Exhibit 10.1
NEW YORK STATE BANKING DEPARTMENT
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)
In the Matter of )
)
) REMEDIATION
DELTA FUNDING CORPORATION, a ) AGREEMENT
Mortgage Banker licensed pursuant to)
Article 12-D of the New York Banking)
Law. )
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WHEREAS, Delta Funding Corporation ("Delta"), a Mortgage Banker licensed
pursuant to Article 12-D of the New York Banking Law, and the New York State
Banking Department ("Department") have mutually agreed to enter into this
Remediation Agreement ("Agreement");
WHEREAS, the Department commenced and concluded an examination
("Examination") of Delta pursuant to New York Banking Law ss. 596 regarding
Delta's compliance with the laws and regulations identified below;
WHEREAS, the Examination encompassed, INTER ALIA, a review of Delta's
compliance with Section 296-a of the New York Executive Law, the Equal Credit
Opportunity Act (15 X.XX. 1691, et seq.) and the regulations promulgated
thereunder ("ECOA"), the Fair Housing Act (42 U.S.C. 3601, et seq.) and the
regulations promulgated thereunder ("FHA"), Article 12-D of the New York
Banking Law and the regulations promulgated thereunder, the Real Estate
Settlement Procedures Act of 1974 (12 U.S.C. 2601 et seq.) and the
regulations promulgated thereunder ("RESPA"), and the Home Ownership and
Equity Protection Act of 1994 (15 U.S.C. 1601 et seq.) and the regulations
promulgated thereunder ("HOEPA"), all as amended;
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WHEREAS, the Department alleges that its Examination revealed certain
violations of the foregoing statutes and regulations;
WHEREAS, Delta denies all of the Department's allegations and any
wrongdoing, liability or violation of any law; and
WHEREAS, Delta and the Department desire to avoid the expense and
uncertainty of litigation and seek to fully and finally resolve all matters
raised in the Department's Examination, and, as a result, have agreed to enter
into this Agreement.
UNDERSTANDING:
NOW, therefore, in consideration of the foregoing consideration, the
receipt and sufficiency of which are hereby acknowledged, the Department and
Delta hereby agree as follows:
I. Delta, its directors, officers and employees, and any successor in
interest shall refrain from engaging in any act or practice that discriminates
on the basis of the racial or ethnic composition of the area in which the
borrower resides as prohibited by Executive Law ss. 296-a, FHA and ECOA.
II. Delta will commit a total of $7,250,000.00 (which shall be solely in
the form of reductions to monthly mortgage payments on a going forward basis)
(the "Remediation Fund") for purposes of the relief described in this Paragraph
II.
A. Within thirty (30) days of the effective date of this Agreement,
the Department shall provide Delta with parameters for relief as determined by
the Department. Within thirty (30) days of its receipt of the Department's
parameters for relief, Delta will use reasonable efforts to identify any and all
borrowers who fit within the parameters for relief and for whom loans were
originated by Delta during the period October 1, 1995 through the date of
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this Agreement ("Borrowers"), and will notify all such Borrowers of their
entitlement to seek compensation (solely in the form of monthly payment
reductions to such Delta loan on a going forward basis) from the Remediation
Fund (the "Initial Notice"). The Initial Notice shall be substantially in the
form of EXHIBIT A-1 attached hereto and shall include (i) a requirement that
each Borrower respond within thirty (30) days of receipt of the notice, and (ii)
a statement that in the event a payment reduction is provided to a Borrower,
such Borrower shall execute a release, substantially in the form set forth in
EXHIBIT B attached hereto, of any additional rights to proceed against Delta or
any of its affiliates on claims arising from the allegations set forth in this
Agreement or any other allegation related to the loans covered by this
Agreement. The parties acknowledge and agree that (1) no Borrower shall be
required to waive any of his/her rights against Delta unless such Borrower
accepts a payment reduction on his/her loan in accordance with this Paragraph
II, and (2) neither the notices delivered to Borrowers pursuant to this
Paragraph II nor any analyses or determinations made by the Department with
respect to any Borrower's loan shall be admissible in any action or proceeding
as evidence of any wrongdoing by Delta.
