and criminals use phishing schemes and social engineering efforts to convince unwitting or inattentive employees to open links that may contain malware, ransomware or other damaging computer viruses. These entryways could be used to intercept business communications to set up wire fraud events. We are encouraging our clients to educate and train their managers and staff (beyond just the IT department), and to immediately respond to attempts to engage in email phishing by blocking the sources.”

Relationships

Earlier this week I published a paragraph on a new vendor product focused on allocating loans to warehouse lines. I received this note from a long-time warehouse lender, addressing a topic felt by many lenders: pure economics versus relationships, regardless of the product in question.

“Rob, I’ve never responded to any of your letters until now. Any engine used for decision making and that makes warehouse finance pricing the sole focus and flies in the face of the importance of a deep relationship with a lender, especially in challenging times. Ask any owner who has leaned on a warehouse relationship at a time when they needed it the most. Long-time warehouse banks didn’t stop funding loans or cease taking applications in 2007 or 2008, nor did they balk at this business like many of their competitors did.

“At our company, our phone never stopped ringing and we always answered. True, our lifeboat was only so big, but we helped in every way possible. Many younger entrants into this mortgage banking world have no idea about any of that and I hope they don’t find out the hard way. To them, warehouse lines of credit have become a commodity like pork bellies and crude oil – a dangerous assumption, don’t you think? Especially since non-banks comprise over 50% of all residential mortgage originations? I would think your influence over and responsibility to our industry warrants some comment from you on this front?”

State legal news

The MMBA filed an amicus brief in a case that has the potential to create uncertainty and hardship for mortgage lenders in Massachusetts by calling into question the validity of innumerable pending and previously completed foreclosures.

“The Massachusetts Mortgage Bankers Association (MMBA) filed an amicus brief in Thompson v. JPMorgan Chase Bank, N.A., a U.S. Court of Appeals decision handed down by the First Circuit. The Thompson case involved the notice of default sent to the Thompsons (the borrowers) by JPMorgan Chase Bank when the borrowers failed to make their mortgage loan payments. The Court held that the notice was “potentially deceptive” and declared the foreclosure invalid.

“This case involves the interpretation of a foreclosure notice requirement, often referred to as ‘paragraph 22’ because the notice is found in paragraph 22 of most residential mortgages. It requires a mortgagee to provide a borrower with several disclosures prior to foreclosure, including the right to cure and the right to reinstate the loan after acceleration,” said Debbie Sousa, Executive Director of the MMBA. “We took this action in response to the enormously consequential decision the Court issued about the notice requirement. This case has the clear potential to create uncertainty and hardship for mortgage lenders in the Commonwealth by calling into question the validity of countless pending and previously completed foreclosures.”

In Thompson, the First Circuit ruled that the notice of default and right to cure potentially misled the borrowers regarding the precise amount of time they had to reinstate the loan prior to foreclosure. The content of the Thompson default notices exactly tracked the disclosures contained in paragraph 22 of the mortgage and also included the mandatory Notice of Right to Cure a Default (“Cure Notice”) promulgated by the MA Division of Banks (“DOB”). The DOB notice informed the borrowers that the foreclosure could be avoided by paying the total past-due amount before a foreclosure sale took place. This conflicted with a more restrictive limitation on the right to reinstate contained in paragraph 19 of the mortgage, which provided that payment had to be made at least five days before the foreclosure sale date. Despite never having attempted to reinstate the loan, the borrowers claimed that the Cure Notice’s failure to disclose the five-day requirement rendered the notice confusing and potentially deceptive.

The amicus brief contends that this decision frustrates the long-standing custom and practice of Massachusetts lenders giving homeowners every opportunity to avoid foreclosure, including the ability to reinstate their loan up until the foreclosure sale. It further states that forcing lenders to cut off this right at an earlier time would be unfair to all involved and that a lender’s decision to waive this limitation in favor of a more consumer friendly option should not be construed as deceptive. The brief also outlines the chaos the Thompson decision will create for MMBA members and their customers who will likely be unable to buy, sell, finance or refinance homes with an affected foreclosure in the chain of title. The amicus concludes by asking the Court to avoid making the MMBA’s members and their customers the inadvertent casualties of this erroneous decision.

Illinois Department of Financial and Professional Regulation has adopted rules which modify parts of its Residential Mortgage License Act.

A new provision requires that an independent loan processor entity employ at least one individual licensed as a Mortgage Loan Originator to provide supervision and instruction to individuals performing loan processing services. If only one loan processor is providing services for an independent loan processing entity, that person must be licensed as a Mortgage Loan Originator to fulfill this requirement.

One of the new advertising provisions specifies that business cards shall be considered an advertisement under the Act.

Another provision under this section sets out the requirements for advertising residential mortgage services in Illinois. All such advertisements must include, in a manner that is clear and conspicuous to the consumer: the NMLS Consumer Access homepage, the NMLS Unique Identifier of the licensee, the individual NMLS Unique identifier of the MLO in cases where a Mortgage Loan Originator is also advertised, and the phrase “For licensing information, go to www.nmlsconsumeraccess.org” for advertisements in electronic media.

