ICC Newsletter August by alicejenny


									                                  INTERACTIVE COMPUTER CORPORATION

                August 2005                                                                             NEWSLETTER

ICC News                                                                     ICC NEWS
                                    ICC READY TO HELP CUSTOMERS IN                          proposals, but believes that HUD could obtain
News of Note                        DISASTER AREA                                           the industry’s approval for a revised GFE. The
                                                                                            form can be found at the end of this newsletter
                                    ICC is prepared to recreate documents or pro-           and on NAMB’s website at www.namb.org/
Compliance Notes                    vide summary information, without charge, for           government_affairs/RESPA/NAMB_GFE_Ver
                                    any ICC customers who have been adversely               sion_1_2.pdf.
Other News                          affected by the Gulf Coast storms. Any ques-
                                    tions should be directed to customer service via        The National Association of Mortgage Brokers
                                                                                            (NAMB) should not be confused with the National
Privacy & Security                  toll-free telephone (888) 437-3627 or by e-             Alliance of Independent Mortgage Bankers which is
                                    mailing lori@iccdocs.com. A reminder to non-            the advocacy group associated with Lenders One or
Technology                          ICC customers in the affected area: we can set          the National Association of Independent Mortgage
                                    you up to draw closing documents and pre-               Bankers.
Connections                         REG-Z disclosures almost immediately. As al-
                                    ways, programming your lender programs and              THE ULTIMATE DISASTER TEST
Interesting Links                   lender-specific or company specific forms is at
                                                                                            Here at ICC, our disaster plan has been tested
                                    no additional cost. We are willing to arrange
                                                                                            continuously over the years by a number of
                                    deferred billing, on a case-by-case basis, for
                                                                                            situational events: loss of power, loss of cool-
                                    those in financial distress.
                                                                                            ing, loss of communications, individual com-
                                    WHAT YOU CAN DO FOR YOUR CLIENTS…                       puter failures, and software glitches. Never
                                                                                            have we faced a seemingly impossible task that
                                     Many lenders have forbearance or mitigation            would involve the denial of access to our prem-
  Money rates for end of             programs which assists borrowers located in            ises, a geographically widespread shut down of
  month August 2005 as re-           disaster areas by allowing the suspension of           power, telephone and internet services, and the
  ported in the Wall Street          payments or readjusting the loan term, eliminat-       dispersal of our trained personnel to locations
  Journal                            ing or forgiving late fees, not reporting late pay-    across a number of states which would render
                                     ments to credit bureaus, delaying foreclosure          them inaccessible for customer service. While
    Prime           6.50%
                                     actions and other assistance in meeting their          we have planned for such contingencies, we
    6 month Libor 4.0550%
                                     obligations. However, most programs are han-           have never faced one. While all senior person-
                                     dled on a case-by-case basis and require the           nel can access our systems securely from re-
  Federal Reserve Statistical
  release H.15 for August 15,        borrower to contact the lender and/or servicing        mote locations, the most exotic test of this ca-
  2005 (For Section 32 pur-          agent. If you are not constrained by contractual       pability was a localized system failure that was
  pose)                              obligations by a lender, you may consider con-         resolved by the director of programming, who
                                     tacting your client or former client to assist them    was on-premises after hours, the manager of
       Treasury Securities           in preparing requests for forbearance or other         operations who was at home, the manager of
     5 Yr.             4.150%        documents. This is a once-in-a-lifetime opportu-       customer service who was at home, and the
    10 Yr.             4.270%        nity to be of real service to your client as well as   director of technology who was on-line via com-
    15 Yr.             4.270%        demonstrating the commitment of real estate            puter-linked satellite phone systems on a ship
    20+ Yrs.           4.530%        and mortgage professionals to be a good                sailing between Italy and England. In spite of
                                     neighbor. Your actions are limited only by your        the time differences, locations, and remote
                                     imagination. ICC stands ready to assist its cus-       computers, our pre-planning for this type of
  *Note: all rates are for reference tomers in automating the process by program-           contingency was well-tested. But, we can all do
  only; you may check the actual     ming new forms into a deliverable package.             better as we take recent events into considera-
  rates at:                          Simply contact customer service to discuss your        tion.
     www.federalreserve.gov/         needs.
           releases/h15/                                                                    WHY PROCESSOR PHONE NUMBER IS
                                    NEW NAMB RESPA FORM PROPOSAL                            IMPORTANT
                                    TO REVIEW
                                                                                            Loan processors and document drawing spe-
                                    In our attempts to allow our customers to test          cialists frequently ignore the processor name
                                    new forms proposed by HUD (GFE, Mortgage                and telephone number fields during data entry.
                                    Package Offer which appeared in last month’s            In about 99+ percent of the cases, especially
                                    newsletter) and others, we now present a form           with smaller companies, it rarely matters. How-
                                    that was developed by the National Association          ever, in select cases involving loan questions
                                    of Mortgage Brokers. This revised GFE does              from our quality control staff or connectivity and
       CONTACT ICC                  not include a line-item for the disclosure of the       delivery questions from our technical staff,
  Interactive Computer Corp.
                                    Yield Spread Premium (YSP), which the group             these fields make it much easier for ICC to de-
1440 S. State College Blvd. #4F     wants eliminated from the HUD-1 settlement              liver superb service directly to your organization
   Anaheim, California 92806        statement in contravention of many consumer             by contacting the critical players. We strongly
                                    and community advocacy groups.                          suggest that you enter an after-hours telephone
     Phone: 888-437-3627                                                                    number in the phone number field for maximum
      Fax: 888-242-9622             NAMB president Jim Nabors claims that his
                                    membership does not support HUD’s packaging             performance.
                                                                                                   Page 2

                                 NEWS OF NOTE
GREENSPAN & THE FED                                     United States in terms of agricultural exporting
                                                        and purchased resource importing. Our nation
The rates… To no one’s surprise, the FOMC               was built on navigable waterways with a sub-
(Federal Open Market Committee) raised its              stantial amount of goods being conveyed north
target for the federal funds rate by 25 basis           and south on barges… far beyond the capacity
points to 3-1/2 percent and unanimously ap-             of rail and truck transportation. These ports
proved a 25-basis-point increase in the dis-            require skilled labor, which has just been dis-
count rate to 4-1/2 percent on August 9th. This         possessed. Those fools who talk about aban-
makes the 10th rate increase since the 40-year          doning New Orleans have little appreciation for
low of one percent in mid-2003.                         history. New Orleans is there because it was
According to the release accompanying the               required to be there to support the commercial
news, “The Committee believes that, even                infrastructure of the region. It must be rebuilt.
after this action, the stance of monetary policy        Even so, the rising specter of inflation due to
remains accommodative and, coupled with                 inflated oil prices and the disruption of port-
robust underlying growth in productivity, is            related commerce may be enough to dissuade
providing ongoing support to economic activ-            the Fed from hiking rates in November.
ity.” “…With underlying inflation expected to           About the Inverted Yield Curve and a poten-
be contained, the Committee believes that               tial future recession… Many economists
                       policy accommodation can         studying the numbers tend to think that a yield
                       be removed at a pace that        curve inversion between 2-year and 10-year
                       is likely to be measured.        treasury notes, such as the one that ran from
                       Nonetheless, the Commit-         February to December 2000, may predict re-
                       tee will respond to changes      cessionary periods such as the one that oc-
                       in economic prospects as         curred in 2001. Some point to Greenspan’s
                       needed to fulfill its obliga-    continual rate increases as one factor in the
                       tion to maintain price stabil-   convergence of the two rates where short term
          ity.” Translation: “we may continue to        rates may exceed long term rates. If their rea-
         raise rates until the time we decide not       soning is correct, a few more rate hikes will
        to.” It is predicted by a majority of indus-    likely result in an inverted yield curve. Since
      try analysts that the Fed will raise rates        economists who study cycles claim that a full
     another 25-basis points at their next meet-        inversion has preceded every recession over
   ing in September. It has been rumored that           the past 40 years, a recession may be looming
since the core inflation rate is relatively under       on the horizon. However, there may be an-
control and the economy is showing some                 other explanation for the current phenome-
signs of weakness in the energy sector, the             non…
rates may continue to rise for the sole reason
to allow the FED to retain the ability to periodi-      One possible reason for the bond market
cally suspend future rate hikes or possibly             action… Several studies have suggested that
lower rates if it becomes necessary to avoid a          the reason for the disparity between the Fed-
national economic crisis. For those wishing to          eral Reserve rate hikes and the seeming disin-
read the actual minutes of the meeting, more            terest of the bond market may be due to some-
information can be found at:                            thing extremely simple: bad governmental
 www.federalreserve.gov/fomc/                           bookkeeping where the rate of growth may
minutes/20050809.htm.                                   have been overestimated. Is this a likely an-
                                                        swer to Greenspan’s conundrum? Since there
“Incident of National Significance”… In the             are a number of studies that point out the past
first ever use of this national event designation,      miscalculation of growth and inflation and that
Homeland Security Secretary Michael Chertoff            the current estimates are just that, estimates;
pointed out that the infrastructure damage to           the reasoning behind this theory is plausible.
the affected areas of the gulf coast could have         Some interesting articles may be found at the
a significant impact on the United States en-           Congressional Budget Office at www.cbo.gov/
ergy market. Oil and gasoline are inextricably          showdoc.cfm?index=4985&sequence=6 or
linked with the United States economy. The              www.cbo.gov/showdoc.cfm?index=4031&sequ
question is: Is this the significant event that will    ence=0 or at the Economic Policy Institute at
force the Federal Reserve to forego another             http://www.epinet.org/content.cfm/issuebriefs_i
measured rate hike in November. Most eco-               b154.
nomic advisers believe that by November, the
situation in the gulf coast states will be well         The famous housing bubble… Speaking be-
underway with a significant inflow of disaster          fore a symposium sponsored by the Federal
rebuilding dollars to the local economy. In mat-        Reserve Bank of Kansas City that was held in
ters of gasoline and heating oil production, the        Jackson Hole, Wyoming, Greenspan said: “…
Environmental Protection Agency has already             the housing boom will inevitably simmer down.
provided waivers which would allow refineries           As part of that process, house turnover will
a certain degree of latitude in the production of       decline from currently historic levels, while
refined products. One should also consider              home price increases will slow and prices could
that the deep water ports surrounding Louisi-
                                                                                      (Continued on page 3)
ana and the Mississippi are largest in the
                                                                                                 Page 3