B. Within thirty (30) days of its mailing of the Initial Notice, Delta
will identify any Borrowers who either (i) have not responded to the Initial
Notice, or (ii) have chosen not to participate in the relief (collectively,
"Non-Responding Borrowers"). Each Non-Responding Borrower will be sent an
additional notice substantially in the form of EXHIBIT A-2 attached hereto (an
"Additional Notice") by certified mail, return receipt requested. Within thirty
(30) days of the mailing of the Additional Notice, Delta shall provide the
Department with a list of all Non-Responding Borrowers from whom no return
receipt has been received with regard to the Additional Notice.
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C. Within fifteen (15) days following its receipt of a notification
from a Borrower stating that such Borrower is submitting his or her loan for
consideration for monthly mortgage payment reduction (a "Claim"), Delta will
make available to the Department a copy of the loan file or other pertinent
information with regard to the loan at issue in the Claim (including copies or
summaries of the loan application, supporting documentation, and the HUD-1
Settlement Statement), as requested by the Department.
D. Within thirty (30) days of its receipt of such information, the
Department, in its sole discretion, shall determine the amount by which the
Borrower's monthly loan payments will be reduced. The Remediation Fund will be
reduced by an amount equal to the present value of such payment reduction based
on the remaining term of the loan and a rate equal to the rate on United States
Treasury Bills, as published in the Wall Street Journal as of the date of this
Agreement. Delta shall have the right to determine the precise method of
effectuating any payment reductions pursuant to this Agreement. Such methods
(each of which will result in the same reduction to the Remediation Fund) may
include (i) subsidizing Borrower payments, (ii) reducing the interest rate,
(iii) reducing the principal balance, or (iv) extending the term of the loan;
PROVIDED, HOWEVER, that the total amount of interest paid over the life of
the loan is not increased.
a) Only Claims received within thirty (30) days of
the date on which the Additional Notice to Borrowers was sent (the "Termination
Date") will be evaluated by the Department. Delta's obligation to reduce loan
payments is limited to loan reductions determined by the Department with regard
to Claims received prior to the Termination Date.
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E. Delta shall begin implementing the payment reductions contemplated
herein within forty five (45) days following its receipt of the Borrower's
executed release in accordance with Paragraph II.H, below.
F. If more than one individual is listed as a Borrower on a loan, the
Borrowers listed on the loan will be deemed together to be a single Borrower and
shall be eligible for one payment adjustment.
G. Before receiving relief from the Remediation Fund, each Borrower on
the mortgage loan shall be required to sign a general release substantially in
theform set forth in EXHIBIT B, attached hereto. It is understood that only
borrowers who agree to accept relief in accordance with this Remediation
Agreement shall be required to execute a general release in accordance with the
foregoing sentence.
III. Delta shall establish a fund (the "Amelioration Fund") consisting of
525,000 unregistered shares of common stock of Delta Financial Corporation (the
"Stock") (which, for purposes of this Agreement, shall be valued at $9.10 per
share), by depositing such shares of Stock with a trustee that is mutually
agreeable to both Delta and the Department. At the direction of the Department,
the trustee may sell the Stock or any portion thereof in one or more private or
open market transactions. The proceeds of any such sale shall be used for
restitution, and if any funds remain, then to fund activities including economic
counseling, home ownership counseling, education programs and such other
purposes as may be determined by the Department.
IV. Delta shall not pay from the proceeds of a mortgage loan any
borrower-paid mortgage broker fee in an amount not reasonably related to the
value of goods and facilities
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provided and services performed. Nothing in this Agreement shall be deemed
to be inconsistent with this provision.
V. Delta shall not close and fund mortgage loans in which the broker fee
is in excess of an amount reasonably related to the value of goods and
facilities provided and services performed.
VI. Delta shall not underwrite a HOEPA Loan (defined below) without
regard to the ability of the borrower to repay such loan. In particular, Delta
shall comply with the compliance undertakings set forth in Paragraph XV, hereof.
VII. Within forty five (45) days of the date of this Agreement, Delta
shall submit to the Department for its review and approval a new policy and a
monitoring and compliance system designed to ensure uniform application of
underwriting criteria and appropriate payment of mortgage broker fees.
