Sheppard Mullin Financial Institutions Law Blog

On June 29, 2009, Governor Schwarzenegger signed into law California's Electronic Discovery Act, which is effective immediately. All discovery propounded or responded to must now comply with the new law. These rules are very similar to the recent revisions to the Federal Rules of Civil Procedure, and bring California in line with the federal e-discovery standards.

On May 20, 2009, President Obama signed into law the Helping Families Save Their Homes Act of 2009. While the primary purposes of the new law include revamping the FHA's Hope for Homeowners program, providing a safe harbor for servicers who modify home loans and giving the Federal Deposit Insurance Corporation and the National Credit Union Association an expanded credit line with the U.S. Treasury, it also imposes a new disclosure obligation under the Truth in Lending Act upon purchasers and assignees of certain home loans that is effective immediately.

The House Financial Services Committee yesterday voted to amend the Mortgage Reform and Anti-Predatory Lending Act (the "Act") to require HUD to suspend the implementation of its new Good Faith Estimate and HUD-1 Settlement Statement, and instead to work with the Federal Reserve Board to publish a proposed joint rule with comparable Real Estate Settlement Procedures Act ("RESPA") and Truth in Lending Act ("TILA") disclosures within six months of enactment of the Act, and a final joint rule with comparable RESPA/TILA disclosures within one year of its enactment.

Although we have seen little change in the area of lender liability law over the past decade, today's unprecedented slowdown in the global economy is proving to be fertile ground for disputes among lenders, borrowers, guarantors, and other third parties. During the widespread defaults of the 1980s and early 1990s, lenders pursuing remedies were met by a massive upsurge in claims directed at them. During the mid-1980s, California courts expanded the theories under which lenders could be held liable and often awarded substantial damages to plaintiffs. The late 1980s and early 1990s saw a reversal in this trend, where courts limited some of the more far-reaching lender liability theories and reversed a number of high-profile judgments from previous years.

The U.S. Department of Housing and Urban Development (HUD) today announced that it will once again delay the implementation date of the proposed changes in RESPA's new required use definition by 3 months, from April 16th until July 16th, and that HUD intends to seek further public comment on required use practices to determine whether HUD's proposed rule changes are necessary, or whether HUD should withdraw its new required use definition altogether. 

The Term Asset‐Backed Securities Loan Facility (TALF) was unveiled by the U.S. Treasury on November 25, 2008. Through the TALF, the Federal Reserve Bank of New York (FRBNY) will finance the purchase of asset‐backed securities (ABS) in order to support lending to consumers and small businesses. The current credit crisis has driven interest rates on many consumer and small business loans to unaffordable levels, which has restrained the ability of the economy to recover. Since the ABS markets have historically funded a substantial portion of consumer and small business credit, the TALF is designed to improve lender liquidity so as to increase the availability of affordable financing for consumers and small businesses.

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As part of their continuing efforts to promote financial stability and restore the health of the economy, the United States Treasury has continued to develop new applications for the funds allocated to the Troubled Asset Relief Program (TARP) established in October 2008 by the Emergency Economic Stabilization Act of 2008 (EESA). In mid-October 2008, the Treasury announced it would forgo its initial plan to buy troubled assets from financial institutions and would instead use TARP funds to inject capital directly into banks. To date, $195.3 billion has been invested directly into qualifying financial institutions, both publicly traded and non-public, under the Treasury's Capital Purchase Program (CPP). To date, CPP funds have been invested in 359 financial institutions in 45 U.S. states and Puerto Rico.

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Since 1992, HUD has allowed all companies - including homebuilders, real estate brokers and mortgage lenders - to offer incentives to consumers as an inducement to the consumers to use the company's affiliated settlement service provider as long as the settlement service provider's service is separately offered and as long as the incentive is genuine, meaning it is not offset by higher prices elsewhere in the transaction. As part of its revisions to Regulation X implementing the Real Estate Settlement Procedures Act, HUD in November revised the rule effective January 16, 2009 to prohibit homebuilders from offering these incentives, while still permitting real estate brokers, mortgage lenders and other settlement service providers to offer certain forms of consumer incentives. On December 23, 2008, the National Association of Homebuilders ("NAHB") and certain of its members filed an action against HUD seeking to overturn the new consumer incentive rule.

Question: Does the federal Fair Credit Reporting Act preempt all actions filed under California's Consumer Credit Reporting Agency Act?

Answer: Yes, according to the First District Court of Appeal, Division One, in Liceaga v. Debt Recovery Solutions, LLC (A120277), decided December 29, 2008.

The United States Treasury has released a term sheet for the injection of capital into non-public qualifying financial institutions under the Treasury's Capital Purchase Program, implemented as part of the Troubled Asset Relief Program (TARP). The deadline for submitting applications under the Capital Purchase Program for publicly traded financial institutions was November 14, 2008, and as of the date of this memorandum, over 80 publicly traded financial institutions have announced their intent to participate in the Capital Purchase Program, accounting for almost $250 billion in investments by the Treasury. Non-public financial institutions are comprised of approximately 4,300 entities in the United States, far outnumbering the approximately 930 publicly traded financial institutions.

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