LEGISLATIVE UPDATE

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LEGISLATIVE UPDATE

• Felicia Faison-Holmes and Rick Tangum
• Legal and Consumer Affairs Division
• Georgia Department of Banking and Finance
• Georgia Consortium for Personal Financial
  Literacy
• September 27, 2007

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Agenda

• Regulatory Framework
• Departments Regulated Entities
• Consumer Resources and Complaint Process
• Mortgage Industry Regulation
• Mortgage Fraud Statute
• Questions Answers

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GA Dept. of Banking and Finance
Safeguarding Georgias Financial Services

• Our Mission is to promote safe, sound,
  competitive financial services in Georgia through
  innovative, responsive regulation and
  supervision.
• Divisions
• Supervision
• Non-Depository Financial Institutions
• Legal and Consumer Affairs

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Regulatory Framework

• Dual Banking System
• Banks, Credit Unions and Savings Banks may choose
  to be state or federally chartered.
• Mortgage Industry
• Mortgage Brokers and Lenders (if not a subsidiary
  of a bank or credit union) are state licensed.
• Residential lending is federally governed by the
  Real Estate Settlement Procedures Act (RESPA)
  overseen by HUD.

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Regulatory Framework

• Non-Residential Mortgage Loans
• Investment, Commercial or 2nd Homes
• Personal Finance Companies
• Federal Trade Commission (FTC) enforces federal
  consumer protection laws (Truth-In-Lending) which
  may be applicable.
• Industrial Loans
• Loans under 3K are regulated by the Georgia
  Insurance Commissioner.
• Payday Loans (illegal in Georgia)
• Title Pawn
• Supervised and licensed by municipalities

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Federal Bank Regulators

• National Banks are federally regulated by the
  Office of the Comptroller of the Currency (OCC).
• National Banks have national in their name or
  N.A. (e.g. First National Bank or First Bank,
  N.A.)
• Federal Savings and Loan banks are regulated by
  the Office of Thrift Supervision (OTS).
• Federal SL banks have the word federal in
  their name or FSB. (e.g. First Federal Savings
  and Loan Association, Anytown Federal Bank or My
  Bank FSB).
• Federal Credit Unions are regulated by the
  National Credit Union Administration (NCUA).
• Federal Credit Unions have the word federal in
  their name.

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Department Regulated Entities

• Depository
• State Chartered Banks (288)
• Bank Holding Companies (262)
• Credit Unions (68)
• International Bank Organizations (6)
• Trust Companies (1)
• As of August 31, 2007

• Non-Depository
• Mortgage Brokers Lenders (3,032)
• Check Cashers (841)
• Money Transmitters (84)
• Check Sellers (26)

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www.dbf.georgia.gov

• Consumer Resources Alerts
• Search Regulated Entities
• Press Releases
• Laws and Regulations
• Online Services
• Report Mortgage Fraud

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Legal and Consumer Affairs

• The Legal and Consumer Affairs Division is
  primarily responsible for the drafting of
  legislation and regulations and the processing of
  consumer inquiries and complaints about the
  Departments regulated entities.

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LCA Division Contacts

• Deputy Commissioner of Legal and Consumer Affairs
• Judy Newberry
• Legal and Consumer Affairs Specialists
• Mark Simpson
• Felicia Faison-Holmes
• Rick Tangum
• Legal Support Specialist
• LaTosha Rose

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Complaints and Inquiries
Fiscal Year 2007

• Complaints about the Departments regulated
  entities must be in writing and signed.
• We forward the complaint to our contact at the
  regulated entity.
• Requested response time 15 business days.
• Complaints about non-regulated entities will be
  referred to the primary regulator as appropriate.

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Who regulates my bank or credit union?

• The National Information Center (NIC) is a
  central repository of data about banks and other
  institutions for which the Federal Reserve has a
  supervisory, regulatory, or research interest,
  including both domestic and foreign banking
  organizations operating in the United States. The
  NIC web site provides access to NIC data,
  allowing the public to search for detailed
  information about banking organizations.
  (www.ffiec.gov)
• The FDICs Bank Find is a webpage to search
  FDIC-insured institutions. (www.fdic.gov)

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What we cant do

• Resolve legal or factual disputes.
• Provide legal advice or act as legal counsel.
• Make direct referrals to attorney or one of our
  regulated entities.
• Provide confidential information related to
  licensing, supervision or examinations.