VIII. Any new policy and monitoring and compliance system shall include:
A. Development and implementation of policies and guidelines designed
to ensure that the underwriting of mortgage loans is made in compliance with
law. Such guidelines shall be incorporated into Delta's loan policy;
B. Development of a system that accurately records data related to
the charging of broker fees on mortgage loans underwritten, closed and funded by
Delta including with respect to the dollar and percentage amount of the broker
fee charged, the amount and type of loan, information about the borrower as
required by the Home Mortgage Disclosure Act ("HMDA"), the name of the loan
officer and the mortgage broker;
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C. Development and implementation of a comprehensive system to permit
detailed and ongoing monitoring of mortgage origination pricing practices to
ensure that flexible pricing does not result in discrimination;
D. The designation of managers, including senior-level managers, to
serve as compliance officers and to monitor compliance with the foregoing
compliance system; and
E. Development and implementation of a disciplinary policy for
employees who violate the undertakings in this Agreement.
IX. Within forty five (45) days from the effective date of this Agreement,
Delta shall amend its existing Fair Lending Training Program to include the
elements described in this Paragraph and shall submit such amended training
program ("Amended Training Program") to the Department for its review and
approval within such forty five (45) day period. A. Such training program shall
be amended to include:
1. A detailed discussion of the purpose of, and the prohibitions
contained in, HOEPA, ECOA, FHA, RESPA, New York State Executive Law ss.296-a and
Article 12-D of the New York State Banking Law;
2. A detailed discussion of liability for violations of HOEPA,
ECOA, FHA, RESPA, New York State Executive Law ss.296-a and Article 12-D of the
New York State Banking Law;
3. A certification form to be completed by each officer and
employee attending the training program; and
4. A schedule pursuant to which the training program and
supplemental training programs will be offered.
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B. Within sixty (60) days following the Department's completion of its
review of the Amended Training Program, all Delta officers and employees with
customer contact concerning new mortgage loan applications or who are involved
in the pricing of mortgage loans or the monitoring of mortgage pricing shall
attend the Amended Training Program.
C. All new Delta officers and employees with customer contact concerning
new mortgage loan applications or who are involved in the pricing of mortgage
loans or the monitoring of mortgage pricing shall attend the Amended Training
Program within forty five (45) days of their employment with Delta.
D. All Delta officers and employees attending the Amended Training
Program shall execute a certification form stating that the individual has
attended the Amended Training Program, that the individual understands Delta's
policies regarding non-discrimination in the origination and underwriting of
mortgage loans, that the individual understands Delta's disciplinary policies
with respect to originating and underwriting mortgage loans and compliance with
HOEPA, ECOA, FHA, RESPA, New York State Executive Law ss.296-a and Article 12-D
of the New York State Banking Law, and that the individual understands that
failure to comply with such laws may subject the individual and/or Delta to
sanctions.
X.With respect to the new policy and monitoring and compliance system to be
submitted to the Department pursuant hereto, and the Amended Training Program to
be submitted to the Department pursuant to Paragraph IX, above, (collectively
"Compliance Materials"), the Department shall have sixty (60) days to approve or
disapprove all or part of the Compliance Materials.
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A. In the event that the Department determines that any part of the
Compliance Materials is unacceptable, it shall notify Delta in writing,
specifying the basis for such determination, and Delta shall submit revised
Compliance Materials within fifteen (15) days of its receipt of such
determination;
B. In the event the Department determines that it has no objection to the
proposed Compliance Materials, Delta's Board of Directors shall adopt and
implement the Compliance Materials within fifteen (15) days after receipt of
such written determination; and
C. If the Department has not notified Delta in writing of any objection
to the proposed Compliance Materials within the sixty (60) day period referred
to above, the proposed Compliance Materials shall be deemed to have been
acceptable to the Department at the expiration of such sixty (60) day period.
Within fifteen (15) days thereafter, Delta's Board of Directors shall adopt and
implement the Compliance Materials.
XI. Within thirty (30) days from the effective date of this Agreement, Delta
shall designate a member of senior management, acceptable to the Department, to
be responsible for the compliance and monitoring of this Agreement.
XII. Delta shall report its compliance with this Agreement to the Department
semi-annually during the term of this Agreement. Such compliance reports shall
be submitted to the Department within forty-five (45) days following the end of
each half-year period. Each report shall include: A. A report on Delta's fair
lending pricing requirements; and B. Corrective actions taken to comply with
each of the paragraphs of this Agreement.
XIII. All communications regarding this Agreement shall be sent to:
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Xxxxxxx Xxxx, Esq. Xxxx Xxxxxx, Esq.
