OCC Touts Legal Bank Actions

The Comptroller of the Currency released a report touting orders and penalties issued against mortgage banking subsidiaries of national banks and their employees for mortgage fraud and false certifications on government-insured loans. The regulator also boasted about its success in prohibiting state regulation of federally regulated national banks.

OCC issued personal cease-and-desist orders and assessed civil money penalties of $10,000 and $5,000 against managers, a team leader and a senior vice president of ABN-AMRO Mortgage Group Inc., according to OCC’s 2007 Significant Legal, Licensing, and Community Development Precedents for National Banks released Wednesday.

OCC, which is the administrator of national banks, said the ABN AMRO employees submitted false or improper certifications to the Federal Housing Administration. ABN AMRO, which was acquired by Citigroup early last year, previously agreed to pay around $6.8 million in restitution to the U.S. Department of Housing and Urban Development, agreed not to submit $20 million in insurance claims and was assessed a $6.3 million civil money penalty.

A First Horizon Home Loan Corp. loan originator was assessed a $5,000 penalty because he originated multiple mortgages on second homes at a resort development under Fannie Mae programs even though First Horizon’s policies called for those type of loans to be originated as more risky investment property loans.

In addition, a personal cease-and-desist order was issued against the originator’s supervisor because he signed certifications that applications for mortgage loans in the same development satisfied Fannie’s primary residence criteria even though he knew that wasn’t the case.

The improperly underwritten loans resulted in 150 foreclosures leading to at least $7 million in losses for First Horizon, a subsidiary of First Tennessee Bank, N.A.

A loan officer and a loan processor at another First Tennessee subsidiary, MNC Mortgage Corp., were accused of submitting fraudulent loan applications on 64 low-income, first-time buyer mortgages. The pair, who were husband and wife, allegedly received kickbacks from the investor who sold the properties.

First Tennessee suffered $1 million in losses on the loans — many of which went into foreclosure, according to OCC, which is part of the U.S. Department of the Treasury.

OCC also touted its success in preserving preemption in three mortgage-related cases.

In one case, the Indiana Court of Appeals found that Charter One Mortgage Corp. engaged in the unauthorized practice of law by charging a fee for preparing its own mortgage documents, violating Indiana law. But an amicus brief was filed by OCC supporting the national bank’s argument that the National Bank Act and OCC regulations preempt state law. The Indiana Supreme Court ultimately concluded that lenders could charge such fees without violating state law.

In another case, the Second Circuit Court of Appeals upheld federal district court decisions barring New York’s attorney general from enforcing subpoenas for mortgage loan records of national banks to investigate compliance with state fair lending statutes. The attorney general was attempting to inspect the books and records of national banks for his investigation into residential lending practices.

The attorney general was prohibited from issuing the subpoenas, instituting any enforcement actions to compel compliance with existing information demands, and instituting actions in court to enforce state fair lending laws.

In a third case that went to the U.S. Supreme Court, the state of Michigan was prohibited from requiring mortgage operating subsidiaries of a national bank to obtain mortgage licenses.

“The case heard by the Supreme Court was one of four cases in which U.S. courts of appeal upheld decisions by district courts in California, Connecticut, Maryland, and Michigan that granted national banks declaratory and injunctive relief in suits challenging states’ efforts to license and exercise enforcement authority over national bank mortgage subsidiaries,” the report said. “After issuing its ruling in the Michigan case, the Supreme Court denied, petitions for Supreme Court review filed by Connecticut and Maryland.”