Mortgage Closing Costs May Rise Under the New Rules to Prevent Illegal House “Flipping”

By Mark Rutter, J.D. Class of 2015 | Posted on

In August 2012, six federal financial regulatory agencies issued a proposed rule to implement Section 1471 of the Dodd-Frank Act which sets forth appraisal requirements for “higher-risk” mortgage loans.

The intended purpose of the proposed rule is to tighten valuation standards for homes in order to reduce the risk of appraisal fraud, a move meant to reassure creditors, borrowers, and investors alike. Section 1471 was created as part of Congress’ intention to prevent the use of false or inflated appraisals in obtaining mortgages. If the proposed rule is finalized without amendment, lenders seeking to issue high-risk mortgage loans will be “unable to value properties on the basis of broker-price opinions, automated valuations, or drive-by appraisals”. The proposed rule would affect mortgages with annual percentage rates (APRs) at designated levels above the Average Prime Offering Rate (APOR). First-lien loans (such as standard mortgages) with an APR 1.5 percentage points above the APOR would be classified as a higher risk mortgage under the proposed rule, while first-lien jumbo loans with APRs 2.5 percentage points above, and subordinate-lien loans with an APR 3.5 percentage points above the APOR would similarly be considered higher-risk.

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Firm Advice: Your Weekly Update

By Joseph Santiesteban, J.D. Candidate 2014 | Posted on
  • Last week, we learned that whistleblowers that use snail mail for disclosing alleged violations to the SEC are still protected. This week, Bingham suggests that three courts have adopted even more relaxed disclosure restrictions, which in some cases, include “internal reports of wrongdoing.” Bingham reviews all three cases here.
  • Earlier this year, the SEC directed the national securities exchanges to require listed companies’ compensation committee members to be independent and to implement standards for determining when a compensation committee member is independent.  A few weeks ago, both the NASDAQ and NYSE submitted their proposals. In a recent client alert, Wilson Sonsini has the specifics of these updated requirements, as well as information on when and how the NYSE and NASDAQ will implement them.
  • Late last month, the Division of Corporation Finance of the SEC published some additional guidance in Q&A format on who qualifies as an emerging growth company (EGC) under Title I of the JOBS act. Highlights include that while it is acceptable for a non-EGC to spin off a subsidiary that will qualify as an EGC to take advantage of the reduced filing requirements, such efforts will be “questioned” by the SEC.  There is also some guidance on how the SEC will apply the $1 billion annual revenue test.  Katten Muchin Rosen has a summary of the updates here.

The Current State of the JOBS Act

By Renee Pesiri, J.D. Candidate 2013 | Posted on

I.  Background of JOBS act.

On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (the “Act”) (H.R. 3606) into law. This bipartisan legislation is intended to stimulate jobs growth in the United States by allowing smaller companies to raise capital, both privately and publicly, with greater ease and fewer restrictions by relieving them of some of the regulations currently applicable to private offerings, initial public offerings, and certain newly public companies. This Act focuses on emerging growth companies, as defined, by allowing them flexibility as to the timing of entering the public offering market.

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BCLBE Symposium Recap: Unlocking Capital for Efficiency Improvements

By Christopher Hammond, J.D. Candidate 2015 | Posted on

Last Friday, October 5, 2012, the Berkeley Center for Law, Business and the Economy co-hosted a symposium in San Francisco, entitled:  “Where is the money?  Unlocking Capital for Real Estate Efficiency Improvements.”

The event included presentations from leaders in law, finance, energy, and policy—all addressing the lack of adequate funding models for energy efficient remodels and retrofits.  Panels throughout the day covered energy improvement risk from owners’ and lenders’ perspectives, underwriting challenges, recent technology improvements to fill critical data gaps, bond and secondary markets, and state and federal financing policies and initiatives.  United States Senator Ron Wyden, D-Oregon, and John Chiang, California’s State Controller, were in attendance.  This is the first in a series of posts that will summarize the event, its recommendations and forecasts. (more…)

London’s Changing Market Regulation

By Constance Descout, LLM Candidate 2013 | Posted on

Since the start of the financial crisis in 2007, England’s tripartite model of financial regulation—where the HM treasury, Bank of England and Financial Services Authority (FSA) shared responsibility for financial regulation—has been widely criticized for failing to prevent or adequately respond to the financial crisis.  Critics argue that the crisis revealed the need to incorporate macro-prudential regulation into the financial system.  Earlier this year, the British government decided to change the operating model, and on September 18, it solicited comments on this reform effort.

On January 26, 2012, the government published the Financial Services Bill, which introduced a new model of firm regulation to replace and strengthen the existing regulatory architecture.

The Bill introduced the creation of three new entities: the Financial Policy Committee (FPC), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). The FPC will be charged with regulating the financial system as a whole using macro-prudential prudential powers.  The PRA and FCA will regulate individual financial institutions, though each with different responsibilities. (more…)

CFTC Chairman Addresses European Parliament Committee on the Future of LIBOR

By Luke Burton, J.D. Candidate 2015 | Posted on

On September 24, the Chairman of the CFTC, Gary Gensler, addressed the European Parliament Economic and Monetary Affairs Committee about the state of LIBOR. His comments came in the wake of the LIBOR scandal, initially revealed to the public in March 2011, and in advance of the Financial Services Authority’s recommendations on the future of LIBOR.