Director of Consumer Affairs General Counsel
and Financial Products Delta Funding Corp.
NYS Banking Department 0000 Xxxxxxxx Xxxx
0 Xxxxxx Xxxxxx Xxxxxxxx, XX 00000
Xxx Xxxx, XX 00000
XIV.
A. Each provision of this Agreement shall remain in effect for a period
of three years following the date hereof, unless sooner stayed, modified,
terminated, suspended or complied with in full, to the Department's
satisfaction, as signified in writing by the Department.
B. This Agreement, when fully executed and performed by Delta to the
reasonable satisfaction of the Department, will resolve all the issues between
Delta and its affiliates (including, without limitation, Delta Financial
Corporation), and the State of New York respecting the subject matter of the
Examination. The Department has determined that the relief provided for under
the terms of this Agreement is full and adequate compensation to the Borrowers
contemplated herein.
C. The entry into this Agreement shall not be deemed or construed to be
an admission of, or evidence of, any violation of any statute, law or regulation
or of any liability or wrongdoing or of the truth of any of the claims or
allegations of the Department, and may not be used against Delta in any other
action or proceeding. The Department acknowledges and agrees that Delta's
compliance with the terms and conditions of this Agreement constitute a
"compelling business necessity" for purposes of any federal or state law
prohibiting discrimination.
D. [reserved]
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E. Notwithstanding any provision in this Agreement to the contrary, the
Department may, in its sole discretion, grant written extensions of time to
Delta to comply with any provision of this Agreement.
F. This Agreement shall be governed by the laws of the State of New York,
and during the term hereof, Delta consents to the jurisdiction of the State and
Federal Courts in New York to enforce the provisions hereof.
G. The Department shall monitor Delta's compliance with this Agreement
and reserves the right to appoint outside auditors, at Delta's expense, pursuant
to Section 39 of the New York Banking Law.
H. This Agreement shall become effective upon the execution by all
parties. I. The signatories of this Agreement are duly authorized by their
respective parties to enter into this Agreement.
J. This Agreement may be executed in multiple counterparts, each of which
shall be deemed a duplicate original.
K. This Agreement shall bind the parties and their respective successors.
L. This Agreement may be amended or modified only pursuant to a writing
executed by all parties hereto.
M. Nothing in this Agreement is intended to confer any right, remedy,
obligation or liability upon any person or entity other than the parties hereto
and their respective successors.
N. In the event of a dispute among the parties regarding any issue that
arises under this Agreement, the parties shall seek in good faith to resolve the
dispute among themselves before resorting to litigation.
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XV. Compliance Undertakings
Delta shall implement the undertakings described in this Paragraph XV
within 45 days following the execution of this Agreement.
A. Definitions: As used in this Paragraph XV, the following terms
shall have the following meanings:
1. The term "loan" shall mean a transaction secured by a 1-4
family, owner-occupied property that meets the definition of: (i) "credit" as
that term is used and defined by 15 U.S.C. ss. 169la and regulations promulgated
thereunder; (ii) "federally related mortgage loan" as that term is used and
defined by 12 U.S.C. ss. 2602 and regulations promulgated thereunder; and/or
(iii) extension or provision of "credit' as that term is used and defined by New
York Executive Law ss.296-a.
2. The term "HOEPA Loan" shall mean any loan which meets the
definition in 15 U.S.C. ss. 1602(aa) and regulations promulgated thereunder.
3. The terms "close" or "closing" or "closed" when used in
relation to a loan shall mean the date on which the loan transaction is
"consummated" as defined in 12 C.F.R. ss. 226.2(a)(13).
4. The term "mortgage broker" shall mean a person defined as
such in 24 C.F.R. ss. 3500.2.
5. The term "par" when used in relation to the interest rate
on a loan shall mean the interest rate at which Delta will grant a loan to a
given borrower without charging discount points or paying a "yield spread
premium."
6. The term "yield spread premium" shall mean a fee paid by
Delta to a mortgage broker, computed by reference to the interest rate, incident
to a loan in which the interest rate is above par.
