DFI Monthly Bulletin – January 2008

Jan 1, 2008

Volume 11, Number 7

Responding to the Foreclosure Crisis

Mortgage Servicers Turning to Loan Modifications, Repayment Plans, Deed
in Lieu Transactions and Short Sales
Mortgage servicers, faced with record high foreclosure rates are turning to loan modifications,
repayment plans, deed-in-lieu transactions and short sales to help remedy the situation, according to data
released by the Mortgage Bankers Association (HUMBA) and UH HUHOPE NOWUH.
the investors that hold mortgage-backed securities, to
When loans are foreclosed everybody loses—from
originators, holders and servicers of mortgages; to the homeowners who cannot afford to make
higher mortgage payments when their adjustable-rate mortgage (ARMs) rates reset, to the communities
that are blighted by a large number of vacant, foreclosed properties.
Consequently, mortgage servicers are attempting to maintain the cash flow on these loans through more
extensive use of borrower assistance; from traditional loan modifications and repayment plans to deed in
lieu transactions that allow the borrower to transfer the property to the lender in exchange for a complete
extinguishment of the debt and short sale transactions, in which the borrower sells the home to a third
party for less than the outstanding mortgage, with forgiveness of the outstanding debt. With deed in lieu
and short sales, borrowers are relieved of their loans without having a foreclosure recorded against their
credit records.
There are indications that borrower assistance efforts are starting to take hold. According to the HOPE
NOW report:
• The industry assisted 370,000 homeowners during the second half of 2007.
• This includes 250,000 formal repayment plans and 120,000 modifications.
• Mortgage servicers were modifying subprime loans during the fourth quarter at triple the rate of
the third quarter.
• On an annualized basis, 10.4% of subprime borrowers were helped.
• 39% of delinquent borrowers were assisted in the second half of 2007.
111 Pine Street, Suite 1100, San Francisco, CA 94111-5613 (415) 263-8500
300 South Spring Street, Suite 15513, Los Angeles, CA 90013-1204 (213) 897-2085
1810—13th Street, Sacramento, CA 95814-7118 (916) 322-5966
7575 Metropolitan Drive, Suite 108, San Diego, CA 92108-4421 (619) 682-7227
Consumer Compliance (800) 622-0620
2 Monthly Bulletin January 2008
HOPE NOW reported that in November 2007, it sent out approximately 233,000 letters to at-risk
homeowners asking them to call their servicer for assistance. As a result of these letters, more than 16%
of borrowers responded by contacting their servicer, far more than the normal response rate of 2-3%:
• 21% of those who received a letter in November improved or maintained their delinquency
status by making at least one payment
• 43% of those who responded to a letter by contacting their servicer engaged in active mitigation
activity by the end of December and nearly half of these involved modifications.
• None of these borrowers had recently contacted their servicer prior to the HOPE NOW mailing.
According to the MBA survey, the mortgage industry modified an estimated 54,000 loans and
established formal repayment plans with another 183,000 borrowers during the third quarter of 2007. By
contrast, foreclosure actions were started on approximately 384,000 loans over the same period.
The study reported that there were factors other than rate resets that could not be helped by borrower
assistance. These factors included: loss of a job, health issues, divorce, death of one of the income
earners in the household or becoming overextended with other consumer debt such as credit cards or car
payments. If the borrowers cannot make their current low payments, freezing payments at the pre-ratereset levels will not help those borrowers.
Three key factors were identified in the study that diminished servicers’ abilities to mitigate the impact
of the foreclosure crisis through borrower assistance. These included: 1) investors who stop making
payments and walk away from their mortgages when home prices fall; 2) borrowers who do not respond
to lenders attempts to contact them or who cannot be located and 3) borrowers who default despite a
previous loan modification or repayment plan.
According to the study, in California, 57% of all foreclosure starts in the third quarter 2007 met one of
the three criteria listed above. 16% of all foreclosure starts during the quarter were on homes not
occupied by the owner. In 20%, the borrowers could not be contacted and in 29% the borrower
defaulted despite having previously obtained a modification or repayment plan.
Although studies conducted by the Department of Financial Institutions show that relatively few
licensees are affected by the subprime and foreclosure crisis, the Department continues to monitor the
situation and to direct licensees that originate, hold, sell or service mortgages to comply with regulatory
and industry efforts to alleviate its effects on the state.