Chairman Gensler’s remarks included a call to look at the possibility of adopting alternate rates to replace LIBOR. His reasoning alluded to many of the same problems found in the emerging allegations of improper conduct against member banks. Gensler noted the banks lack “specific controls to prevent [them] from intentionally or unintentionally herding together and reporting the same or similar rates” and that banks have “inherent conflicts of interest” when submitting their own borrowing rates.

Governmental agencies in the US have been investigating the sixteen banks that set LIBOR for the US dollar since reports of the scandal began to surface last year. British bank Barclays has already paid a settlement of over $453 million to authorities in the US and UK.

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Firm Advice: Your Weekly Update

By Joseph Santiesteban, J.D. Candidate 2014 | Posted on

Weil has published The 10b-5 Guide: A Survey of 2010-2011 Securities Fraud Litigation. The review crosses topics and circuits with updates on pleading standards, liability issues, and class action mechanisms. The survey also includes a preview of the upcoming Supreme Court term, including Amgen, a case considering whether plaintiffs in a securities fraud class action must prove materiality to invoke the fraud-on-the-market presumption.  

Does an employee qualify as a SOX whistleblower if he sends his tip to the SEC via snail mail instead of one of the statutorily prescribed methods? On a motion to dismiss, Trans-Lux argued that he should not. A federal judge in the District of Connecticut disagreed and allowed the employee’s retaliation claim to proceed. Orrick has the details on their blog.

Last week, President Obama blocked a Chinese company’s purchase of a wind farm in Oregon citing national security concerns. The much-criticized decision was the first by a President in over twenty years. Skadden advises companies “to be aware that transactions that may not appear to be sensitive on their faces — such as the sale of a small wind farm — may indeed raise significant concerns within the CFIUS agencies and at the presidential level.” That, and more advice here.

Court Invalidates CFTC Position Limits Rule

By Rebecca Kwan, J.D. Candidate 2014 | Posted on

On Friday September 29, Judge Wilkins for the U.S. District Court for the District of Columbia vacated a Dodd-Frank rule issued by the CFTC setting limits on the number of derivatives contracts that an individual trader or group of traders can own during a given period of time. The Court’s ruling turned on whether Dodd-Frank “clearly and unambiguously” mandated the creation of position limits on derivatives contracts with or without first determining whether those limits were necessary and appropriate.

Two trade groups brought suit, arguing that the correct interpretation of the statute requires a determination of necessity before setting position limits. The CFTC argued that there was no substantive necessity requirement at all. Both the trade groups and the CFTC argued that the statutory language was clear and unambiguous, and that their different interpretations were correct. (more…)

The Wheatley Review on LIBOR Releases Final Report

By Amanda Berloni, LLM Candidate 2013 | Posted on

“We need reform not replacement.” – Guy Sears, Investment Management Association to the Financial Times on September 10, 2012

“Despite a long and painful recovery, sometimes replacement is the better choice when a hip or a knee or even a benchmark rate has worn out.” – Gary Gensler, Chairman, Commodity Futures Trading Commission quoted in the New York Times on September 24, 2012.

The Wheatley Review:

On Friday, the Financial Services Authority (the “FSA”) unveiled the findings of its study of the future of the London interbank lending rate (“LIBOR”). Martin Wheatley, Managing Director of the FSA and Chief Executive-designate of the Financial Conduct Authority, delivered a speech setting out the findings of the study and proposed recommendations on how the system should be reformed (the “Review”). (more…)

The 2012 Philomathia Foundation Forum: “Where is the Money? Unlocking Capital for Real Estate Efficiency Improvements.”

By Joseph Santiesteban, J.D. Candidate 2014 | Posted on

On Friday, October 5th, the Berkeley Center for Law, Business and the Economy is sponsoring the 2012 Philomathia Foundation Forum at the Ritz-Carlton in San Francisco. The topic of the Forum is “Where is the Money? Unlocking Capital for Real Estate Efficiency Improvements.” The event will take place from 8:30am-4:30pm.

The forum will explore what has been hindering the deployment of capital to energy efficient developments, including the need for energy considerations in risk and asset management decisions and a liquid secondary market for existing and proposed energy financing products.

Participants are encouraged to engage in an active discussion of the solutions to these impediments with leaders in real estate, finance, and technology.  The impressive speaker list includes Senator Ron Wyden (D-OR) and California Controller, John Chiang. Michael R. Peevey, President of the California Public Utilities Commission and Richard Kauffman, a Senior Advisor at the US Department of Energy will also present. These speakers and more will focus on assessing and managing the energy risk that is critical to unlocking the trillions of dollars necessary to achieve energy efficiency benefits.

The event is also sponsored by Manatt, Phelps & Phillips and the Fisher Center for Real Estate & Urban Economics and Haas School of Business at the University of California Berkeley.

If you would like more information, please contact BCBLE@law.berkeley.edu.