[7-10: Reserved]
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B. Compliance Measures
During the term of this Agreement, solely with respect to loans originated
during the term of this Agreement (except with respect to Subparagraph B.12,
which shall apply to all HOEPA Loans), Delta will conduct its lending operations
as follows:
PRACTICES RELATED TO POST-DEFAULT INTEREST:
11. Delta shall not enter into any HOEPA Loan which
provides for an "increase in the interest rate after default" as set forth in
12 C.F.R. ss. 226.32(d)(4) ("Post-Default Interest").
12. Delta shall not collect Post-Default Interest on any HOEPA
Loan.
PRACTICES RELATED TO HOEPA:
13. Delta shall not engage in a pattern or practice of
extending or otherwise funding HOEPA Loans based on the borrowers' collateral
without regard to the borrowers' repayment ability, including the borrowers'
current and expected income, current obligations, and employment.
14. Delta shall not extend or otherwise fund any HOEPA Loan
that contains any one or more of the following characteristics (hereinafter,
"Repayment Warning Signs"), unless there exists a HOEPA Justification (defined
below) or a Special HOEPA Justification (defined below):
(i) The HOEPA Loan repays a previous loan (whether
or not originated by Delta); the borrower's total monthly obligations increase
by more than five (5) percent; and, on the date the new HOEPA loan closed, the
borrower was 60 days or more delinquent in payments of principal or interest on
the previous loan. (For the purposes of this Paragraph, "60 days or more
delinquent" shall mean an instance in which a borrower is a total of
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60 calendar days or more late in making any payment of principal or
interest required to date by that borrower's loan. For the purposes of this
definition, each payment made by the borrower is assumed to be in satisfaction
of the oldest outstanding payment. Thus, for example, where a borrower is
required to make a $1,000 payment on the first day of each month, and makes a
$1,000 payment on the first day of the first, third and fifth months, on the
first day of the sixth month, the borrower, having missed two payments, will be
60 days or more delinquent.)
(ii) After subtracting the borrower's monthly
payments on the HOEPA loan from the borrower's total monthly income, the
borrower is left monthly residual income that is less than 105% of the U.S.
Department of Veterans Affairs' ("VA") residual income limits for the applicable
region.
(iii) The borrower's debt to income ratio exceeds
50%.
15. A HOEPA Loan which contains one or more of the above
Repayment Warning Signs will not violate Subparagraph XV.B.15 if Delta documents
in the loan file the existence of one or more of the justifications set forth in
Subparagraph F, below (hereinafter, "HOEPA Justifications"). A HOEPA Loan which
contains one or more of the above Repayment Warning Signs and does not contain a
HOEPA Justification nonetheless will not violate Subparagraph XV.B.15 if the
Department determines that the loan is in compliance with applicable law (a
"Special HOEPA Justification"). The Department will determine whether a loan is
in compliance with applicable law within two days of receipt of Delta's request
for such a determination. If during the term of this Agreement the OAG
concludes, after appropriate and timely consultation with the Department, that
Delta is obtaining Special HOEPA Justifications that constitute a pattern or
practice of violations of HOEPA, the OAG may seek any and all appropriate relief
from a court with jurisdiction over this matter.
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16. Whenever Delta makes any HOEPA loan that does NOT contain
one or more of the Repayment Warning Signs, Delta shall maintain either
electronically or in the loan file information regarding: (i) the borrower's
monthly debt payments under the prior loan; (ii) the borrower's past payment
history, to the extent available; (iii) the borrower's monthly income; and (iv)
the borrower's other outstanding monthly debts or obligations, if any.
17. Whenever Delta makes any loan which contains a Repayment
Warning Sign, Delta shall state in the loan file the Repayment Warning Sign, and
the HOEPA Justification or Special HOEPA Justification that exists, with
documentation sufficient to demonstrate the existence of the HOEPA Justification
or Special HOEPA Justification, as applicable. Such documentation shall include,
with respect to HOEPA Justifications, documentation set forth in Subparagraph F
or such other documentation as may be necessary to establish the existence of
the HOEPA justification.
18. [Reserved]
PRACTICES RELATED TO ECOA:
19. Delta shall not extend or otherwise fund loans that will
have a negative financial impact upon the borrower which violates ECOA or
Section 296-a of the New York Executive Law.
20. Delta shall not extend or otherwise fund any loan that
contains any of the following characteristics (hereinafter, "ECOA
Characteristic"), unless there exists an ECOA Justification (defined below) or a
Special ECOA Justification (defined below):
(i) After subtracting the borrower's monthly
payments on the loan in question from the borrower's total monthly income, the
borrower is left with monthly residual income that is less than 105% of the U.S.