(Continued from page 2)                             for settlement services rendered in connection
even decrease. As a consequence, home eq-           with a mortgage loan subject to RESPA.
uity extraction will ease and with it some of the   The case facts: “Santiago’s Complaint alleged
strength in personal consumption expendi-           that, in January 2002, he obtained a loan for
tures. The estimates of how much differ widely.     his home from GMAC. In connection with this
The surprisingly high correlation between in-       loan, GMAC charged and collected fees from
creases in home equity extraction and the cur-      Santiago for settlement services, including an
rent account deficit suggests that an end to the    $85.00 tax service fee, a $20.00 flood certifica-
housing boom could induce a significant rise in     tion fee, and a $250.00 funding fee. GMAC fully
the personal saving rate, a decline in imports,     disclosed these charges to Santiago. Santiago
and a corresponding improvement in the cur-         alleged that GMAC retained third party vendors
rent account deficit. Whether those adjust-         to perform the tax and flood certification ser-
ments are wrenching will depend, as I sug-          vices, and charged Santiago more for these
gested yesterday, on the degree of economic         services than the amount paid by GMAC to the
flexibility that we and our trading partners        vendors or “marked up” the service. In addition,
maintain, and I hope enhance, in the years          Santiago alleged that the reasonable value of
ahead.” More information can be found at:           the funding service was $20.00, and GMAC
 www.federalreserve.gov/boarddocs/                  charged Santiago more than that amount for
speeches/2005/200508272/default.htm.                providing the service or “overcharged” for the
Greenspan Personal… Alan Greenspan was              service.”
sworn in on June 19, 2004, for his fifth term as    The previous court had said: “The District
the Chairman of the Board of Governors of the       Court dismissed the RESPA claim under Fed-
Federal Reserve System. He also serves as           eral Rule of Civil Procedure 12(b)(6), finding
Chairman of the Federal Open Market Com-            that Section 8(b) was intended to prohibit kick-
mittee (FOMC), which is responsible for setting     backs and referral fees and does not include a
rates and governing the monetary policymak-         cause of action for the conduct alleged by
ing in the United States. He originally took of-    Santiago. The District Court then declined to
fice as Chairman as a replacement for a Board       exercise supplemental jurisdiction over Santi-
member whose term had not yet expired on            ago’s state law claims.”
August 11, 1987. Greenspan was then reap-
pointed to the Board to serve a full 14-year        Santiago appealed in a timely manner and the
term, which began February 1, 1992, and ends        case was assigned to the Appellate Court
January 31, 2006. He has been designated            where the court ruled: “we find that RESPA
Chairman by Presidents Reagan, Bush 41,             does not provide a cause of action for over-
Clinton, and Bush 43. While the requirement         charges but does provide a cause of action for
to step down as Chairman if one’s board term        markups.”
expires has never been tested, it is widely ex-     The result: “The District Court’s dismissal of
pected that he will resign his position as chair-   Santiago’s cause of action for markups is re-
man when his board service is concluded.            versed and remanded for further proceedings.”
There is intense speculation in both the finan-
cial and political world as to his successor.       Upping the ante: What makes this case and
Since Bush has a penchant for nominating            other similar cases vexing to the industry is that
non-obvious players, there is no guarantee          Santiago is not acting solely for himself. Those
that anyone that is currently being mentioned       dreaded words “on behalf of himself and all
will be actually nominated. There is also some      others similarly situated,” are the precursor to
speculation that President Bush may ask             class action lawsuits, which could cost lenders
Chairman Greenspan to delay his departure           millions of dollars.
for a number of months to insure an orderly         Why is this happening? As pointed out by
transition in the Chairman’s office during these    the court, “If the intent of Congress is clear, that
economically uncertain times.                       is the end of the matter; for the court, as well as
                                                    the agency, must give effect to the unambigu-
RESPA SECTION 8 MARKUPS ILLE-                       ously expressed intent of Congress.” “If the
GAL? MAYBE?                                         statutory language is unclear, however, then
Third Circuit sides with Kruse, says mark-          we must decide whether to defer to the inter-
ups violate RESPA …With a 13-page deci-             pretation of the administrative agency, in this
sion in the case of Santiago v. GMAC Mort-          case the Department of Housing and Urban
gage, the United States Court of Appeals for        Development (HUD), as reflected in the Real
the Third Circuit has ruled that while over-        Estate Settlement Procedures Act Statement of
charges do not violate RESPA, markups do            Policy 2001-1, 66 Fed. Reg. 53,052 (2001)
provide a cause of action.                          (Statement of Policy 2001-1), issued by HUD.
What is going on here? “This case presents          Conclusion: Obviously, both the congressional
the question whether the Real Estate Settle-        intent and the administrative guidance is am-
ment Procedures Act (RESPA), codified at 12         biguous enough to cause confusion. The result
USC. §2607(b) (2004), includes a cause of           is that in at least six major cases, three courts
action for overcharges and markups imposed          ruled that markups are legal and three ruled
on a borrower by a lender or mortgage broker
                                                                                    (Continued on page 4)
                                                                                                    Page 4

that markups are illegal. The results are com-           OCC WEIGHS IN
plicated by a number of side-issues brought by           … On Sham Business Arrangements
extremely effective litigators.
                                                         The Office of the Comptroller of Currency
What is the likely outcome? Unknown! You                 (OCC) would like to remind you of the regula-
can be sure that the industry will be closely            tions that govern “Sham Business Arrange-
watching the lower court proceedings as plain-           ments” also known as Affiliated Business Ar-
tiff counsel proceeds through further discovery          rangements” are being enforced and that OCC
and the battle for class certification.                  Bulletin 2005-27 is a convenient way to refresh
The Santiago case can be found at: http://               your memory concerning these transactions
www.ca3.uscourts.gov/opinarch/034273p.pdf.               with respect to RESPA’s Section 8 prohibitions.
                                                         The bulletin and a link to a Federal Register
Other cases of interest include: Kruse v. Wells          article that defines HUD’s policy statement con-
Fargo, Sosa v. Manhattan Mortgage, Haug v.               taining 10 factors that will be considered in
Bank of America, Boulware v. Crossland Mort-             determining whether an affiliated business en-
gage, Krzalic v. Republic Title, and Echevarria          tity is a bona fide provider of settlement ser-
v. Chicago Title.                                        vices. More information can be found at http://
* Court Trivia: The oral arguments for Santi-            www.occ.treas.gov/ftp/bulletin/2005-27.doc
ago were originally heard by Judge Michael
Chertoff who resigned prior to the publication           … Cautioning Against Easier Under-
of this opinion… to be appointed by President            writing Standards
Bush as the second Secretary of the Depart-              The OCC’s 11th Annual Survey of Credit Under-
ment of Homeland Security, replacing Gover-              writing Practices has revealed a significant
nor Tom Ridge.                                           easing in credit underwriting standards, which
                                                         may have a potentially significant impact on
THE NEED FOR RESPA REFORM IS                             credit quality in the national banking system.
URGENT… RESPA REFORM UPDATE                              OCC examiners found that easing of underwrit-
The Santiago v. GMAC case above clearly                  ing standards for retail credit was concentrated
points out the need for RESPA reform. Unfor-             in real estate secured products such as home
tunately, HUD is attempting to modify the rules          equity and first mortgage loans. Notably, this is
with a proposed final rule that will attempt to          the first time in the survey’s eleven-year history
clear up a number of issues when what they               that examiners reported net easing of retail
should be doing is petitioning congress for              underwriting standards. The OCC will continue
more prudent legislation.                                to focus supervisory attention and resources to
                                                         ensure that credit risk in national banks is ap-
                    As the often contentious se-         propriately identified and that credit risk man-
                    ries of meetings and roundta-        agement practices are commensurate with risk
                    bles comes to an end, the            levels. A copy of the OCC survey can be found
                    mortgage industry is trying its      at www.occ.treas.gov/cusurvey/scup2005.pdf.
                    level best to convince HUD
                    that they should acquiesce to
                    market forces and leave the
                                                         … OCC offers advice on using HMDA
                    industry alone. Of concern           data to improve business
                    are the disparity of reporting       Comptroller of the Currency, John C. Dugan,
                    between “brokers” and                has written an article, “Using the New HMDA
                    “bankers,” issues of broker          Data to Expand Home Mortgage Lending Op-
                    compensation, small vendors          portunities” which starts with questioning, “Are
                    concerned with being mus-            bankers being subjected to new HMDA report-
                    cled out by large packagers,         ing requirements that simply expose them to
                    and obtaining a safe haven           controversy — or do the data create opportuni-
                    from RESPA section-8 viola-          ties for lenders to serve unmet needs of more
                    tions regarding kickbacks. At        prospective homeowners?” The article can be
                    this point in time, it is possible   found at www.occ.treas.gov/cdd/newsletters/
                    that HUD will set aside the          summer05/cd/usingthenewhmda.htm.
                    bundling issue as being a
voluntary matter and concentrate on the redes-           SUPREME COURT IGNORES 2ND
ign of the Good Faith Estimate (GFE). Since              CHANCE TO FIX “KELO” PROPERTY
HUD has not provided a timetable on when it              RIGHTS DECISION
will issue a new rule and has offered no guid-
ance on what might change from the previous              In spite of the widespread outrage in legitimiz-
rule, it is prudent to conclude that HUD will do         ing the taking of private property for public pur-
what HUD will do: no more or no less. It is also         poses that may tangentially aid a government
a major consideration that in response to a              municipality in some undefined manner, the
difficult final rule, some companies will simply         United States Supreme Court refused to recon-
package all fees into the loan and offer the             sider the Kelo case. However, numerous con-
loan at a higher rate, thus eliminating some of          gressional and state bills have been proposed
the more onerous disclosures.                            to address the issue.
                                                                                             Page 5

MERS REGISTRATION FEES NOW                          mum answer the party’s questions and present
ACCEPTABLE FOR FHA LOANS                            offers to and from the party.” More information
                                                    at: http://www.capitol.state.tx.us/cgi-bin/tlo/
Effective immediately HUD is allowing lenders       textframe.cmd?LEG=79&SESS=R&CHAMBE
to charge fees to the borrower for MERS regis-      R=S&BILLTYPE=B&BILLSUFFIX=00810&VE
tration on FHA loans. A list of acceptable fees     RSION=5&TYPE=B.
that are contained in Chapter 2 of the Mort-
gage Credit Guidelines (Page 2-15) can be           Effective Date: September 1, 2005
found at www.hud.gov/offices/hsg/sfh/ref/           TEXAS – TITLE REBATE LEGISLATION
sfhp2-15.cfm. MERS was created by the mort-         CHANGE
gage banking industry to streamline the mort-       Texas House Bill HB 2565 affects “Section 8.”
gage process by using electronic commerce to        The changes in law made by this Act applies to
eliminate paper. MERS acts as nominee in the        conduct with respect to an insurance policy
county land records for the lender and ser-         that is delivered, issued for delivery, or re-
vicer. Any loan registered on the MERS Sys-         newed on or after January 1, 2006. Conduct
tem is inoculated against future assignments        with respect to a policy delivered, issued for
because MERS remains the nominal mort-              delivery, or renewed before January 1, 2006 is
gagee no matter how many times servicing is         governed by the law as it existed immediately
traded. MERS as original mortgagee (MOM) is         before the effective date of this Act, and that
approved by Fannie Mae, Freddie Mac, Ginnie         law is continued in effect for that purpose."
Mae, FHA and VA, California and Utah Hous-          Procedural Rule P- 53 remains in effect pend-
ing Finance Agencies, as well as all of the ma-     ing any further action by the Commissioner of
jor Wall Street rating agencies.                    Insurance to revise or amend the Rule.
Effective Date: September 1, 2005                   More information may be found at:
NEW FEE SCHEDULE FOR FTC DO-NOT-                    www.capitol.state.tx.us/cgi-bin/tlo/
CALL FILES EFFECTIVE                                textframe.cmd?LEG=79&SESS=R&CHAMBE
  Unless modified by rulemaking, the FTC            R=H&BILLTYPE=B&BILLSUFFIX=02565&VE
  has implemented a new Do-Not-Call Fee             RSION=5&TYPE=B or on Republic Title’s
  structure that makes the annual fee for           website at http://www.republictitle.com/
  each area code of data accessed $56, and          Rule_P53.asp.
  the maximum amount charged to entities
  accessing 280 area codes or more would            Effective Date: September 1, 2005
  become $15,400. Telemarketers can obtain          TEXAS – BROKER EDUCATION REQUIRE-
  the first five area codes of data for free,       MENTS
  and entities exempt from the Registry's           Texas Senate Bill SB 988, “Relating to educa-
  requirements can obtain file access at no         tion courses for a mortgage broker or loan
  charge. Telemarketers are required to re-         officer license” becomes effective. More infor-
  new their subscriptions to the Do Not Call        mation       can   be   found      at  http://
  Registry once a year, and must "scrub"            www. capitol.st at e.tx.us/tlo/ 79R/billtext/
  their call lists once every 31 days. The Do       SB00988F.HTM.
  Not Call Website for telemarketers
  (telemarketing.donot                              Effective Date: September 1, 2005
  call.gov) will inform them when their sub-        TEXAS – OMNIBUS BILL INCLUDES
  scription account numbers (SANs) expire           PROVISIONS FOR MORTGAGE BROKERS
  and give them renewal instructions.               Texas House Bill HB 955, “AN ACT relating to
                                                    the regulation of financial businesses and
Effective Date: September 1, 2005                   practices; providing civil penalties” becomes
TEXAS – RECEIVE AND RECORD                          effective. The bill can be found at http://
ELECTRONIC DOCUMENTS                                www.capitol.state.tx.us/cgi-bin/tlo/
Texas Senate Bill 335, relating to the recording    R=H&BILLTYPE=B&BILLSUFFIX=00955&VE
of electronic documents, clarifies the authority    RSION=5&TYPE=B.
of a county recorder to process (receive and
record) information in electronic form. More        Effective Date: September 1, 2005
information can be found at:                        TEXAS – SPANISH DISCLOSURES
http://www.capitol.state.tx.us/cgi-bin/tlo/         Texas House Bill 1547 amends the Finance
textframe.cmd?LEG=79&SESS=R&CHAMBE                  Code to provide a copy of the summary of the
R=S&BILLTYPE=B&BILLSUFFIX=00335&VE                  terms and information to the borrower in Span-
RSION=5&TYPE=B.                                     ish in a form identical to disclosures required
                                                    for a closed-end transaction under REG-Z. HB
Effective Date: September 1, 2005                   1547 can be found at
TEXAS – REAL ESTATE “LIMITED                        http://www.capitol.state.tx.us/data/
SERVICES” LEGISLATION                               docmodel/79r/billtext/pdf/HB01547F.PDF
Texas Senate Bill SB810, “ An Act relating to
the regulation of the sale and inspection of real
estate,” includes the language, “shall at a mini-
                                                                                               Page 6