Addressing Real Estate Owned Situations
The increasing number of foreclosures in California will result in a record number of real estate owned
(REO) properties that financial institutions will be forced to address in 2008. The Department of
Financial Institutions (DFI) recognizes that the best way to deal with the anticipated large number of
REO properties statewide is to do everything possible to get those properties ready for occupancy and
use by the consuming public. In an effort to keep our communities growing and to further economic
development efforts throughout the state, the DFI encourages its licensees to implement the following
strategy for REO properties:
• Attempt to renegotiate or modify mortgage loans to avoid foreclosure whenever possible.
• Place REO property on the market within one month of taking possession.
3 Monthly Bulletin January 2008
• Use a licensed real estate agent who is participating as a member of the local multiple listing
service, or an equivalent service, and offering cooperating compensation to other licensed real
estate agents who are working in that marketplace.
• Maintain all landscaping that is visible from the street and any required utilities in order to
assure the property does not become blight to the surrounding community.
• Accept and/or counter any and all written offers within 72 hours of receipt.
Licensees are also encouraged to offer mortgage loans that meet the standards of the Community
Reinvestment Act and provide or direct borrowers to credit counseling when warranted.
Bank on California: Helping Californians Achieve
Financial Mobility
Gov. Arnold Schwarzenegger announced the launching of the “Bank on California” initiative. In a press
release titled, Governor Schwarzenegger to Launch Campaign for More Working Families to Open
Bank Accounts – “Bank on California” Helps Californians Achieve Financial Mobility, the Governor
stated that California will be the first state in the nation to launch an effort to help working Californians
without bank accounts open starter accounts. The new initiative will help more low- and middle-income
Californians establish savings, build a credit history, gain access to lower-cost sources of credit and
invest for the future.
“Bank on California” will be a collaborative voluntary initiative with the help of financial institutions,
city mayors, federal regulatory agencies, and community groups.
Personnel Changes in the Banking Program
Richard Schorr Promoted to Financial Institution Manager
Richard Schorr was promoted to Financial Institution Manager effective December 19, 2007. His
primary responsibility will be the oversight of the IT/E-Banking examination and supervisory function
of the Banking Program. Richard has a total of 22 years of examination and supervision experience
with State and Federal financial institution regulators. He began his career in 1986 at the California
Department of Savings and Loan (DSL) as a Savings and Loan Examiner, was promoted to Senior
Examiner in 1987 and to Savings and Loan Supervisor in 1988. In 1990 he came to the California State
Banking Department (SBD) as a Senior Examiner. In 1995 joined the Federal Reserve Bank of San
Francisco (FRB) where he was designated as an Information Technology subject matter expert (SME).
After six years at the FRB, he joined the California Department of Financial Institutions (DFI), the
successor agency of DSL and the SBD, as a Senior Examiner in 2001.
Mr. Schorr holds a Bachelor of Science degree in Business Administration with an emphasis in
accounting from California State University, Northridge and a MBA in finance from West Coast
University. In addition, he is a Certified Public Accountant (CPA), Certified Information Systems
Auditor (CISA), Certified Internal Auditor (CIA), and a graduate of the DFI Leadership Academy.
He will be headquartered in the DFI’s Los Angeles Office and will report to Deputy Commissioner
Doug Kirkpatrick.
4 Monthly Bulletin January 2008
Cathy Nahnsen-Robison Appointed Financial Institution Manager –
Assistant Chief Examiner
Cathy Nahnsen-Robison was appointed Financial Institutions Manager – Assistant Chief Examiner on
December 28, 2007. This is a newly created position in the Office of the Chief Examiner and will assist
in formulating and/or administering examination, supervisory, support and licensing policies and
practices of the Banking Program. Her principal duties will consist of overseeing the use of FIMis, (the
department’s financial institutions management information system), monitoring application processing,
participating in strategic planning, maintaining the examiners manual and examiner bulletin system,
managing emerging issues, facilitating internal training workshops, facilitating process improvement
and developing and monitoring performance measures.
Ms. Nahnsen-Robison joined the California State Banking Department in 1984 as a Bank Examiner in
the Los Angeles Office. She was promoted to Senior Examiner in 1991, to Financial Institutions
Supervisor in 1999 and most recently to Financial Institutions Manager for the San Diego/Orange
County region on May 16, 2007. Cathy holds a Bachelor of Science degree in Business Administration
with an emphasis on management and finance, a Bachelor of Arts degree in psychology, and a Masters
degree in Accountancy; all from California State University, Northridge. In addition, she has been an
instructor for the Conference of State Bank Supervisors, has passed the CPA exam and holds a CSBS
Certified Examinations Manager designation.