Department of Veterans Affairs' residual
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income limits for the applicable region.
(ii) The loan in question ("new loan") repays a
previous loan (whether or not originated by Delta); the borrower's monthly
payments necessary to service the new loan (including both repayment of
principal and payment of interest) exceed the borrower's "previous monthly
payments;" and, the increase in monthly payments exceeds 2.5 percent of the "new
funds" which the borrower obtained from the new loan. For the purposes of this
Agreement, the term "previous monthly payments" shall include the monthly
payment as revealed on the borrower's credit report (or, in the absence of such
information, the minimum monthly payment imputed based on customary underwriting
standards) on all loans and other debts retired by the new loan. The term "new
funds" shall mean the total principal amount of the new loan, less (1) the
outstanding principal balance of any mortgage debt, installment debt, or credit
card debt that had recurring monthly payments and was retired by the new loan,
(2) any borrower-paid closing costs disclosed on the HUD-1 Settlement Statement,
whether paid directly by the borrower or indirectly out of the principal of the
new loan, including but not limited to borrower-paid broker fees, borrower-paid
third-party charges such as title and appraisal fees and borrower-paid fees to
Delta.), (3) any late charges paid to Delta with respect to the mortgage loan
retired by the new loan, (4) any prepayment penalties paid to Delta with respect
to the mortgage loan retired by the new loan, and (5) any default interest
(I.E., interest in excess of the note rate) paid to Delta with respect to the
mortgage loan retired by the new loan.
(iii) The new loan repays a previous loan which was
also originated by Delta; the previous loan closed within 12 months of closing
the new loan; incident to closing the new loan, Delta charges the borrower a
prepayment penalty as defined in 12 C.F.R. ss. 226.18(k)(1); and (a) the
interest rate on the new loan is NOT at least one full percentage
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point lower than the interest rate on the previous loan or (b) the "new funds"
(as defined in SUBPARAGRAPH B.20(ii) above) provided by the new loan are less
than 20% of the new loan.
21. A loan which contains one or more of the above ECOA
Characteristics will not violate Subparagraph XV.B.20 if Delta documents in the
loan file the existence of one or more of the justifications set forth in
Subparagraph G, below (hereinafter "ECOA Justifications"). A loan which contains
one or more of the above ECOA Characteristics and does not contain an ECOA
Justification nonetheless will not violate Subparagraph XV.B.20 if the
Department determines that the loan is in compliance with applicable law (a
"Special ECOA Justification"). The Department will determine whether a loan is
in compliance within two days of receipt of Delta's request for such a
determination. If during the term of this Agreement the OAG concludes, after
appropriate and timely consultation with the Department, that Delta is obtaining
Special ECOA Justifications that constitute a pattern or practice of violations
of ECOA, the OAG may seek any and all appropriate relief from a court with
jurisdiction over this matter.
22. Whenever Delta makes any loan that does NOT contain one or
more of the ECOA Characteristics, Delta shall maintain either electronically or
in the loan file information regarding: (i) the borrower's previous monthly
payments under the prior loan; (ii) the new funds obtained by the borrower;
(iii) the borrower's monthly income, and (iv) the borrower's other outstanding
monthly debts or obligations, if any.
23. Whenever Delta makes any loan containing an ECOA
Characteristic, Delta shall state in the loan file the ECOA Characteristic, and
the ECOA Justification or Special ECOA Justification that exists, with
documentation sufficient to demonstrate the existence of the ECOA Justification
or Special ECOA Justification. Such
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documentation shall include, with respect to ECOA Justifications, documentation
set forth in Subparagraph G or such other documentation as may be necessary to
establish the existence of the ECOA justification.
