Regulatory Compliance in Loan Sales

Our take on the latest trending events:

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The Future of Dodd-Frank: Pulling Back Bank Regulations
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Increased Regulation for Nonbank Mortgage Lenders Leads to Consolidation
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Uncertainty for Online Lenders: The Supreme Court Weighs In
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In October, the Consumer Financial Protection Bureau unveiled proposed restrictions on "arbitration clauses" in financial products. The argument goes that legal language prohibiting customers from filing class action claims undermines a key individual right. If the rule goes into effect, it could come close to a ban on arbitration clauses, writes American Banker.
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While the reform will certainly sail through the Republican-dominated House, its chances of getting enough Democratic support in the Senate to override a likely veto by President Barack Obama remain slim.
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Student Loans: New Rules - New Concerns
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Student Loans: New Rules - New Concerns
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Treasury announced this summer it would begin taking comment letters on the burgeoning marketplace lending industry, which provides loans online, free from many of the regulations and due diligence requirements shouldered by traditional banks. Those letters recently began being made public.
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The federal crack-down on perceived racial bias in the car loan sector continued as Fifth Third Bank agreed to pay $18 million to settle allegations brought by the Consumer Financial Protection Bureau.
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Has the Dodd-Frank Act been the death knell for community banks? The answer depends on who you ask.
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While marketplace lending isn't as tightly regulated as traditional lending, some business owners are taking action to reshape this industry.
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Banks Benefit From Outsourcing Loan Production & More
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One of the biggest problems with Internet lending has been the lack of regulation. That has changed recently, however, as more regulation is seeping into this sector.
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You drop your mail off at the post office, but would you deposit your check at the post office too?
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The Consumer Financial Protection Bureau has immense oversight powers over a number of many financial industries, including residential financing and payday lending. However, one area where CFPB purview has lagged behind has been in auto lending.
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CFPB Expands Consumer Complaint Options About Financial Services
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An opportunity for consumers today could be FICO itself, which has recently announced it is working on a new score that would be catered to underbanked borrowers.
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The mortgage industry has faced substantial criticism following the financial crisis, and many critics and government officials have pounced on the opportunity to disparage this particular sector. While these views have been growing less harsh, those looking to spearhead meaningful reform have encountered numerous challenges, according to American Banker.  
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The banking sector has been benefiting from strong mergers and acquisitions activity, as economic conditions continue to improve and financial institutions look toward consolidation as a means of cutting costs, meeting capital requirements and even diversifying their businesses. 
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While they are frequently identified as being competitors of banks, marketplace lenders have asserted repeatedly that they want to work with these more traditional financial institutions. 
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Home Bancshares recently took an innovative approach to bolstering loan growth, buying nearly $300 million worth of national commercial real estate loans. The Conway, Arkansas-based bank was able to snap up this loan portfolio after Doral Bank's failure, purchasing it from private equity firm J.C. Flowers & Co. 
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Online lending marketplace Lendio recently raised more than $20 million through a funding round led by Napier Park Financial Partners. South Jordan, Utah-based Lendio, which uses innovative technology to connect small businesses with lenders, plans to use the money to enhance its relationships with lenders, invest in improving its online resources and expand its partnership program. 
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Many banks are making major changes as they take steps to comply with the liquidity coverage ratio, including selling off assets and running off deposits that do little to help them meet the requirement.
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Recently, the U.S. Supreme Court heard a consolidated lawsuit that involved whether a secondary lien placed on the asset of a debtor can be reduced to the value of the collateral securing the obligation obligation and reduced to zero if there is no asset coverage. The decision could have broad implications, potentially impacting many bankruptcy proceedings that followed the nationwide housing crisis, according to Inman Magazine. 
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A bill designed to help protect Montana bankers recently passed The Treasure State's House and Senate. Senate Bill 280 was introduced after the Montana Supreme Court ruled in 2014 that borrowers can press legal action in lending disputes on the basis of presumed oral agreements, according to American Banker.
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Loan demand has been rising all over the nation, according to figures provided in the Federal Reserve's March Beige Book. The Fed report revealed that most regions have been enjoying promising economic conditions, and banking activity stood out as a strong point in many cases.
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Puerto Rico's banking industry has undergone some seismic shifts in the aftermath of Doral Bank's failure earlier this year. While this troubled bank entered receivership, several competitors benefited from the situation, bolstering their market share by snapping up its branch locations, loans, deposits and mortgage servicing rights.
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Non-banks have been gaining an increasingly large share of the market for FHA-backed mortgage lending, according to a recent study conducted by the American Enterprise Institute's International Center on Housing Risk. These financial institutions, which are outside the reach of bank regulations and capital requirements, have been increasing issuance of these home loans as major banks retreat from this market.
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The peer-to-peer lending market recently benefited from a move by the U.S. Securities and Exchange Commission to revise existing regulations, as this decision gave smaller companies greater ability to raise money and investors more flexibility to participate in this particular industry. 
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PacWest Bancorp recently announced an agreement to purchase Square 1 Financial, Inc., a lender that focuses primarily on the technology industry. Pursuant to this deal, Square 1 bank, owned by Square 1 Financial, will merge into Pacific Western Bank, a Los Angeles subsidiary of PacWest Bancorp.
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Pinnacle Bank recently purchased a minority stake in an online health care lender, and this strategic move should provide the Nashville-based bank with numerous benefits. Pinnacle Bank, a subsidiary of Pinnacle Financial Partners, Inc., made this move at a time when traditional banks are facing numerous headwinds and online lending has been experiencing impressive growth. Garnet Capital believes this is a positive trend and is helping other banks and lenders create partnerships.
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While small business lending fell sharply after the financial crisis, there are signs this crucial activity is gaining steam. This development presents banks with new opportunity, but they should know the market has changed significantly, and many non-bank lenders have sprung up to fill the higher demand for small business loans, according to American Banker. 