Effective Date: September 12, 2005                 122nd           Maine           Legislature
NEW HAMPSHIRE MODIFIES MORTGAGE                    adjourned Saturday, June 18, 2005. Therefore
HOME LOANS ACT                                     it is anticipated that this bill will become effec-
New Hampshire Senate Bill 223, “An ACT rela-       tive on or about September 16, 2005. For more
tive to licensing non-depository mortgage          information, see:
bankers and brokers,” contains provisions that     http://www.mainelegislature.org/legis/bills/
repeal a previous second mortgage regulation       billtexts/LD141601-1.asp.
and makes RSA 397-A applicable to all mort-
gages, requires background checks for princi-      Effective Date: September 16, 2005
pals of certain financial businesses regulated     MAINE CONSUMER CREDIT CODE
by the commissioner, increases the fee for         MODIFICATIONS
mortgage banker and broker licenses, adds          Maine Legislative Document LD 686, “An Act to
agents and originators to the persons covered      Amend the Maine Consumer Credit Code -
by mortgage licenses, clarifies the limits of      Credit Services Organizations” contains infor-
certain time periods, allows the commissioner      mation on loan broker licensing and other fi-
to accept examinations of financial condition      nancial matters. More information may be
conducted by regulators in other states and the    found at http://www.mainelegislature.org/legis/
federal government, allows the commissioner        bills/billtexts/LD068601-1.asp.
to share information with regulators in other
states and the federal government, repeals the     Effective Date: September 30, 2005
chapter relative to second mortgage home           WYOMING DEADLINE TO SUBMIT APPLI-
loans, and allows the commissioner to use          CATIONS FOR MORTGAGE LENDERS AND
certain national organizations to facilitate li-   BROKERS (INCLUDES PREPAYMENT
censing. More information can be found at          DISCLOSURE)
http://www.gencourt.state.nh.us/                   Wyoming has modified Chapter 23 of the Wyo-
legislation/2005/SB0223.html.                      ming Residential Mortgage Practices Act. Any
                                                   person or entity engaged in business in Wyo-
Effective Date: September 13, 2005                 ming as of July 1, 2005 will have until Septem-
MAINE LENDER PMI DISCLOSURES                       ber 30, 2005 to apply for a license. Any person
Maine Legislative Document LD 1286, “An Act        or entity that was not engaged in business in
to Require Additional Disclosure Regarding         Wyoming as of July 1, 2005 will need to obtain
Private Mortgage Insurance” becomes effec-         a license prior to engaging in business gov-
tive. This bill requires supervised lenders and    erned by the Act. More information can be
mortgage brokers to disclose to persons apply-     found at” http://audit.state.wy.us/banking/
ing for a mortgage on residential real property    mortgage/mortgagelender.htm.
if the mortgage loan includes private mortgage     And for some odd reason, known only to legis-
insurance and if the company processing the        lators, a Prepayment Fee Model Notice was
loan application also engages in the business      tacked on to the legislation as Section 6,
of private mortgage insurance. More informa-       “Prepayment Penalty Disclosure Form.” The
tion can be found at www.mainelegislature.org/     document sample can be found under “RULES
legis/bills/billtexts/LD128601-1.asp.              AND REGULATIONS OF THE COMMIS-
                                                   SIONER CHAPTER 2 – LICENSING FEES;
Effective Date: September 13, 2005                 PREPAYMENT PENALTY DISCLOSURE
MAINE NON-BANK LOAN OFFICER                        FORM -- Section 6” at http://audit.state.wy.us/
REGISTRATION                                       banking/mortgage/mortgage_act_rules.pdf
Maine Legislative Document LD 1303, “An act
to register non-bank loan officers,” contains      Effective Date: October 1, 2005
registration requirements and procedures.          MONTANA LICENSING ISSUE: BROKER VS.
More information at:                               BANKER
http://www.mainelegislature.org/legis/             Montana Senate Bill SB 274 known as, “An Act
bills_121st/billtexts/LD130301-1.asp.              Revising The Montana Mortgage Broker And
                                                   Loan Originator Licensing Act To Revoke An
Effective Date: September 15, 2005                 Exemption For Mortgage Bankers Acting As
HMDA DATA RESPONSIBILITIES SHIFTED                 Mortgage Brokers; Expanding Certain Exemp-
TO FED                                             tions; Requiring Certain Mortgage Bankers To
The collection of Home Mortgage Disclosure         Be Licensed As Mortgage Brokers; Including
Act (HMDA) data previously submitted to HUD        Mortgage Banker Experience As Qualifying
will now be submitted to the FED.       Further    Experience For A Mortgage Broker License;
information can be found at http://hudclips.org/   And Amending Sections 32-9-102, 32-9-104,
sub_nonhud/cgi/pdf/4457a.pdf.                      And 32-9-109, MCA,” be-
                                                   comes effective.       More
Effective Date: September 16, 2005                 information can be found at
MAINE AMENDS LAW RE: ESCROW                        http://data.opi.state.mt.us/
ACCOUNTS AND PAYOFFS                               bills/2005/billhtml/
Maine House Paper HP 980 (Legislative Docu-        SB0274.htm.
ment 1416), also known as “An Act to Amend
the Maine Consumer Credit Code," becomes
effective 90 days after the adjournment of the
legislature. The First Special Session of the
                                                                                                 Page 7

Effective Date: October 1, 2005                        More information can be found at:
MONTANA LICENSING ISSUE: BROKER                        www.ncga.state.nc.us/Sessions/2005/Bills/
VS. BANKER                                             Senate/HTML/S734v0.html.
Montana House Bill HB 55 known as, “An Act
Restricting The Amount Of Insurance That A             Effective Date: October 1, 2005
Lender May Require A Borrower To Maintain              NEVADA HOMESTEAD EXEMPTIONS
On A Loan Secured By Real Property; And                INCREASED
Amending Section 32-5-306, MCA,” becomes               Nevada Assembly Bill AB365 increases Ne-
effective. More information can be found at            vada’s Homestead exemption amount from
http://data.opi.state.mt.us/bills/2005/billhtml/       $200,000 to $350,000 and provides additional
SB0274.htm.                                            homestead information. More information can
                                                       be found at http://www.leg.state.nv.us/73rd/
Effective Date: October 1, 2005                        bills/AB/AB365_EN.pdf.
DISCLOSURE                                             Effective Date: October 1, 2005
Maryland House Bill HB 412 adds verbiage for           NEVADA SECURITY INSTRUMENTS FOR-
“latent defects” to the Real Property Condition        MAT NOTICE
Disclosure. HB 412 can be found at http://             Nevada Assembly Bill 384 revises the written
mlis.state.md.us/2005rs/bills/hb/hb0412t.pdf           home loan notice on the security instrument to
                                                       be in a size equal to at least 14-point bold type
Effective Date: October 1, 2005                        on the front page of the mortgage. AB384 can
MARYLAND LICENSING REQUIREMENTS                        be found at www.leg.state.nv.us/73rd/bills/AB/
Maryland House Bill HB1040 defines the term            AB384_EN.pdf
mortgage originator, sets forth licensing re-
quirements and deals with out-of-state lenders.        Last Day for Comments: October 4, 2005
This bill contains a reciprocity clause, “a mort-      COMMENTS ON HUD HECM
gage lender is not required to maintain an of-         HUD is currently accepting comments regard-
fice in this state if the laws of the state in which   ing a proposed rule that would amend HUD's
its principal office is located authorize a mort-      Home Equity Conversion Mortgage (HECM)
gage lender from this state to engage in mort-         Insurance program regulations to accommo-
gage lending without maintaining an office in          date any state law that may prohibit the line-of-
that state." More information can be found at          credit payment option currently available to
http://mlis.state.md.us/2005rs/bills/hb/               HECM mortgagors. The amendments made by
hb1040e.pdf.                                           this rule would accommodate any such state
                                                       law by making HECMs available within the
Effective Date: October 1, 2005                        parameters of the state law.
MARYLAND LICENSING EXEMPTION                           More information can be found at www.hudclip
Maryland Senate Bill SB159 “repeals an ex-             s.org/sub_nonhud/cgi/pdf/15473.pdf.
emption from licensure by the Commissioner of
Financial Regulation for mortgage lenders that         Effective Date: October 17, 2005
are federally approved seller-servicers; ex-           BANKRUPTCY ACT BECOMES FULLY
panding a specified exemption from specified           EFFECTIVE
record keeping requirements; etc.” More infor-         Bankruptcy Abuse Prevention and Consumer
mation at: http://mlis.state.md.us/2005rs/bills/       Protection Act (Public Law No. 109-8) becomes
sb/sb0159t.pdf.                                        fully effective 180 days after President’s signa-
                                                       ture. Consult legal counsel for more information
Effective Date: October 1, 2005                        on mortgage ramifications.
North Carolina Senate Bill SB 1048/House Bill          Effective Date: November 1, 2005
HB 1248, the “Identity Theft Protection Act of         FANNIE/FREDDIE 1008/1077 UNIFORM
2005” covers Social Security Number (SSN)              UNDERWRITING AND TRANSMITTAL
protection, destruction of personal information        SUMMARY MANDATORY
records, and protection from security breaches.        Use of the 1008 for loans delivered on or after
More information at:                                   November 1, 2005 must use the new 1008,
www.ncga.state.nc.us/Sessions/2005/Bills/              Uniform Underwriting and Transmittal Sum-
Senate/HTML/S1048v0.html.                              mary. The form can be found at:
Effective Date: October 1, 2005                        forms/1008.jsp.
North Carolina Senate Bill SB 734 titled “An
Act To Amend Article 4 Of Chapter 45 Relating
To The Satisfaction Of Mortgages And Deeds
Of Trust As Recommended By The North
Carolina Bar Association” becomes effective.
Establishes a fine for those who do not record
the satisfaction of mortgages within 60 days
after satisfaction. Certain limitations may apply.
                                                                                                 Page 8