On May 10, the Office of the Illinois Secretary of State published in the Illinois Register a notice by the Department of Financial and Professional Regulation of adopted amendments to certain parts of its Residential Mortgage License Act. In general, the amendments impact independent loan processor licensing as well as residential mortgage loan bond and advertising requirements. Specifically, an independent loan processing entity must employ one or more licensed mortgage loan originators (MLO) to be in compliance with the Act’s supervision and instruction requirements. In addition, any advertisement appearing in the state by a licensee concerning residential mortgage loans must clearly and conspicuously include the following: (i) the Nationwide Multistate Licensing System and Registry (NMLS) Consumer Access homepage; and (ii) a licensee’s unique NMLS identifier. If an MLO is advertised, licensees are also required to include the MLO employee’s individual NMLS unique identifier, in addition to listing the licensee’s NMLS unique identifier. Furthermore, licensees are prohibited from including a NMLS unique identifier in any advertisement related to “activities other than residential mortgage lending or brokering” unless certain criteria are met. The amendments became effective immediately.

Effective on July 1, 2019, Minnesota modified provisions relating to references of “subprime” from certain statutes.

The amendment removes subprime references from the definition of “investment grade” and redefines it to mean “a system of categorizing residential mortgage loans in which the loans are distinguished by interest rate or discount points or both charged to the borrower, which vary according to the degree of perceived risk of default based on factors such as the borrower’s credit, including credit score and credit patterns, income and employment history, debt ratio, loan-to-value ratio, and prior bankruptcy or foreclosure.”

Section 2 of the amendment prohibits a residential mortgage originator from entering into a loan (current law states subprime loan) that contains a provision requiring or permitting the imposition of a penalty, fee, premium, or other charge in the event the residential mortgage loan is prepaid in whole or in part if the loan also contains certain elements applicable to the annual percentage rate.

On May 15, the New Hampshire governor signed HB 649 to, among other things, amend the state licensing requirements for non-depository mortgage bankers, brokers, and servicers, as well as pawnbrokers and moneylenders. Specifically, licensing applicants must file with the banking commissioner a written verified application through the Nationwide Multistate Licensing System and Registry (NMLS) using the NMLS form, or by providing all the same information required on the application using the NMLS. Applicants must also file a statement of net worth. Finally, HB 649 defines what constitutes a “significant event” pertaining to a licensee’s practices with respect to consumer credit, small loans, debt adjustments, and money lending. The act became effective immediately.

Arkansas has passed House Bill 1943, which makes amendments and revisions to the Personal Information Protection Act. HB 1943 revises the definition of “personal information,” and makes amendments to requirements regarding the disclosure of security breaches.

HB 1943 revises Arkansas Code section 4-110-103(7) to include biometric data in the definition of “personal information.” Biometric data is data generated by automatic measurements on an individual’s biological characteristics.  These biological characteristics may include fingerprints, a faceprint, retinal or iris scans, hand geometry, voiceprint, DNA, or any other unique biological characteristic of an individual.

HB 1943 also amends Arkansas Code Section 4-110-105(b), which details disclosure requirements regarding security breaches. HB 1943 requires that, in the event of a security breach which affects the personal information of more than 1,000 individuals, a notification of the breach must now also be made to the Attorney General. The provisions of HB 1943 are effective August 9, 2019.

On April 29, 2019, the New York State Department of Financial Services announced a newly created Consumer Protection and Financial Enforcement Division. The new division is responsible for protecting and educating consumers and fighting consumer fraud.

It is tasked with ensuring that regulated entities comply with New York and federal law in relation to their activities serving the public.  In addition, it will develop investigative leads and intelligence to enforce banking and financial services laws.  Katherine A. Lemire, a former assistant United States attorney and prosecutor, was appointed as executive deputy superintendent of the new division.

On May 7, the Georgia governor signed HB 185, which amends various state laws related to financial institutions, including the licensing requirements for mortgage lenders and mortgage loan originators. The bill specifies that any licensed mortgage lender is authorized to engage in all activities that are authorized for a mortgage broker and therefore, is not required to obtain a mortgage broker license. Additionally, the bill specifies that a mortgage loan originator license shall become inactive in the event that a mortgage loan originator is no longer sponsored by a mortgage lender or mortgage broker that is licensed. The bill becomes effective July 1.

(Warning: Rated PG for vulgarity. Don’t click on the link if you are easily offended.) You know the drill. You call on a new client, or you go to a conference, and you hand over your business card. And most lender business cards look the same. Well, creativity is not dead, and here are photos of some darned cool business cards that would leave an impression. (The plastic surgeon’s is particularly clever.)

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “Are You Ready for CECL?” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.

Rob

(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are hundreds of mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2019 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)