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What we can do

• Process complaints against the Departments
  regulated entities.
• Refer consumers to other state and federal
  agencies or regulators.
• Refer consumers to other helpful organizations
  and non-profits.
• Answer general inquiries.
• Use each consumer contact as a teachable
  moment.

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Mortgage Industry Regulation

• Georgia Residential Mortgage Act (GRMA)
• Georgia Fair Lending Act (GaFLA)
• Mortgage Fraud Act

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Administrative Actions
Mortgage Brokers and Lenders Volume of
Administrative Actions
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Types of Disciplinary Actions

• Fines
• Cease and Desist Orders (CD)
• Intent to Revoke License (ITR)

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Fines

• FinesO.C.G.A. 7-1-1018(g)
• DBF Regulations (80-11-13.01) provide
• Employing a Felon(5,000)
• Failure to Fund (5,000)
• Dealing with Unlicensed Individuals(1,000)
• Advertising (500)

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CD and ITR

• Cease and Desist OrdersO.C.G.A. 7-1-1018
• Issued to Individuals
• Officers
• Directors
• Employees
• Agents
• Others
• Issued to Licensees
• Does not prevent licensee from conducting
  business as a broker or lender
• Specific corrections detailed necessary to avoid
  ITR
• Intent to Revoke LicenseO.C.G.A. 7-1-1017

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Disciplinary Process for GRMA Licensees

• CDO.C.G.A. 7-1-1018
• Final 20 days after issuance unless
• Written Request for Hearing
• Hearing in accordance with the Georgia
  Administrative Procedure Act (APA)O.C.G.A.
  50-13-1 et. seq.
• ITRO.C.G.A. 7-1-1017
• Final 20 days after issuance unless
• Written Request for Hearing
• Hearing in accordance with Georgia APA
• DBF may continue to pursue action despite
  withdrawal or surrender of licenseO.C.G.A.
  7-1-1017(h).

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NO Opportunity for Hearing

• Convicted Felon (CD)
• (O.C.G.A. 7-1-1004)
• 30 days before final
• Exceptions/Rights Restored
• First Offender Status and Probation
• Pardon
• Working Without a License (CD)
• (O.C.G.A. 7-1-1018(a))
• 30 days before final
• Proof of License or Exception to Licensing must
  be provided

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Prohibited Actions

• O.C.G.A. 7-1-1013
• It is prohibited for any person transacting a
  mortgage business in or from this state,
  including any person required to be licensed or
  registered under this article and any person
  exempted from the licensing or registration
  requirement of this article under Code Section
  7-1-1001, to

• Most Commonly Cited
• False Statements
• Misrepresent Material Facts
• Failure to act in good faith and fair dealing

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PROHIBITED False Statements

• Misrepresent the material facts, make false
  statements or promises, or submit false
  statements or documents likely to influence,
  persuade, or induce an applicant for a mortgage
  loan, a mortgagee, or a mortgagor to take a
  mortgage loan, or through agents or otherwise,
  pursue a course of misrepresentation by use of
  fraudulent or unauthorized documents or other
  means to the department or anyone. O.C.G.A.
  7-1-1013(1).

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PROHIBITIED Misrepresentations

• Misrepresent or conceal or cause another to
  misrepresent or conceal material factors, terms,
  or conditions of a transaction to which a
  mortgage lender or broker is a party, pertinent
  to an application for a mortgage loan or a
  mortgagor. O.C.G.A. 7-1-1013(2).

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PROHIBITEDNot Acting in Good Faith or Fair
Dealing

• Engage in any transaction, practice, or course
  of business which is not in good faith or fair
  dealing, or which operates a fraud upon any
  person in connection with the attempted or actual
  making of, purchase of, transfer of, or sale of
  any mortgage loan. O.C.G.A. 7-1-1013(6).

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Finality of Decisions

• Publication of Final Orders
• Posting on DBF Web Site (5 year period)
• Issuance of Press Release
• Copies of Actual Order Available to Public upon
  Written Request

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Common Prohibitions after Final Order

• CDs to Individuals
• A licensed mortgage broker or mortgage lender is
  prohibited from employing a person to whom a
  final CD has been issued for a period of five
  years to perform any functions governed by the
  GRMA.
• CDs to Entities
• No General Prohibitions (Specific to Order)

• ITRs
• License may not be transferred to another.
• Owner or Principal may not obtain license within
  five year period following the final order.
• To protect consumer, Licensee is usually allowed
  to close out transactions which are in pipeline
  (60 day limit).