Effective Date: November 1, 2005                       Review Report (Form 2000A dated March
FANNIE/FREDDIE VALUATION FORMS                         2005) for appraisal field reviews for two-unit
MANDATORY                                              to four-unit appraisal reports.
The forms below, dated March 2005, are now           The forms can be found on Fannie Mae’s web-
mandatory.                                           site www.efanniemae.com/sf/guides/ssg/2005
                                                     annlenltr.jsp and selecting Announcement 05-
• Uniform  Residential Appraisal Report (Form        02.
  1004 dated March 2005) for an appraisal of
  a one-unit property (including an individual       Effective Date: November 1, 2005
  unit in a PUD project) based on an interior        FREDDIE NEW & REVISED INITIAL
  and exterior property inspection;                  INTEREST ARM NOTES AND RIDERS
                                                     Per Freddie Mac Guide Bulletin 2005-4 dated
• Exterior-Only   Inspection Residential Ap-         August 10, 2005, November 1, 2005, Sellers
  praisal Report (Form 2055 dated March              must use the revised Initial Interest ARM Notes
  2005) for an appraisal of a one-unit property      and new Initial Interest ARM Riders for all Initial
  (including an individual unit in a PUD project)    Interest ARMs with a 10-year Interest Only
  based on an exterior-only property inspec-         Period originated on or after this date. Since
  tion;                                              there is an exemption when the interest-only
                                                     period and initial rate periods are the same,
• Manufactured Home Appraisal Report (Form           one is cautioned to read the bulletin carefully.
  1004C dated March 2005) for an appraisal of        More information on this and a number of other
  a one-unit manufactured home (including a          policy changes can be found at
  manufactured home in a PUD, condominium            http://www.freddiemac.com/sell/selbultn/
  or cooperative project) based on an interior       bll054.html
  and exterior property;
                                                     Effective Date: November 17, 2005
• Individual Condominium Unit Appraisal Re-          NEW YORK MORTGAGE SATISFACTION
  port (Form 1073 dated March 2005) for an           REGULATION IS EFFECTIVE
  appraisal of an individual condominium unit        New York Senate Bill SB 48, “An ACT to
  based on an interior and exterior property         amend the real property law and the real prop-
  inspection;                                        erty actions and proceedings law, in relation to
• Exterior-Only   Inspection Individual Condo-
                                                     the discharge of a certificate of mortgage and
                                                     enacts a penalty for failure to forward copy to
  minium Unit Appraisal Report (Form 1075            mortgagor” becomes effective.
  dated March 2005) for an appraisal of an
  individual condominium unit based on an            Effective Date: December 1, 2005
  exterior-only property inspection;                 NORTH CAROLINA LAW TO PREVENT USE
• Individual  Cooperative Interest Appraisal         OF BANK NAME AND LOGOS
  Report (Form 2090 dated March 2005) for an         North Carolina House Bill 1168, “An ACT to
  appraisal of an individual cooperative unit        prohibit the deceptive use of the name or logo
  based on an interior and exterior property         of a banking entity without permission in the
  inspection;                                        marketing of financial products and services,”
                                                     becomes effective.
• Exterior-Only Inspection Individual Coopera-
  tive Interest Appraisal Report (Form 2095          Effective Date: January 1, 2006
  dated March 2005) for an appraisal of an           FED DOLLAR TRIGGER AMOUNT FOR
  individual cooperative unit based on an exte-      TRUTH-IN-LENDING IS EFFECTIVE
  rior-only property inspection;                     The Federal Reserve’s annual adjustment of
                                                     the dollar amount that triggers additional disclo-
• Small Residential Income Property Appraisal        sure requirements under the Truth in Lending
  Report (Form 1025 dated March 2005) for an         Act for home mortgage loans has adjusted to
  appraisal of a two-unit to four-unit property      $528 for 2006 based on the annual percentage
  (including a two-unit to four-unit property in a   change reflected in the Consumer Price Index
  PUD, condominium or cooperative project)           that was in effect on June 1, 2005. The release
  based on an interior and exterior property         can be found at:
  inspection;                                        www.federalreserve.gov/boarddocs/press/
• Appraisal  Update and/or Completion Report
  (Form 1004D dated March 2005) for ap-              Effective Date: January 1, 2006
  praisal updates and/or completion reports for      FANNIE/FREDDIE 1003/65 UNIFORM RESI-
  all one-unit to four-unit appraisal reports;       DENTIAL MORTGAGE FORM MANDATORY
                                                     Use of the 1003 for loans delivered on or after
• One-Unit Residential Appraisal Field Review        January 1, 2005 must use the new 1003, Uni-
  Report (Form 2000 dated March 2005) for            form Residential Mortgage Application. The
  appraisal field reviews for one-unit appraisal     form can be found at:
  reports; and                                       http://www.efanniemae.com/sf/formsdocs/
• Two- to Four-Unit Residential Appraisal Field
                                                                                               Page 9

Effective Date: January 1, 2006                      pursuant to the Act may be delayed if a law
NEW MEXICO DEFINES PARTIES AND SET                   enforcement agency determines that the notifi-
FUNDING DEADLINES                                    cation may impede a criminal investigation.
New Mexico Senate Bill SB 652, “Relating To          Amends the Consumer Fraud and Deceptive
Real Estate Transactions; Establishing Dead-         Business Practices Act. Provides that a viola-
lines For The Funding Of Real Estate Transac-        tion of the Personal Information Protection Act
tions; Providing For Enforcement; Amending           is a violation of the Consumer Fraud and De-
And Enacting Sections Of The Mortgage Loan           ceptive Business Practices Act. More informa-
Company And Loan Broker Act,” becomes ef-            tion at www.ilga.gov/legislation/billstatus.asp?
fective.                                             DocNum=1633&GAID=8&GA=94&DocTypeID=
Effective Date: January 1, 2006
ARKANSAS REVERSE MORTGAGE                            Effective Date: January 1, 2006
PROVISIONS                                           ILLINOIS – NOTICE PROVISION ADDED TO
Arkansas House Bill HB 1008, “An Act to Regu-        MORTGAGE ESCROW ACT
late Reverse Mortgage Transactions; And For          Illinois House Bill 1428 requires a mortgage
Other Purposes,” becomes effective. Includes         lender who pays property tax from an
disclosure requirements. More information can        escrow account to notify the borrower of such
be found at http://www.arkleg.state.ar.us/ftproot/   payment including information on the date,
bills/2005/public/HB1008.pdf.                        amount paid, permanent index number, mort-
                                                     gage account number, and the address of the
Effective Date: January 1, 2006                      property or other property description that is
DELAWARE ELECTRONIC RECORDING ACT                    used        for     assessment            and
Delaware House Bill HB79 becomes effective.          taxation purposes under the Property Tax
The bill provide for the electronic filing of real   Code. The lender can alternatively make this
property transactions in the office of the Re-       information available via phone, fax, e-mail, or
corder of Deeds. It also provides that electronic    the web. For more information
signatures satisfy the conditions that a docu-       http://www.ilga.gov/legislation/94/HB/
ment which is recorded must be signed. It per-       PDF/09400HB1428lv.pdf.
mits the Recorder of Deeds to index, store, and
transmit documents electronically and convert        Effective Date: January 1, 2006
paper documents into an electronic form. A           ILLINOIS HB 4050 WILL BECOME
commission is established to set standards for       EFFECTIVE
the Recorders in the three counties to apply.        The notoriously intrusive predatory lending
More information can be found at http://             experiment, defined in Illinois House Bill HB
www.legis.state.de.us/LIS/LIS143.nsf/                4050, will become effective. Prior to this date,
db0bad0e2af0bf31852568a5005f0f58/8e50216             the Illinois Department of Financial and Profes-
0c669368685256fe80049623c?OpenDocument.              sional Regulation will begin drafting rules to
                                                     define the pilot program area and implementing
Effective Date: January 1, 2006                      the database. For more information:
MINNESOTA – OMNIBUS BILL AFFECTING                   www.ilga.gov/legislation/94/HB/
ORIGINATORS                                          PDF/09400HB4050lv.pdf.
Minnesota Senate Bill SF1636 amends a num-
ber of statutes regulating residential mortgage      Effective Date: January 1, 2006
originators, real estate brokers and salesper-       LOUISIANA AMENDED RECORDATION
sons, as well as amending other non-originator       REQUIREMENTS
business practices. The bill summary can be          Louisiana House Bill HB 214 amends several
found at:                                            Civil Code Articles “all relative to the recorda-
www.senate.leg.state.mn.us/departments/scr/          tion of documents in the mortgage and convey-
billsumm/2005-2006/senate/regular/sf1636.htm.        ance records and the consolidation of the laws
                                                     affecting the recordation of documents.” More
Effective Date: January 1, 2006                      information can be found at:
ILLINOIS – PERSONAL INFORMATION                      www.legis.state.la.us/billdata/streamdocument.
PROTECTION ACT                                       asp?did=318556.
Illinois House Bill 1633 “Amends the Consumer
Fraud and Deceptive Business Practices Act           Effective Date: January 1, 2006
and makes a technical change in a Section con-       OREGON EDUCATION, EXAMINATION AND
cerning definitions. Creates the Personal Infor-     RIGHT OF ACTION
mation Protection Act. Provides that any data        Oregon House Bill HB 2637 contains legislation
collector that owns or uses personal information     covering mortgage originator education, exami-
in any form, whether computerized, paper, or         nations and limits the period of a civil right to
otherwise, that includes personal information        action against mortgage brokers and bankers.
concerning an Illinois resident shall notify the     More information can be found at http://
resident that there has been a breach of the         landru.leg.state.or.us/05reg/measpdf/
security of the system data following discovery      hb2600.dir/hb2637.en.pdf
or notification of the breach, without regard for
whether the data has been accessed by an un-
authorized third party for legal or illegal pur-
poses. Provides that the notification required
                                                                                               Page 10

Effective Date: January 17, 2006                     Effective Date: January 1, 2007
RECORDING ACT EFFECTIVE                              Nevada Assembly Bill AB344, “An Act relating
The Uniform Real Property Electronic Re-             to privacy; requiring a governmental entity,
cording Act of 2005 allowing the Recorder of         except in certain circumstances, to ensure that
Deeds to validate and accept electronic and          social security numbers in its books and re-
digitized documents per specified standards is       cords are maintained in a confidential manner;
now in effect.                                       requiring a governmental agency or person
                                                     who does business in this State owns, licenses
Effective Date: March 1, 2006                        or maintains computerized data to notify certain
RHODE ISLAND IDENTITY THEFT LAW                      persons if personal information included in data
Rhode Island House Bill 6191, Identity Theft         was, or is reasonably believed to have been,
Protection Act of 2005, became law without the       acquired by an unauthorized person; expand-
Governor’s signature. This is another in the         ing the types prohibited computer contaminants
database breach notification acts. More infor-       to include spyware; and providing other matters
mation can be found at www.rilin.state.ri.us/        properly relating thereto.” More information
Billtext/BillText05/HouseText05/H6191.pdf.           can be found at
Effective Date: July 1, 2006                         ab334.pdf#xml=http://search.leg.state.nv.us/
IOWA MORTGAGE BANKER/BROKER                          isysquery/irl205e/2/hilite
Iowa House File HF 737, “Relating to the Reg-        HAWAII PASSES “POLITICALLY
istration and Licensing of Mortgage Bankers          CORRECT” LEGISLATION
and Brokers, Providing for Fees, And Providing
an Effective Date,” becomes effective. Includes      Continuing to expand legislative protections to
bonding requirements. More information can           special classes of people that only gives rise to
be found at http://coolice.legis.state.ia.us/Cool-   a proliferation of complaints and the empower-
ICE/default.asp?Category=billinfo&Service=Bill       ing of often abusive enforcement bureaucra-
book&frame=1&GA=81&hbill=HF737%                      cies, the State of Hawaii has now further en-
20&menu=false&version=Enrol.                         croached upon the rights and freedoms of
                                                     property owners and landlords by enacting
Effective Date: July 1, 2006                         “PC” legislation. House Bill No. 1715 provides;
EFFECTIVE                                            THE STATE OF HAWAII: SECTION 1. The
Maine Legislative Document LD 1525, “An Act          purpose of this Act is to make state civil rights
to Amend the Real Estate Brokerage Laws” will        laws uniform by prohibiting discriminatory prac-
become effective. The law defines terms and          tices in real property transactions (housing) on
provisions of written offers for real estate bro-    the basis of sexual orientation, or gender iden-
kers and clarifies current legislation. More in-     tity or expression. Presently, employment is
formation can be found at:                           one of the few areas in which discrimination
http://www.mainelegislature.org/legis/bills/         because of sexual orientation is prohibited.
billdocs/LD152501.doc.                               Just as a person should not be denied a job
                                                     because of the person's sexual orientation
Effective Date: July 1, 2006                         (heterosexual, homosexual, or bisexual), a
NEW HAMPSHIRE ADOPTS UNIFORM                         person should not be denied a home because
NOTARIAL ACT                                         of the person's sexual orientation, or gender
New Hampshire House Bill HB 672, “AN ACT             identity or expression.” How this legislation will
Relative to Notaries Public, Justices of the         affect real estate and financial transactions at
Peace, And Adopting the Uniform Law on No-           this time is unknown.
tarial Acts” becomes effective. More informa-
tion can be found at www.gencourt.state.nh.us/