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Consumer Financial Protection Bureau Director Richard Cordray took a minute to delve into some of the agency's current concerns, as well as the disagreements its staff are having. 
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Community banks need to either innovate or face extinction in the current environment, according to several industry participants who spoke at the American Bankers Association's National Conference for Community Bankers. 
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Regulators shut down Doral Bank on Friday, Feb. 27, after the financial institution faced a string of challenges including a dispute surrounding a tax refund, government investigations and sharp declines in stock prices. The Office of the Commissioner of Financial Institutions of Puerto Rico announced in a statement Friday that it had appointed the Federal Deposit Insurance Corporation receiver. 
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Many banks have been focusing on deposits in the current environment, building up these resources instead of taking on additional credit risk. This approach reflects a more conservative stance, as financial institutions are unsure when the Federal Reserve will opt to push its benchmark interest rates higher. 
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Mergers and acquisitions activity involving banks has been increasing, and this momentum has grown to include not only smaller banks in the U.S., but also midsize and international financial institutions. 
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Banks could run into challenges generating revenue growth as their ability to tap into loan-loss reserves deteriorates. 
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Bank of America recently moved a $2.7 billion student loan portfolio to hold-for-sale status, chief financial officer Bruce Thompson told analysts during a conference call in January. 
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While many bemoan the challenges less-experienced borrowers face, San Francisco-based startup Earnest has been using an innovative new approach to assess their creditworthiness.
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BlackRock is planning to securitize loans purchased via internet origination channels. 
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New York Community Bancorp, Inc. has been generating many benefits by selling assets, keeping its balance sheet below the $50 billion mark and improving its financial results in the process. 
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A handful of innovative banking startups have been working on creating lending algorithms that consider more than the traditional variables such as one's credit score. Amid this push, companies are developing risk evaluation methods that account for how much time an applicant spends reading terms and conditions or whether they only use capital letters when filling out forms, The New York Times reported.
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Many banks have been reporting falling interest income in the current environment of low rates and tight competition.
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Banks have had a hard time generating satisfactory earnings growth lately, and this difficulty could easily continue in 2015. Banks both large and small have suffered these challenges, as the major financial institutions and the regional ones have been reporting lackluster earnings so far this year. Legal costs and compressed loan margins are the major drags for the larger banks.  Community banks are also feeling the pinch in generating good quality assets.
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U.S. economic conditions have been steadily improving, and this development has helped bolster the performance of major banks such as Wells Fargo, whose executives have been rather vocal about how much faith they have in the nation's recovery. 
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While many U.S. consumers have been benefiting significantly from sharply dropping oil prices, they may find they have even more money in their pockets after the Federal Housing Administration's recent decision to reduce its annual premiums. 
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The Consumer Financial Protection Bureau has been quite active in recent years, and there is no sign that this trend will stop in 2015.
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American Banker recently named marketplace lending its Innovation of the Year.
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Many banks have been encountering challenges in their efforts to originate high-quality loans, but have been taking steps to compensate for this situation.
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While some banks may feel challenged by their constantly-changing environment, the situation grants them an opportunity to better their reputation and stand out from the competition, two experts wrote recently in an American Banker opinion piece.
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The legal fees plaguing major banks continue to climb higher, and nobody knows when these financial institutions will get past these challenges.
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As auto lending activity strengthens across the country, banks have been viewing it with fresh eyes, looking to this particular activity as an opportunity where they can potentially benefit from low default rates, attractive rates, short duration and significant demand.
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The Office of the Comptroller of the Currency recently published final risk management and governance guidelines for major financial institutions, giving them different expected timelines for compliance based on their size.
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Banks are on a mission to increase their loan income, and their desire to meet this objective has helped fuel mergers and acquisitions.
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Fledgling startup companies could one day dominate the banking industry, financial expert Richard Magrann-Wells wrote in a recent American Banker piece.
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The Consumer Financial Protection Bureau recently provided guidance for mortgage brokers that want to operate using a mini-correspondent lender model, outlining the questions it uses to evaluate these industry participants to determine whether they meet the definition of mini-correspondent.
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Bank mergers and acquisitions have surged lately, as the industry struggles to overcome numerous headwinds including a challenging compliance environment, higher capital requirements and the proliferation of alternative lending.
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The Office of the Comptroller of the Currency recently took action to clarify best practices surrounding debt sales when it issued guidelines on Aug. 4.
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Concerned that traditional underwriting methods are leaving some would-be borrowers behind, peer-to-peer lender Upstart has responded by developing a unique process to vet credit applicants.
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Nigel Morris, who co-founded financial services firm Capital One, recently joined the board of Prosper Marketplace, the parent company of peer-to-peer online loan marketplace Prosper.
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Regulators have been intensifying their scrutiny of banks, and more specifically the relationships these institutions have with their vendors.
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The Bank Director's 2014 Risk Practices Survey recently provided some insight into the risk management challenges that lending institutions are facing.
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The Consumer Financial Protection Bureau has been pushing U.S. lenders offering auto loans through car dealerships to price this debt using a flat-rate structure, and BMO Harris Bank was the first sizable financial institution to adopt this approach.
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Jonathan Lippman, chief judge of the state of New York, recently proposed reforms to debt collection lawsuits, 100,000 of which are filed against residents of the state each year.
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Banks have been purchasing loans that have been originated through the internet as credit markets undergo significant structural changes.
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Consumer Financial Protection Bureau Deputy Director Steven Antonakes recently spoke about how important accurate information is for completing various activities involved in debt collection, including debt sales.
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Key members of the Senate Banking Committee recently released the text of a proposal that could impact U.S. debt sales by reforming current housing finance regulations.
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