She will be headquartered in the DFI’s Los Angeles Office.
DFI Issues Cease and Desist Warning to Royal
Savings & Credit
A warning to cease and desist from doing business in California without a license from the
Commissioner of Financial Institutions was issued to Royal Savings & Credit, 5161 Clayton Road,
Concord, California 94521
Royal Savings & Credit is not authorized to transact business in the way or manner of a savings
association and is not authorized to transact business under a name which contains any combination of
the words “loan” with “savings” (words of similar import) and indicates that the business is the business
of a savings association pursuant to Chapter 2 of Division 2 of the California Financial Code. All
persons who have communicated with Royal Savings & Credit are asked to contact the Department of
Financial Institutions, Legal Division, San Francisco, at (415) 263-8541.
5 Monthly Bulletin January 2008
HELOC Fund Transfer Scam Warning
The DFI has become aware of a sophisticated scheme that has recently resulted in a large number of
high-dollar funds transfer losses involving home equity line of credit loans.
Perpetrators are targeting members who have been granted large lines of credit via home equity line of
credit (HELOC) loans. The perpetrator sends a fax or email requesting the credit union process a
funds/wire transfer. Usually, the transfer requests are received at credit unions with call centers.
The wire requests are for large amounts frequently in excess of $100,000, and are being sent to different
banks in the United States, China and Japan. Often, the wires are being sent to accounts with the words
“Title” or “Construction” in the account name.
Fraud has successfully occurred in credit unions that have strong security procedures. In some cases, the
staff has followed their credit union’s written procedures to include call-backs to a secure telephone
number. However, fraudsters have apparently made arrangements, presumably with telephone providers,
to have calls forwarded to their phones, thus confounding credit union call-back procedures.
What’s making these scams even more difficult to detect is that the credit union’s caller ID indicates the
call is going to the member’s number of record. Additionally, the fraudsters have detailed member
information, which is enabling them to answer additional challenge questions from credit union staff.
The following are some loss prevention recommendations:
• Establish a password system for members prior to accepting funds transfer requests by
telephone, fax or mail. Further, the credit union should have a written agreement with the
member for the use of these passwords. Credit unions are allowed to pass liability to the member
for any negligent use of their funds transfer password.
• If there is any doubt as to authenticity of the funds transfer request, credit unions are reminded
they do not have to perform a wire transfer.
• Beware of large dollar requests for wire transfers that draw against a HELOC, particularly
HELOCs that have large available balances and little previous activity.
• Limit the amount of wire transfer that can be completed by a call center employee. The wire
transfer request should be approved by a manager.
• Record conversations during the call-back and compare it to previously recorded conversations.
• Perform an additional verification to the member’s work and/or cellular telephone number.
• Additionally, if the credit union has the information, send an email to the member at home
and/or work.
6 Monthly Bulletin January 2008
DFI and OCC Adopt Agreement for Managing
Consumer Complaints
The Department of Financial Institutions (DFI) and Office of the Comptroller of the Currency (OCC)
have entered into a memorandum of understanding that provides a mechanism for the sharing of
consumer complaint information between the two agencies. Because consumers do not always know
which regulatory agency – state or federal – supervises their banks, the memorandum provides
procedures to ensure that misdirected complaints are directed to the appropriate agency and allows the
agencies to track the status of a referred complaint.
President Bush Establishes Advisory Council on
Financial Literacy
President George W. Bush established the HUAdvisory Council on Financial LiteracyUH by an HUexecutive orderUH
signed on January 22, 2008.
The new Council will advise the President and Secretary of the Treasury Henry M. Paulson, Jr., on ways
to improve financial education and bring national attention to the need for better financial education for
all Americans.
President Bush appointed Don McGrath, Chairman of California’s Bank of the West to serve on the
Council. DFI also noted that a state banking regulator will serve on the Council with the appointment of
David Mancl of Wisconsin’s Department of Financial Institutions.