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Georgia Fair Lending Act (O.C.G.A. 7-6A-1
through 7-6A-13)

• Points and Fees Test (High Cost Loans)
• Exceeds threshold where total points and fees
  payable in connection with the loan, excluding
  not more than two bona fide discount points
  exceed 5 percent of the total loan amount if the
  total loan amount is 20,000 or more. O.C.G.A.
  7-6A-2(17)(B).

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Georgia Fair Lending Act (O.C.G.A. 7-6A-1
through 7-6A-13)

• Flipping a Home Loan
• the consummating of a high-cost home loan to a
  borrower that refinances an existing home loan
  that was consummated within the prior five years
  when the new loan does not provide reasonable,
  tangible net benefit to the borrower considering
  all of the circumstancesO.C.G.A. 7-6A-4(a).

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Residential Mortgage Fraud ActO.C.G.A.
16-8-100 et. seq.Effective May 5, 2005

• Mortgage Fraud is a Felony.
• Single act punishable by imprisonment of 1-10
  years and or a fine up to 5,000.
• Multiple acts punishable by imprisonment of 3-20
  years and or a fine up to 100,000.

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Mortgage Fraud Offense Defined

• Knowingly make any deliberate misstatement, etc.
  during the lending process with the intention
  that it be relied upon by any party to the
  process. O.C.G.A. 16-8-102 (1).
• Knowingly use or facilitates use of any
  deliberate misstatement, etc. knowing the same to
  contain a misstatement etc. during the process
  with the intention that it be relied on by any
  party to the process. O.C.G.A. 16-8-102(2).
• Receives any proceeds or any other funds in
  connection with a residential mortgage closing
  that such person knew resulted from a violation
  of the above subsections. O.C.G.A. 16-8-102
  (3).

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Fraud Uncovered by the Department

• Falsified Verification of Employment
• Broker, Loan Officer, Processor, or other files a
  falsified Verification of Employment (VOE) with
  a lender for the purpose of obtaining the loan in
  question. Such may involve the use of falsified
  pay stubs and or false listings of employment on
  Form 1003 Mortgage Application.
• Potential Violations Cited
• O.C.G.A. 7-1-1013(1), (2) and (6)

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Fraud Uncovered by the Department

• Falsified Assets of Borrower
• Documents filed with the lender for purpose of
  obtaining loan misrepresents the assets of the
  borrower. Most common forms are falsified
  retirement accounts.
• Potential Violations Cited
• O.C.G.A. 7-1-1013 (1), (2) and (6)

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Fraud Uncovered by the Department

• Investment Property Identified as Primary
• For purpose of obtaining a lower interest rate,
  lower or no down payment, documents submitted to
  the lender represent the subject property as a
  primary residence rather than its true nature as
  an investment.
• Potential Violations
• O.C.G.A. 7-1-1013(1), (2) and (6)

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Fraud Uncovered by the Department

• Multiple Primary Residences
• Usually in conjunction with other schemes,
  consumer closes with same broker or lender upon
  more than one property in quick succession
  listing all as primary residences. Usually this
  is to conceal occupancy status and hide other
  liabilities. Closings are done quickly to evade
  detection on credit report.
• Potential Violations
• O.C.G.A. 7-1-1013(1), (2) and (6)

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Results Future Enforcement in GA

• National Ranking
• MARI no longer ranks Georgia as being 1st in the
  nation in Mortgage Fraud. As of Spring 2007,
  Georgia has fallen to 4th.
• Deterrence by Enforcement or Prosecution
• The least desirable outcome because by the time
  you prosecute, some neighborhood is in ruins
  (because of abandonment or crime-riddled
  foreclosures), and you rarely get all the money
  back.
• David E. Nahmias, U.S. Attorney, Northern
  District of Georgia as quoted in the Daily
  Report, March 15, 2007 Volume 118, Number 52, p.
  8.

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National Licensing Effort

• By the end of 2009 in Georgia, the processing of
  mortgage licensing may be handled by using a
  national application, which will streamline the
  process and allow greater sharing of licensee
  information by member states.

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Questions Answers
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Contact Information

• Georgia Department of Banking and Finance
• 2990 Brandywine Road, Suite 200
• Atlanta, GA 30341
• 770-986-1633 (tel)
• 888-986-1633 (toll-free)
• 770-986-1657 (fax)
• www.dbf.georgia.gov