24. In the event that the Office of the New York State
Attorney General, Xxxxx Xxxxxxx ("OAG") receives a complaint (a "Complaint")
that any loan made by Delta after the date of this Agreement violated the
provisions of Paragraphs XV.B.14-17 and/or XV.B.20-23, the OAG shall refer the
Complaint to the Department, and the Department shall, pursuant to its general
oversight authority, notify Delta of the Complaint and request Delta to respond
thereto. Delta shall respond to the Complaint within the time period required by
the Department; a copy of Delta's response shall be provided to the OAG. Delta
shall provide a copy of the loan file for the loan that is the subject of any
Complaint to the Department and/or the OAG within a reasonable period of time
(not to exceed 30 days) following Delta's receipt of a written request from
either of them. If the OAG is not satisfied, in the exercise of its reasonable
discretion, with the Department's final resolution of any Complaint, the OAG may
seek any and all appropriate relief from a court with jurisdiction over this
matter. The OAG shall not, directly or indirectly, cause, or attempt to cause,
any third party to make a Complaint regarding any loan made by Delta after the
date of this Agreement.
PRACTICES RELATED TO RESPA:
25. Delta will not: (a) in violation of the Real Estate
Settlement Procedures Act ("RESPA"), give any yield spread premium to any
mortgage broker pursuant to any agreement or understanding, oral or otherwise,
that business incident to or a part of a real estate settlement service
involving a loan shall be referred to Delta; or (b) pay any yield spread
premiums on any HOEPA Loan.
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26. Delta will be deemed to be in compliance with Paragraph
25(a) above with respect to a loan when, inter alia, either of the following two
contentions (hereinafter the "RESPA Contentions") are true over any six month
period in which such loan was closed: (i) in aggregate, total mortgage broker
compensation on loans originated by Delta in which Delta paid yield spread
premiums was not more than 5% higher than total mortgage broker compensation on
similarly situated loans originated by Delta in which Delta did not pay yield
spread premiums; or (ii) in aggregate, up-front broker fees charged to the
borrower are 5% lower on loans originated by Delta in which Delta paid yield
spread premiums than on similarly situated loans originated by Delta in which
Delta did not pay yield spread premiums.
C. Income Verification Procedures
27. Delta will verify the stability and adequacy of borrowers'
income in accordance with generally accepted industry standards, including the
following income verification practices, where applicable:
a) AUTOMATED VERIFICATION SERVICES: Subscribe to one or more
of the various automated services that provide employment data on numerous
companies in various regions throughout the country, such as "The Work # for
Everyone" and/or "The VIE Mortgage Report".
b) ADDITIONAL VERIFICATION OF TAX RETURNS: Either IRS Form
4506 or one of two reporting services (National Tax Verification and Rapid
Reporting) may be used by Delta to confirm the validity of tax returns.
c) RENTAL CONFIRMATION: Delta shall use, when applicable,
75% of the lesser of the following two numbers to determine rental income for
underwriting purposes: (i) an amount equal to the rental income shown on the
lease and/or rental affidavit, or
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(ii) an amount equal to 10% above the market rent reflected on the appraisal.
Delta may provide additional documentation such as rent receipts and tax
returns, but not letters of explanation from the borrower, to document rental
income. In addition to the foregoing, all leases submitted as evidence of rental
income shall be examined against the borrower's signature on the closing
documents to ensure they are genuine.
d) INCOME FROM "SIDE JOBS": Borrowers whose income is
derived from "all cash" employment, or where a portion of their income (such as
tips) is paid in "cash only," can have their income qualified through the use of
a "job letter." This letter is to be signed by the borrower's employer, and set
forth the length of time employed, the nature of the work and the borrower's
rate of pay. In addition, this letter must also be countersigned by the borrower
at or before the loan closing, effectively attesting to, and noting the
borrower's acknowledgment with, the letter and its contents. In cases where
either (i) a borrower is 60 days or more delinquent on an existing mortgage loan
on the date the new loan closes, or (ii) as a result of the new loan, the
borrower's total monthly obligations will increase, Delta shall verify by a
telephone call with the borrower's employer any income verified through the use
of a "job letter" and used to qualify the borrower for the new loan and shall
include a record of such telephone verification in the loan file.
D. Miscellaneous
28. Notwithstanding anything to the contrary contained herein,
Delta may revise the undertakings contained in Paragraph XV.C to conform to
generally accepted underwriting standards with the written consent of the
Department (which consent shall not be unreasonably withheld). For purposes of
this Paragraph, use of a procedure authorized or
20
approved by the Federal Housing Administration, the Department of Veterans
Affairs, Xxxxxx Mae or Xxxxxxx Mac shall be deemed generally accepted
underwriting standards.