McGrath and Mancl are joined by a diverse group of individuals also appointed to the 19-member
Council. Charles Schwab, Chairman and CEO of Charles Schwab, was named chairman of the
President’s Council, and John Bryant, Founder and Chairman of Operation HOPE, was named vice
DFI to Prepare Credit Union Group Filing for Form
Due to the recent ruling by the Internal Revenue Service to continue using the current version of the
Form 990 for the 2007 tax year, the Department of Financial Institutions will prepare a group 990 filing
for California state chartered credit unions for that year. Forms asking for certain information for the
2007 tax year will be mailed to your respective credit unions later this year.
7 Monthly Bulletin January 2008
Commercial Bank Activity
UNew Bank
Pacific Commercial Bank
1731 Technology Drive, San Jose, Santa Clara County
Correspondent: James H. Avery
The Avery Company LLC
P.O. Box 3009
San Luis Obispo, CA 93403
(805) 544-5477
Filed: 1/17/08
UAcquisition of Control
Belvedere SoCal, Belvedere Capital Fund II L.P. and Belvedere Capital Partners II LLC, to acquire
control of Spectrum Bank
Filed: 1/4/08
Approved: 1/28/08
Effected: 1/31/08
Peninsula Bank Holding Company, to acquire control of The Private Bank of the Peninsula
Filed: 1/10/08
Approved: 1/24/08
Security Business Bancorp, to acquire control of Security Business Bank of San Diego
Approved: 11/6/07
Security Pacific Bancorp, Inc. to acquire control of Pacific Premier Bancorp, Inc. / Pacific Premier Bank
Withdrawn: 1/7/08
Stockmans Bank, Elk Grove, California, to merge with and into PremierWest Bank, Medford, Oregon
Effected: 1/27/08
UPurchase of Partial Business Unit
Nara Bank, Los Angeles, California, to acquire the New Jersey branch office of The Provident Bank,
Brick Township, New Jersey
Filed: 1/16/08
Approved: 1/17/08
8 Monthly Bulletin January 2008
USale of Partial Business Unit
Bank of the West, San Francisco, to sell a partial business unit to Brooke Savings Bank, Kansas
Filed: 10/11/07
Approved: 11/29/07
Effected: 1/19/08
Industrial Bank Activity
UConversion to State Charter
Silvergate Bank, La Jolla, to convert to state-chartered commercial bank
Approved: 1/2/08
Premium Finance Company Activity
UNew Premium Finance Company
Coastal Premium Finance Corp.
6046 Cornerstone Court West, City and County of San Diego
Address changed: 11/14/07 from 4201 Long Beach Boulevard, Long Beach, Los Angeles County
Opened: 1/7/08
G&G Premium Finance, Inc.
5210 Lewis Road, Agoura Hills, Los Angeles County
Filed: 1/22/08
Trust Company Activity
The Charles Schwab Trust Company, San Francisco, with and into Charles Schwab Bank, Reno, Nevada
Effected: 1/1/08
Foreign (Other State) Bank Activity
UNew Facility
American Enterprise Bank (Facility – Insured Bank)
8775 Sierra College Boulevard, Granite Bay, Placer County
Notified: 1/22/08
Modern Bank, N.A. (Facility – Insured Bank)
9595 Wilshire Blvd., Suite 955, Beverly Hills (Los Angeles County)
Opened: 1/2/08
9 Monthly Bulletin January 2008
Credit Union Activity
UField of Membership
One credit union received approval to add one new field of membership during December 2007.
UBylaw Amendment
One credit union received approval for one bylaw amendment during December 2007.
California Preferred Credit Union, San Francisco, to merge with and into Redwood Credit Union, Santa
Filed: 1/29/08
Commerce Federal Credit Union, Commerce, to merge with and into E-Central Credit Union, Pasadena
Approved: 12/10/07
Effected: 1/31/08
Transmitter of Money Abroad Activity
UNew Transmitter
Intermex Wire Transfer Corp.
Opened: 1/24/08

10 Monthly Bulletin January 2008
UAcquisition of Control
Coinstar E-Payment Services, Inc., to acquire control of GroupEx Financial Corporation
Approved: 11/8/07
Effected: 1/1/08
Payment Instrument Activity
UNew Payment Instrument
Fidelity Express
Filed: 11/27/07
Interim Commissioner of Financial Institutions
Bulletin for Month ended
January 2008, issued pursuant
to Financial Code section 258
The Monthly Bulletin is available without charge via e-mail. To subscribe, go to HUhttp://www.dfi.ca.gov/bulletin/subscription/public.aspUH. To
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