                     OTHER NEWS OF NOTE
PREDATORY LAWYERS IMPACT DOC                         Class Action Fairness Act of 2005 in an at-
PREP FEES IN MISSOURI                                tempt to reform the procedures of class action
                                                     lawsuits which are often abused by attorneys,
It is unlikely that any politician, most of whom     the act is not retroactive and applies only to
are attorneys, will ever introduce legislation       class actions filed on or after February 18,
curbing the excesses of the legal profession.        2005. Thus it does not apply to class action
So-called tort reform has been on the agenda         litigation already pending.
for years, and yet frivolous, baseless lawsuits
continue as attorneys try to control every as-       In Missouri, up to 60,000 borrowers might re-
pect of American lives. Especially hard-to-take      ceive total reimbursement for the document
are those small boutique law firms who mount         preparation fees paid to Midwest Bankcentre if
raging battles with their fellow litigators to be    the judgment against the lender for the unli-
named the lead counsel in class action law-                                       (Continued on page 11)
suits. Even though President Bush signed the
                                                                                                Page 11

(Continued from page 10)                              EXPERIAN SETTLES WITH FTC OVER
censed practice of law is upheld on appeal.           MISLEADING “FREE” CREDIT
Presiding over the class action lawsuit was           REPORTS WITH A COSTLY HOOK
Judge Mark D. Seigel, Division 3 of the Saint
Louis Circuit Court, who awarded $1.2 million         Ever since the government mandated free an-
dollars in damages, plus legal fees, plus legal       nual credit reports, the credit repositories have
costs of $407,880, plus up to treble damages if       been trying to capitalize on bundling additional
the case is upheld through the appeal process.        profitable products and services with the con-
                                                      cept of “free” credit reports. Some repositories
The defense that clerical employees simply            have seemingly stepped over the line.
enter data on a screen to fill-in the blanks on
pre-printed forms that had already been ap-           “According to the FTC complaint, the defendant
proved by attorneys is not a complete defense.        drove consumers to their www.freecreditReport
No one is arguing that these clerical employ-         .com and www.consumerinfo.com web sites
ees must have some form of formal legal edu-          with radio, television, e-mail and Internet ads
cation and training to be able to correctly fill-in   that promised free credit reports and a bonus –
the forms. There are no complaints about who          free trials of a credit-monitoring service. …
prepares the documents. The entire issue at           Consumers were required to provide detailed
hand concerns who is getting paid for the             personal information and a valid credit card
document preparation. That is, if you give            account number to get their credit report. They
away your services, you are legal and every-          were assured that, “Your card will not be
thing is fine. If you charge for your services,       charged during the free trial period. However,
you are a scofflaw and deserve to be fined            valid credit card information is required to es-
heavily. If you pay a supervising attorney (i.e.      tablish your account.” This type of advertising
Texas) to review the prepared documents…              resulted in confusion about the free offer and
even though the form, format and contents,            consumer’s credit cards were charged when
             have been pre-approved by attor-         they did not cancel the offer within the specified
             neys you have no problem.                time period.
           The issue that should be litigated is      “Consumerinfo.com, Inc., doing business as
           an anti-trust matter concerning the        Experian Consumer Direct, has settled Federal
           monopolistic practices of state bar        Trade Commission charges that it deceptively
           associations and licensing boards.         marketed “free credit reports” by not ade-
           …Or perhaps an ethics issue de-            quately disclosing that consumers automati-
           manding that all attorneys and trial       cally would be signed up for a credit report
           court judges recuse themselves             monitoring service and charged $79.95 if they
           when legislating or litigating over        didn’t cancel within 30 days, in violation of fed-
           self-serving matters. Some 15              eral law. The settlement requires Consumerinfo
           states have some form of UPL               to pay redress to deceived consumers, bars
           (Unlicensed Practice of Law) regu-         deceptive and misleading claims about “free”
           lations concerning document                offers, requires disclosure of terms and condi-
           preparation from pre-approved tem-         tions of any “free” offers, and requires the de-
           plates. In fact, in most states, the       fendant to give up $950,000 in ill-gotten gains.
           practice of law is more about a            More information can be found at:
           paralegal filling-in court forms           www.ftc.gov/opa/2005/08/consumerinfo.htm.
           (sanctified by the state judicial
counsels) than drafting new and novel court           COURT DELIVERS STINGING REBUKE
documents.                                            TO THE FDIC… ALONG WITH A BILL
In the present case, there is no question that
                                                      FOR MORE THAN $72 MILLION
the judgment will be appealed and, in all prob-       DOLLARS IN COURT COSTS … “FDIC
ability, reversed as so many other cases have         ACTS LIKE COSA NOSTRA!”
been in neighboring states of Illinois and Michi-     The nightmarish 10-year battle between the
gan. But this will not stop the attorneys. Next       FDIC, Charles Hurwitz and Texas-based Max-
up are cases involving Chase Manhattan and            xam is finally over. Even now, the FDIC claims
Countrywide. According to the St. Louis Post          that Hurwitz and Maxxam are not due more
Dispatch, “Midwest was the first of 30 banks or       than $72 million dollars in sanctions for legal
lenders to go to trial in 2 1/2 years of litigation   costs and expenses incurred in their battle with
in Missouri, and one of the smaller defendants        the FDIC. In the United States District Court
in terms of customers. A few smaller lenders          for the Southern District of Texas, District
have settled, and a couple of the minor players       Judge, Lynn N. Hughes likened the FDIC to the
in the case have gone out business… Among             “cosa nostra” and paints a dire picture of a cor-
the biggest defendants in terms of mortgage           rupt governmental agency run amok. We quote
loans, according to Jonathan Andres, a plaintiff      from the sanction document.
attorney, are: Countrywide Home Loans with
up to 24,000 customers; U.S. Bank with                “This is a cautionary tale where the emperor
20,000; American Equity Mortgage with                 has new clothes – a bandit’s mask. The Fed-
11,000; and Chase Manhattan Mortgage Corp.            eral Deposit Insurance Corporation sought to
with 8,000.”                                                                       (Continued on page 12)
                                                                                                Page 12

hold Charles Hurwitz individually responsible         Since none of the individuals was constrained
for all losses at United Savings, even though         by his conscience and since many of them
he had no obligation to the thrift or the govern-     have left the government, the only means to
ment. Unable to focus its claims and unwilling        change the institutionalized abuse is to affect
to disclose its records in this suit – on that it     the one thing known to be sacred to mid-level
brought – the FDIC surreptitiously paid another       bureaucrats – their budget. Ultimately, the
agency to bring a parallel administrative claim       costs will be borne elsewhere, but the FDIC at
against Hurwitz, several companies, and other         least needs to have in its ledgers a bookkeep-
people. Later – much later – the FDIC dis-            ing entry for this case under ‘Breach of Trust.’
missed its claims here. Hurwitz and two com-          The solution ultimately is not episodic sanc-
panies have asked that they recover their costs       tions for FDIC wrongdoing that is occasionally
of defending the suit. They will recover their        uncovered. Conceivably, these could help, but
costs because the record reveals corrupt indi-        the real answer has to be a profound change in
viduals within a corrupt agency with corrupt          it and its fellow agencies. The solution lies in
influences on it, bringing this litigation.           an administration that will nominate people to
The FDIC is a version of the dream – the night-       its vacancies. The solution lies in requiring its
mare on 17th Street, N.W. In this case, the           staff to be dedicated, responsible and honest.
FDIC will be compelled to pay the costs that it       The solution lies in a congress that does not
inflicted. The FDIC caused Hurwitz pain. The          actively work to subvert the independence and
effects of these relentless attacks on his repu-      focus of the agency for ideological, partisan,
tation and on the value of the businesses he          and personal purposes. Sam Adams would say
led cannot be repaired. The drain on his entre-       that somebody needs to dump the FDIC’s tea
preneurial energies cannot be undone. The             overboard.
actual costs of his defense can and must be           They set about using their agency’s authority to
repaid.                                               compel and illegal result wholly unconnected
The record bears no instance of a staff mem-          with their legitimate responsibilities and lied
ber resisting rogue chairmen, reporting ex-           about it all under oath. Whether getting the
cesses or perjury, cautioning one another not         redwoods was tied to craven submission to a
to violate the law, reporting candidly to the         congressional bully or to personal ideology,
board, or otherwise functioning live regular          they were not content from stealing from Hur-
government – one bound by its foundational            witz. Through this case they sought to ‘cause
statutes and the rule of law. Even the FDIC’s         him pain.’ They sought to humiliate him.
inspector general turned out to be a co-              As George Bernard Shaw said, ‘power does
conspirator by his cowardly abdication.               not corrupt men; fools, however, if they get into
Equally as bad as the governmental insiders,          a position of power, corrupt power.’ These peo-
the retained counsel prostituted themselves to        ple discarded the mantle of the American Re-
the FDIC’s whims, with the exception of the           public for the cloak of a secret society of extor-
early report by Hutcheson & Grundy. Both in-          tionists. If the vice president called, they re-
side and outside sets of FDIC minions persist         sponded. If a congressman called, they re-
in their vile posturing. As Edmund Burke put it,      sponded. If a lobbyist called, they responded.
‘They defend their errors as if they were de-         They heeded every call but that of duty and
fending their inheritances.’ This truculence has      honor. The agency became more of a cosa
multiplied the costs of this case to Hurwitz,         nostra than res publica.” The opinion was
Maxxam, and Federated.                                signed by Lynn N. Hughes, United States Dis-
The court has a predilection – one for lawful         trict Judge.
government. It has a predilection for oaths that      The entire 133-page opinion on sanctions can
bind – oaths as witnesses, as lawyers, and as         be found at         www.txs.uscourts.gov/
public officers. The response to the misdeeds         notablecases/hurwitz_opin.pdf
of the individuals will be left to public integrity
offices, bar licensing authorities, and grand

                       PRIVACY & SECURITY
GOOGLE UPSET WITH REPORTER                            tent-driven advertising may represent a major
WHO SOUNDS A PRIVACY WARNING                          breach of corporate security when personal
                                                      and professional items are intermixed. Due to
As with past issues, we are issuing a warning         the fact that all of your actions while using
that urges you to separate your personal use          Google are logged and analyzed and that you
of Google from your professional use of               have no control over the maintenance of data
Google (if any) with the warning that Google          on their equipment, your data could be used for
retains the rights to sift through your data, re-     commercial data mining as well as warrantless
post public messages, and use your content            governmental data mining efforts. It also seems
for their internal research. Many technologists       that what is good for the goose is not always
believe that Google’s attempt to link personal        good for the gander as Google is refusing to
e-mail and storage, instant messaging, and            cooperate with reporters at one of technology’s
web searches with their ability to deliver con-                                    (Continued on page 13)
                                                                                                Page 13

(Continued from page 12)                            reaucratic rules prevent babies from boarding
best web sites (CNET) after they illustrated        an aircraft with their mothers because their
Google’s ability to ferret out personal informa-    name is “similar” to one on a “no-fly” or “watch”
tion by using Google’s CEO, Eric E. Schmidt,        list. Note: one apologetic airline told the pas-
as a test case. By showing his net worth, his       senger to just book the baby using their nick-
home address, his charities and hobbies and         name or only first initial… the mother reports
pointing out that most of what is searchable by     that it worked, she was never bothered again.
Google itself and unavailable to the public (at     Again, we need proven procedures, not postur-
least for now) may represent a security threat.     ing politicos on the stump.
The reporter, Elinor Mills, pointed out that
"hackers, zealous government investigators, or      FDIC ISSUES “SPYWARE GUIDANCE”
even a Google insider who falls short of the
                                                    The FDIC (Federal Deposit Insurance Corpora-
company's ethics standards could abuse that
                                                    tion) has issued guidance to financial institu-
                                                    tions on how they can protect themselves
                                                    against "spyware" which is an increasingly
QUESTION: THE REAL TRUTH ABOUT                      prevalent form of software that collects per-
“ABLE DANGER?”                                      sonal or confidential information about a per-
By now we have all heard about the failure of       son or organization without their prior knowl-
the 9/11 commission to mention a secret intelli-    edge or informed consent, and transmits it to a
gence task force with the code name of “able        third party. The FDIC’s list of recommended
danger.” One side points the finger and says,       actions to mitigate the risks associated with
“it’s your president’s failure”. The other side     spyware includes:
points the finger and says that a bureaucratic      •   Considering threats from spyware as part of
snafu kept the information from the committee.          the risk assessment process. This ensures
Both parties are blaming the inanimate object           that the financial institution considers all
known as the pentagon. But have you heard               risks to private customer information and
the details about the sophisticated data-mining         takes appropriate steps to mitigate those
software, which allowed the aircraft hijackers to       risks, such as implementing anti-spyware
be identified more than a year prior to 9/11?           technologies.
While both political parties posture and point,
the fact, which is being glossed over lightly, is   •   Enhancing security and Internet-use poli-
that a domestic military unit had access to a           cies to address risks associated with spy-
number of data sources, one of which was ap-            ware and acceptable user behavior (e.g.,
parently credit card charge records. Unless the         prohibiting Internet downloads and visits to
credit card companies were hacked, which we             inappropriate Web sites). In addition, man-
doubt, there arises the issue of the unfettered         agement should take steps to enforce these
access of a governmental entity to the credit           policies and reprimand staff members who
card records of citizens and others without the         fail to comply with them.
so-called “judicial review and compulsion” so       •   Expanding employee training to include the
often touted by the credit card issuers and             risks associated with spyware so that users
processors themselves. We must stop and ask             will become cognizant of the behavior they
ourselves, where in the process are the safe-           should adopt to prevent spyware on bank
guards that prevent a tragedy like the recent           computers and on personal computers that
one in London? …Where an apparently inno-               are used to connect to the bank's network.
cent man was shot to death after being mis-
taken for a terrorist…all because he decided to
                                                    •   Educating customers about the risks associ-
run for a train; when those in power decided            ated with spyware and encouraging them to
beforehand that the “rules of engagement”               implement steps to prevent and detect spy-
were to shoot if the man attempted to run. Bear         ware on their own computers. In addition,
this in mind as the government now asks the             advise customers of the risks in using public
industry to spend millions of dollars to safe-          computers – such as those in hotels, librar-
guard “non-public personal information” of the          ies or Internet cafés – to connect to online
very same nature as that which was used by              banking Web sites because of the uncer-
the “able danger” researchers. It is an open            tainty of what spyware may have been in-
secret that most financial organizations em-            stalled on the public equipment.
ployee ex-government agents who still may           •   Investigating the implementation of multi-
have divided loyalties to their ex-employer;            factor authentication methods, which would
another potential means of data access. I am            limit the ability of identity thieves to compro-
all for the data-mining effort to determine             mise customer accounts, even when a thief
money laundering and curtailing money that              has a customer's ID, password and account
may be flowing to terrorists. But the public must       numbers.
be safeguarded from accidents arising because       More comprehensive information can be found
of faulty data-mining and analysis software...      at the FDIC’s web site at: www.fdic.gov/news/
especially in these troubled times when bu-         news/financial/2005/fil6605.html.
                                                                                              Page 14

Advertising.com (now a subsidiary of Internet      Two of the greatest fears of the civil libertarians
Service Provider America Online) has agreed        are that regulations designed to combat terror-
to settle FTC charges that it violated federal     ism would be used to erode personal freedoms
law by offering SpyBlast, a free security pro-     or that the “cloak of terrorism” might be used to
gram to protect against hackers; but failing to    enact legislation that had nothing to do with
disclose adequately that consumers who             terrorist activities. As Fox News says, “we re-
downloaded SpyBlast also downloaded a form         port, you decide.”
of software that followed their electronic com-
                                                   “The OCC, Board, FDIC and OTS (the Agen-
ings and goings and force-fed them pop-up
                                                   cies) propose to adopt rules to implement sec-
ads. According to the FTC complaint, the bun-
                                                   tion 6303(b) of the Intelligence Reform and
dled software allowed the collection of infor-
                                                   Terrorism Prevention Act of 2004 (Intelligence
mation about consumers, including the URLs
                                                   Reform Act), which added a new section 10(k)
of pages they visited, which was used to send
                                                   to the Federal Deposit Insurance Act (FDI Act).
them advertisements. Copies of the complaint
                                                   Section 10(k) imposes post-employment re-
and consent agreement are available from the
                                                   strictions on senior examiners of depository
FTC’s Web site at www.ftc.gov/os/
                                                   institutions and depository institution holding
caselist/0423196/0423196.htm. An analysis
                                                   companies. Under section 10(k), a senior ex-
of the settlement can be found at www.ftc.gov/
                                                   aminer employed or commissioned by an
                                                   Agency may not knowingly accept compensa-
                                                   tion as an employee, officer, director, or con-
WARNING: CONTRACT PROCESSOR                        sultant from certain depository institutions or
AS A POTENTIAL SECURITY BREACH                     depository institution holding companies he or
Once again we have been solicited by a firm        she examined, or from certain related entities,
purporting to supply contract processing ser-      for one year after the examiner leaves the em-
vices to the trade. Unfortunately, they fail to    ployment or service of the Agency. If an exam-
identify the people behind the service and         iner violates the one-year restriction, the statute
their web site contains very little other than     requires the appropriate Federal banking
buzzwords and happy-talk. Not one mention of       agency to seek penalties. Accordingly, the ex-
the founder or the people behind the offering      aminer may be subject to an order of removal
even tough they claim to have been in the          and prohibition or a civil money penalty of up to
business since 2001. However, their contract       $250,000. The Agencies have the discretion to
does provide a name and address for the ser-       seek both types of remedy. Section 10(k) will
vice. A name so generic that it would be al-       become effective on December 17, 2005. Com-
most impossible to research on the web.            ments must be received on or before October
While the name does not indicate a corporate       4, 2005.” Further information can be obtained
status in the State of California, a corporation   at: www.occ.treas.gov/ftp/bulletin/2005-30.txt.
bearing that name was found in the state’s         It seems that this is one of those governmental
corporate records; with nothing to link the        ethics issues involving the so-called “revolving
name to this particular offering. The rule re-     door” between legislators, regulators (including
mains: know who you are dealing with,              their staffs) and various and sundry industries.
investigate before you invest… or turn             It also seems that this should be coded into the
over client information to an unknown en-          basic bylaws of all governmental institutions
tity.                                              without any need or reference to “terrorist” ac-

WARNING: WHEN BUYING                               fight between the formats of high-capacity
ELECTRONICS                                        DVDs is heating up. In the area of wireless,
                                                   new and faster protocols will be coming on line.
President Bush has signed the so-called            With the demand for increased security, new
“Energy Bill,” officially known as the Energy      internet protocols will be introduced. And, of
Policy Act of 2005, which mandates an ex-          course, let us not forget the chipmakers, which
panded definition of daylight savings time.        will be pushing for 64-bit hardware and Micro-
Beginning in 2007, daylight savings time will      soft who will be introducing a relatively new
begin on the second Sunday in March and run        operating system. Our rule: caveat emptor let
to the first Sunday in November. This will pre-    the buyer beware. Electronic equipment may
cede the Federal Communication Commis-             seem to be selling at a discount, but it could be
sion’s abandonment of analog television chan-      obsolete within a short time span. Make sure
nels in favor of newer high frequencies. This      that your next purchases will survive the march
will mandate a new generation of digital-          of time.
capable receivers. If this were not enough, the
                                                                                                 Page 15

HONEYMONKEYS?                                          CONSIDERING “INNOVATIVE TECH-
According to various sources, one of Micro-            NOLOGY” IN A DOWNTURN MARKET
soft’s security initiatives known as the “Strider      Many technology vendors are claiming that the
HoneyMonkey Exploit Detection System” has              only way to survive in a real estate market
begun to pay off by identifying dangerous web          downturn is to invest in cost-cutting technol-
sites. The system which combines the use of            ogy…which they are extremely pleased to pro-
a honey pot (an online computer that simu-             vide. Here are a few fundamental thoughts for
lates a valuable web site and is actually moni-        your consideration.
tored to detect attacks) and a WebCrawler
(spider monkey) uses a number of automated             •   The low-cost producer: Unfortunately,
Windows XP clients to surf questionable parts              becoming the low cost producer is often a
of the Web looking for sites that compromise               game for the larger companies with signifi-
the client system without requiring any user               cant fixed overhead. It is far easier to cut
interaction. For those so inclined, a full de-             overhead by eliminating marginal or non-
scription of the project is available from Micro-          productive employees than it is to adopt a
soft at:                                                   new technology.
                                                       •   XML is the answer: Some technologies,
DSL RATES TO RISE IN FUTURE                                such as those incorporating XML implemen-
                                                           tation may require widespread adoption
A recent decision by the Federal Communica-                before any cost efficiencies may be ob-
tions Commission to reclassify high-speed                  tained. The cost of new product selection,
Internet Connections probably means that                   implementation and training or the cost of
rates are on the way up. DSL will be treated               in-house programming may far outweigh
as an “information service” rather than the                any immediate cost reductions.
more regulated “telecommunications” service.
In the telecommunications world where                  •   Do it now or regret it: Technology and
“competing on chaos” using slice and dice rate             finance products are constantly evolving.
tariffs and other regulatory dodges is the                 The trick is to achieve a quick or early pay-
norm, the Telcos will no longer have to share              back on invested funds. Long term pay-
their facilities with other service providers at           backs may not be realistic, as the next tech-
                 rates decreed by the govern-              nological change must be implemented be-
                 ment. Low-cost providers oper-            fore the full payback occurs. Early adopters
                 ating within Telco territory will         of technology often suffer the slings and
                 need to provide additional ser-           arrows of the development process while
                 vices in order to prevent cus-            secondary adopters, who have waited, reap
                 tomer attrition. This is definitely       the rewards of a more mature and stable
                 not a good sign for customers.            system.
                INTERNET AT SERIOUS                    •   All you have to do: One of the scariest
                RISK                                       phrases in the technology jungle. If it is
                With the growing number of                 really that simple, everyone would be doing
                systems that depend on the                 it and there would be no differentiable or
                internet to deliver information            proprietary advantage built-in to the solu-
                and services to a vast array of            tion.
government, educational, scientific, medical           •   Trust me: This translates directly into “run
and industrial systems, any compromise of the              the other way.” There are no guarantees in
internet infrastructure presents a real threat to          technology with the exception of those built
the nation’s economy and security. Unfortu-                into a complex contract. A contract drawn,
nately, attendees at this year’s Black Hat Se-             interpreted, and re-interpreted by legal
curity Conference were treated to an im-                   counsel often resulting in large unrecover-
promptu demonstration presentation of a re-                able legal fees above and beyond any po-
mote access challenge to a Cisco router. This              tential technology cost savings.
exploit, while not fully described, presented a
challenge to others to duplicate and improve           Then you might ask, what is the answer? The
on this feat. Since Cisco routers were widely          answer is to build an outward facing system
adopted by infrastructure architects and               that is both customer and employee friendly. A
thought to be nearly invincible, this particular       system where technology is incidental to pro-
offering highlights a real threat to the safety        viding customer service and ease-of-use. A
and security of the internet. This particular          system with defined costs and proven benefits.
software exploit apparently has the power to           A system which conveys a proprietary advan-
also damage the underlying router hardware.            tage in that it supports your own unique selling
This is a real threat and must be taken ex-            proposition.
tremely seriously. For more information on the
threat:      http:// www.securityfocus.com/
                                                                                                Page 16

TARGET                                             “SSN” LEGISLATION
          As more and more people adopt wire-      It is amazing that most of the bills being consid-
          less technology, one should also         ered for the protection of social security num-
          become aware of the increased risks      bers rely on the least likely of protection meth-
         for systems compromise. Many com-         ods. One such bill mandates that only the last
panies and individuals who use wireless ac-        four digits of the social security number appear
cess points (WAPs) are unaware of the physi-       on a document such as a credit report. How
cal theft potential of such devices. Some of       helpful this might be for thieves is easily esti-
the older laptops and wireless products are        mated, for the last four digits of any SSN is the
actually programmed with the username              only random part of the number. Armed with
(SSID), password and encryption scheme of          your state of birth or, for older people, your
the connection point. One quick test of system     residence state on or about their 16th birthday
vulnerability from the theft of a WAP would be     and tables freely available from the Social Se-
simply to unplug the WAP and plug the device       curity Administration, it may be possible to rec-
into another computer and see if the connec-       reate the actual number. The first three digits of
tion is enabled. If so, you have a demonstra-      an SSN indicate the state of issuance. The next
ble vulnerability.                                 two numbers indicate the approximate date of
For more information, one might want to read       issuance. Therefore a smart programmer may
RFC 3990 (Request for Comment – the                be able to recreate the actual number by the
method by which internet information is trans-     tables located at www.ssa.gov/foia/
mitted to the internet community) titled, “RFC     stateweb.html and www.ssa.gov/employer/
3990- Configuration and Provisioning for Wire-     highgroup.txt. To be noted, providing a good
less Access Points (CAPWAP) Problem State-         name and address plus an approximation of
ment.” One section comments, “Theft of an          the SSN will almost always work at the credit
access point, with its embedded secrets, al-       repositories since they also search for near
lows a thief to obtain access to the resources     misses. If the system obtains a near-miss “hit,”
secured by those secrets.” The document may        the bogus number might be reported as a data
be found at:                                       entry or transcription error, while returning real
http://www.faqs.org/rfcs/rfc3990.html              social security number as part of the returned
                                                   MICROSOFT INTERNET BROWSER
                                                   MAY NOT MEET W3C STANDARDS
While everyone agrees that certain biometric
information, such as fingerprints and retinal      The Microsoft rumor that there would be no
eye scans, may be a unique personal identi-        new browser after Internet Explorer version 6
fier, not enough consideration is being given      (because all of the windows in Longhorn, the
to keeping the digital representations of these    next operating system due in mid 2006, would
“biomarkers.” A simple example would be a          be internet aware) has been rendered moot.
digitized fingerprint file stored on an unse-      Internet Explorer version 7 has been an-
cured device. Since it would be relatively easy    nounced and the industry has immediately
to respond to a server request by sending the      chided Microsoft for not adopting the latest
electronic representation of a fingerprint, the    W3C (World Wide Web Consortium) standards.
owner of the print need not be present to au-      There are those that believe this problem is
thenticate the transaction. High-tech forgery at   due to a technological glitch while others be-
its best. Not only must biometric files be se-     lieve that it is just Microsoft trying to maintain a
cure, they must be combined with real-time         dominant advantage. Whatever the truth, we
time/date stamps and other information to          hope that this next browser version delivers
insure that the biomarker is captured correctly    some of the security, flexibility and printer
and from the right party. One way hashing          friendliness of some of its close competitors.
algorithms may be of some use in these situa-      For the techies among you, an interesting arti-
tions, but do not represent the be all and end     cle can be found at Microsoft Watch at:
all solution to biomarker theft.                   www.microsoft-watch.com/article2/0,2180,177

WIN BIG WITH THE SMALL                             provides enough background and confidence-
COMMERCIAL LENDING GAME                            building play to allow residential mortgage bro-
                                                   kers to consider breaking into the commercial
Unlike most board games, this one is both          lending arena to buffer the effects of any future
educational and potentially profitable. InterBay   downturn in residential lending.
Funding (www.interbay.com) has developed a
customized board game to simulate the small        The Mortgage Bankers Association (MBA) has
commercial lending marketplace. Primarily          recently focused on the addition of commercial
designed to help residential mortgage brokers      lending activities to the open standards MISMO
learn about commercial lending, the game                                          (Continued on page 17)
                                                                                              Page 17

(Continued from page 16)                             … Wells Fargo Loses Pre-emption
(Mortgage Industry Standards Maintenance             Appeal
Organization) core data dictionary, process          The United States Court of Appeals for the 9th
and data definitions. The MBA believes that          Circuit has ruled that Wells Fargo and its mort-
commercial lending is a valuable adjunct to          gage subsidiary may not charge interest prior
residential mortgage operations. More infor-         to the recordation of a mortgage. While Wells
mation on MBA activities in the commercial           Fargo maintained that OCC’s preemption over
arena can be found at:                               state legislation and the National Banking Act
www.mortgagebankers.org/cref.                        allowed the bank to begin charging interest
From their web site, “InterBay Funding, LLC,         when the money was transferred to the cus-
is a national wholesale lender specializing in       tomer, the court ruled that the bank must start
financing for small commercial real estate. We       charging interest only after the mortgage was
bring capital to small business owners and           recorded. A number of side issues were also
commercial real estate owners who have               addressed. More information can be found at
been underserved by traditional lending insti-       www.ca9.uscourts.gov/ca9/newopinions.nsf
       tutions. InterBay Funding works               /8E6D00949CDFE6D38825705B004F17C8/
       through independent mortgage brokers          $file/0316194.pdf?openelement
       to help small business owners and
       investors realize the American dream          … Bank subsidiaries are entitled to
       of commercial property ownership. We          preemption
       originate loans from $100,000 to              The United States Court of Appeals for the
       $1,000,000 for borrowers who seek a           2nd Circuit has upheld an OCC regulation that
       simplified underwriting (stated income/       states that national bank’s operating subsidiar-
       stated asset) process.”                       ies are entitled to the same federal preemption
                                                     from state laws, as are their parent national
       The game is available, at cost, for           banks. The 31-page decision affecting Wacho-
       $49.95 plus $12.95 shipping, directly         via Bank may be found at http://
       from InterBay at www.Interbay.com.            caselaw.lp.findlaw.com/data2/
       You must select the “marketing support        circs/2nd/043770p.pdf. While a number of
       button” at the bottom of the screen and       states have attempted to challenge preemp-
be prepared to register your name and com-           tion rules, most of the challenges have been
pany to obtain access.                               rebuffed by the courts.
Disclaimer: ICC is not connected in any way
to InterBay Funding and while we recommend           … Tweedle dee, tweedle dumb and
the game as an entertaining learning tool, we        tweedle dumber are at it again
make no representations or warranties about
the company.                                         Introducing legislation guaranteed to make
                                                     real estate transactions more difficult, Senator
PREEMPTION MAY BE THE ANSWER TO                      Jon Corzine (D-NJ), Congressman Barney
SIMPLER REGULATIONS                                  Frank (D-MA), and Representative Luis
There is no doubt that financial companies           Gutierrez (D-IL), have introduced legislation in
operating in today’s overly regulated world          both the Senate and House which would re-
spend a significant part of their time, effort and   move some of the federal preemption protec-
money in meeting the patchwork compliance            tions for nationally chartered financial institu-
requirements of local, state and federal regu-       tions against onerous state “consumerism”
lators. Much of this legislation has been            laws. Introduced as the “Preservation of Fed-
passed by “feel good” political hacks trying to      eralism in Banking Act” (S.1502, HR 3426),
win political points and publicity. Some well-       the law states; “Notwithstanding any other
meaning legislation was sponsored by com-            provision of Federal law, any consumer pro-
munity activists with legitimate grievances.         tection in State consumer law of general appli-
And, let us not forget those parasitic lobbyists     cation (including any law relating to unfair or
who attempt to gain an exploitable advantage         deceptive acts or practices, any consumer
for a narrow group of business interests; often      fraud law and repossession, foreclosure, and
at the expense of the industry as a whole. If        collection) shall apply to any national bank.”
costs are to be really reduced, regulations          Since this legislation will have a far-reaching
must be brought under control. No more               affect on high-cost loans, it is suggested that
patchwork, conflicting and downright                 you write members of the appropriate commit-
“impossible to comply with” legislation. No          tees to voice your displeasure or contact and
more legislation that places mortgage brokers        contribute to your local, state and national
at a disadvantage with mortgage bankers al-          trade associations. As a side-note, viewing
though they often perform much of the same           some of the bill’s “socialistic” co-sponsors
activities. Now is the time to push legislators      should give you a real feeling for their motiva-
to consider the issues involving preemptions         tions: Representatives Bernie Sanders (IN-
so that they may spend next year building a          VT), Maxine Waters (D-CA), Barbara Lee (D-
coherent set of rules and regulations, which         CA), Charlie Rangel (D-NY), Janice Scha-
will be easier and less, costly to implement.        kowsky (D-IL) and others of similar ilk. It is
                                                                                 (Continued on page 18)
                                                                                              Page 18

(Continued from page 17)                            The report is available in PDF format and the
suggested that you concentrate your efforts         underlying data set is available as an Excel
on Frank and Rangel, both stand-up guys,            spreadsheet. The data can be found at
who are sometimes misguided. The bill is not        www.nationalcity.com/corporate/
yet available from the Government Printing          EconomicInsight/default.asp under the cate-
Office in PDF format, but can be found by           gory “Housing Valuation Analysis” located at
entering the bill numbers in the THOMAS             the bottom right hand of the webpage.
(http://thomas.loc.gov) government informa-
tion on the internet portal.                        UNCONVENTIONAL SUB-PRIME
                                                    LENDING SUCCESS STORY?
WHERE IS THE BUBBLE? COULD                          J. Paul Reddam, founder of DiTech Mortgage
THIS MEAN AN ORIGINATION                            (now a division of GMAC), who voluntarily
OPPORTUNITY?                                        resigned as CEO when three top DiTech man-
What does an overvalued situation mean for          agers were charged with a variety of serious
originators? It could mean an opportunity to        crimes, is now running Irvine-based Cashcall.
re-focus your sales emphasis to additional re-      Cashcall, according to the Orange County
fi “bailouts.” The trick will be to isolate those   Register, offers instant, unsecured loans in
with loans featuring “creative” finance options     amounts from $5,000 to $10,000+ to a variety
such as interest only balloons, negative amor-      of less than prime customers for a $75 fee and
tization, and option-arm loans and then pro-        an interest rate that runs from approximately
posing an attractive solution for lowering pay-     34-percent to an approximate high of 59-
ments. Where can such a list be found? Look         percent. Cashcall’s is different from most pay-
at your own activities and use the property         check advance lenders in that its terms can be
address of owner occupied dwellings instead         long-term, up to ten years, and feature no pre-
of the older “mailing address” provided at the      payment penalties.
time of the application. Look at lists available    One of the first entrepreneurs to master web
for areas that are “extremely overvalued.” To       sales and processing techniques, Reddam is
help highlight such areas, National City Corp       an extremely smart guy who employs technol-
has provided a valuable report which claims         ogy to solve onerous and repetitive back room
that 31% of the housing market is overvalued.       operations. While some continue to question
                                                    Cashcall’s policy of not revealing interest rates
…31% of Housing Market 'Extremely                   until just before signing the loan papers, man-
Overvalued'?                                        aging risk is one of Reddam’s specialties.
National City Corp, one of the nation's largest     Considering the number of formal complaints
financial holding companies operating a bank-       that were lodged against DiTech, it remains to
ing network including commercial, retail and        be seen if this type of specialized lending will
mortgage operations, has sponsored a study          catch on and become part of the service lines
by chief economist Richard DeKaser titled           of major financial institutions.
“House Prices in America: Valuation Method-         For those curious about Reddam’s mindset,
ology and Findings” which presents a survey         one should read his dissertation on the Prag-
list of valuation deviations in 229 metropolitan    matics and the Language of Belief.
areas representing approximately 80% of the         (Philosophy Dept., University of Southern Cali-
housing market. Summary conclusions from            fornia) His thesis advisor was the famous Bas
the study include                                   van Fraassen whose work in understanding
• “Price-to-income ratios were statistically        the basis of scientific theories is absolutely
     explained by household population density,     fascinating. (He was one of the seminal fig-
     mortgage interest rates, relative income       ures in the field of Constructive Empiricism,
     levels and characteristics unique to each      which claims that scientific theories are se-
     metro area.                                    mantically literal, aim to be empirically ade-
                                                    quate and their acceptance involves as belief
• Markets are considered extremely overval-         only that it is empirically adequate.) Reddam is
     ued when observed prices exceed statisti-      definitely a technology trendsetter to watch.
     cal norms by 30 percent. That threshold
     was determined from the typical degree of      HOUSE VALUE HEDGING: CAVEAT
     overvaluation that preceded the 63 price       EMPTOR
     declines actually observed over the past 20
     years.                                         Over the years, a number of homeowners
• As of the first quarter of this year, 53 metro    have desired to preserve the current value of
                                                    their home while insuring that any gains are
     areas representing 31 percent of the total     not eroded in a declining real estate market.
     U.S. housing market are extremely over-        This is known as having your cake and eating
     valued and confront a high risk of future      it too! A number of newsletters now tout a
     price correction.                              method that can be used by homeowners to
• California and Florida have the highest           solve the problem of locking-in their housing
     concentration of overvalued housing mar-       profits in declining markets by using a sophisti-
     kets, as do parts of the Greater New York      cated hedge maneuver involving publicly
     and Greater Boston areas.”                                                 (Continued on page 19)
                                                                                              Page 19

(Continued from page 18)                            RIDICULOUS DISCLOSURES
traded stocks. Unfortunately, the concept ex-
                                                    While Greenspan and Company describes a
planation is somewhat misleading because
                                                    “frothy world” of local bubbles, real estate
there is no correlation between the price of an
                                                    agents who have hyped the market are fearful
individual’s home and the opportunity to make
                                                    of the consequences should there be regional
loss-offsetting money in a speculative hedge
                                                    dislocations in the marketplace. So many
fund. Money can be made by a hedge fund by
                                                    agents are turning to a disclosure stating the
shorting stocks in a declining market, but the
                                                    obvious: the price of real estate can go up and
amount of money earned per participation
                                                    down and that the buyer understands that the
share will be dependent upon the home-
                                                    property may not appreciate and the value of
owner’s contribution to the hedge fund. For
                                                    the property can actually go down. One such
many newsletters, their money comes from
                                                    disclosure was introduced in October 2004
subscriptions that result from the “pitch,” and
                                                    and is titled: “Market Conditions Advisory.”
possibly for steering customers toward a par-
                                                    The form (Form MCA) was developed by the
ticular investment. This type of play calls for
                                                    California Association of Realtors. While eve-
some serious financial analysis including the
                                                    ryone knows that it is in an agent’s best inter-
computation of many “what if” scenarios. One
                                                    est to sell into a rising market, the use of this
major question is: how much faster could the
                                                    disclosure may also be indicative of the fact
loan be retired and how much might be saved
                                                    that a certain amount of hype may have been
in total payments if the amount of money that
                                                    present in the sales pitch. Presenting such a
would be invested in such a fund was applied
                                                    disclosure may dissuade individuals from filing
directly to the principal balance? Assuming, of
                                                    suit, but would be of little use in a class action
course, that the lender would accept such pre-
                                                    where a pattern of practices or procedures
payments. A simple amortization chart or any
                                                    often determines the outcome.
one of the numerous web P&I payoff calcula-
tors is a starting point. As per the Better Busi-
ness Bureau: Investigate before you invest.

                           INTERESTING LINKS

The Identity Theft Resource Center at www.idtheftcenter.org/index.shtml presents a wealth of in-
formation on protecting yourself against identity theft including victim information guides, fre-
quently asked questions (FAQs), and scams and consumer alerts. We particularly like the
“IDENTITY THEFT TEST” which can be obtained in PDF format at http://www.idtheftcenter.org/
Factsheet101.pdf. This test includes questions on information handling, document disposal, social
security number protection and scams. There are also a number of valuable guides under the
“Victim Information Guides” section.

ICC does not use the information you provide for any purpose other than to prepare your loan
documents. We do not make your information available to anyone, especially third-party ven-
dors. We do not engage in statistical analysis of your data nor do we suggest alternative loan
programs, insurance or other products.
For those who would like to receive our informative newsletter automatically each month, please
contact Erin at erinh@iccdocs.com to be added to the list. We are committed to protecting your
privacy and your e-mail address will never be rented, sold, or otherwise shared with any third-
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    At ICC, we appreciate and value your business. Feel free to call us toll-free at
     (888) 437-3627 or e-mail me at info@iccdocs.com with your suggestions –
                              Mike Straziuso, President
  US Department of Housing and Urban Development
                                     Uniform Estimated Settlement/Closing Cost and Mortgage Loan Disclosure
  Name and Address of Borrower:                                                  Company Name and Address:

  Property Address:                                                              Interest Rate:                    %    Term of the loan        Years
                                                                                    Fixed Rate Mortgage Loan, or            Adjustable Rate Mortgage Loan
  Settlement Charges:                                                            Program Type          Conventional         FHA     VA       Other:
  800: Items Payable in Connection With The Loan:                                Loan Number:
  801: Loan Origination Fee (             %)                                     Prepayment Penalty:         May       May Not Balloon Payment:         Yes   No
  802: Loan Discount Fee (                %)                                     Summary of Borrower's Transaction:
  803: Appraisal Fee to:                                                         Contract Purchase Price/Existing Loan Amt to be Paid Off
  804: Credit Report Fee to:                                                     Personal Property
  805: Lender's Inspection Fee                                                   Total Settlement/Closing Cost Charges to Borrower(s): 1400A
  806: Application Fee to:                                                       Total Pre-Paids/Reserves Charged to Borrower(s): 1400 B
  807: Flood Certification Fee
  808: Mortgage Broker Fee (              %)                                     Gross Amount Due From Borrower(s):
  809: Tax Service Fee                                                           < Deposit of Earnest Money>
  810: Processing Fee                                                            < Principal Amount of new loan(s)>
  811: Underwriting/Admin Fee                                                    < Seller Paid Closing Cost Credit(s)>
  812: Wire Transfer Fee                                                         < Subordinate Loan Proceeds>
  813:                                                                           < Other Credit(s)>
  900: Items Required by Lender to be Paid in Advance                            Amounts Paid By or In Behalf of Borrower(s):
                 ___ days at $______ /day
  901: Interest for                      _
                                         _          _
  902: Mortgage Insurance Premium for ____ mos. to___                            Cash at Settlement Due From/To Borrower(s):
  903: Hazard Insurance Premium for _____ mos. to____
  904: Flood Insurance Premium for _______mos. to____                            Proposed Payments
  905: VA Funding Fee/Mortgage Insurance Premium                                 1st Mortgage     Principal & Interest       Interest Only
  1000: Reserves Deposited with Lender                                           2nd Mortgage        Principal & Interest    Interet Only
  1001: Hazard Insurance:    _                _
                          ___months @ $_____ per mo.                             Property Taxes
                                 _            _
  l002: Mortgage Insurance: ____ months @ $___ per mo.                           Home Owners Insurance
  1003: City Property Taxes:____              _
                                 _months @ $___ per mo.                          Mortgage Insurance
  1004: County Property Taxes:___             _
                                 _months @ $___ per mo.                          Home Owner's Association Dues
                                 _            _
  1005: Annual Assessments:____months @ $___ per mo.                             Other
  1006: Flood Insurance: ____                 _
                             _months @ $_____ per mo.                            Other
  1007:                                       _
                         months @ $________ per mo.
  1008: Aggregate Adjustment                                                     Total Proposed Monthly Payment
  1100: Title Charges
  1101: Settlement or Closing/Escrow Fee to:
  1102: Abstract or Title Search to:
  1103: Title Examination to:                                                    Nature of Relationship:
  1104: Title Insurance Binder to:                                               In connection with this residential mortgage loan, you the Borrower(s), have requested
                                                                                 assistance from                                                                        .
  1105: Documentation Preparation to:                                            (Company name) in arranging credit to meet your financial needs. We do not distribute
  1106: Notary Fees to:                                                          all products in the marketplace and cannot guarantee the lowest rate.
  1107: Attorney's Fee
        Includes above item numbers:                                             Termination: This estimate will continue until one of the following events occur:
  1108: Title Insurance Binder to                                                     1. The Loan Closes
        Includes above item numbers:                                                  2. The Request is Denied
                                                                                      3. Borrower withdraws the request
  1109: Lender's Coverage $                                                           4. The Borrower decides to use another source for origination.
  1110: Owner's Coverage $                                                            5. The Borrower is provided a revised Uniform Estimated Settlement/Closing
  1111: Includes Commitment Fee                                                             Cost and Mortgage Loan Disclosure
  1112: Endorsement Fee to:
  1113: Wire Fee to:
  1114: Electronic Doc Fee to:
  1115: Courier Fee:
                                                                                 Notice to Borrower(s): Signing this document does not obligate me to obtain a
                                                                                 mortgage loan through this mortgage originator, nor is this a loan commitment or
  1117:                                                                          approval. Do not sign this statement until you have read and understandall of the
                                                                                 information in it. Fees received under this agreement are legal and permissable under
  1118:                                                                          The Real Estate Settlement Procedures Act. You will receive a re-disclosure of any
                                                                                 increase in rate or if the disclosed settlement/closing costs of Section 1400A increase by
  1200: Government Recording and Transfer Charges                                10% or more of the original estimate. Should an increase occur, re-disclosure must
  1201: Recording fees:   Deed $    Mortgage $                                   occur prior to the settlement or close of escrow.
     Release(s)/Reconveyance(s) $
  1202: City/County Tax/Stamps            Deed $       Mortgage $
  1203: State Tax/Stamps         Deed $            Mortgage $
  1204: Assignment Fee
  1300: Additional Settlement Charges
  1301: Survey to:
  1302: Pest Inspection Fee to:
  1303: General Inspection(s) to:
  1304: Home Warranty
  1305: Elevation Certificate
          A. Settlement Cost (Sections 800,1100,1200,1300 above)
          B. Prepaid Items (Sections 900 and 1000 above)

  1400: Total Estimated Settlement/Closing Costs

  Applicant(s) hereby acknowledge(s) the receipt of a copy of this agreement and that you inquired into mortgage financing with
                                                                                        (Company) on                                                               . (date)

  Borrower:______________________________                                                                                      _
  Signature of Originator                                            Date


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