29. The Department and Delta shall meet periodically, and in
no event less frequently than every six months, to determine whether additional
HOEPA Justifications and/or ECOA Justifications should be added to this
Agreement.
30. Except as otherwise expressly stated herein, for
purposes of this Agreement, Delta may rely on representations of fact made to
it by borrowers, other than any such representation that is patently
unreasonable.
E. [reserved]
F. HOEPA Justifications & Supporting Documentation
(AA) MONTHLY OBLIGATION INCREASE ON DELINQUENT LOANS
(PARAGRAPH XV.B.14(I)).
1. (a) Factor: Borrower has suffered a temporary reduction of income of more
than 10 percent due to unique circumstances within the preceding 24 months.
(b) Documentation: Income and employment documentation together with
letter of explanation from the borrower or other evidence demonstrating that the
temporary reduction of income was due to unique circumstances that no longer
exist and that the borrower's income has resumed to at least 80 % of its prior
level.
2. (a) Factor: Borrower has suffered a temporary loss of employment or
employment income of more than 10 percent due to unique circumstances within the
preceding 24 months.
b) Documentation: Income and employment documentation together with
letter of explanation from the borrower or other evidence demonstrating that the
temporary loss was due to unique circumstances that no longer exist and that the
borrower's prior income has resumed to
21
at least 80 % of its prior level.
3. (a) Factor: Borrower changes from self-employed to salaried employment
where the new income is equal to or greater than the annual income when the
borrower was self-employed, not to include those instances where salary is paid
out of borrower's own company.
(b) Documentation: Income and employment documentation.
4. (a) Factor: Borrower had medical or health problems resulting in increased
expenses of more than 10 percent within the preceding 24 months.
(b) Documentation: Income and employment documentation together with
letter of explanation from borrower and other evidence demonstrating that the
medical problem was of a temporary nature and no longer requires a commitment of
the borrower's funds.
5. (a) Factor: Borrower has suffered a temporary financial emergency that
consumed more than 10 percent of the borrower's income stream and was due to
unique circumstances within the preceding 24 months.
(b) Documentation: Income and employment documentation together with
letter of explanation from borrower and other evidence demonstrating that the
temporary financial emergency was due to unique circumstances that no longer
exist.
6. (a) Factor: Divorce judgment, separation agreement or similar division of
financial responsibilities entered or agreed to within preceding 24 months.
(b) Documentation: Copies of judgment, decree or agreement, together with
income and employment documentation demonstrating ability to repay.
7. (a) Factor: Deed transfer that adds new borrower, so long as (i) the new
borrower is a relative or resides at the property secured by the mortgage, and
(ii) after payment of the monthly mortgage payment, the new borrower's (or, in
the case of co-borrowers that reside together as a
22
family, the combined borrowers') income meets residual income requirements set
forth under this Agreement.
(b) Documentation: Income and employment documentation of new borrower
demonstrating sufficient residual income after payment of the monthly mortgage
payment.
8. (a) Factor: Mortgage loan includes new cosigner or other obligor, so long as
i) the new borrower is a relative or resides at the property secured by
the mortgage, and (ii) after payment of the monthly mortgage payment, the new
borrower's (or, in the case of co-borrowers that reside together as a family,
the combined borrowers') income meets residual income requirements set forth
under this Agreement.
(b) Documentation: Income and employment documentation of new borrower
demonstrating sufficient residual income after payment of the monthly mortgage
payment.
9. (a) Factor: Mortgage proceeds used to pay off balloon mortgage, so
long as balloon mortgage is coming due within twelve months of the date of
application for the mortgage loan.
(b) Documentation: Income and employment documentation and evidence of
prior loan.
(BB) RESIDUAL INCOME (PARAGRAPH XV.B.14(II))
1. (a) Factor: A reduction in monthly obligations (such reduction shall be at
least 10 percent with respect to borrowers who, on the date the new loan is
closed, are "60 days or more delinquent," as defined in P. XV.B.14(i) of this
Agreement) where, except in the case of balloon mortgages, the remaining term
of the old mortgage loan is at least three years.
(b) Documentation: Income and employment documentation and evidence of the
terms and monthly payments of the prior loan.
2. (a) Factor: Mortgage proceeds used to pay off balloon mortgage, so long as
balloon
23
mortgage is coming due within twelve months of the date of application for the
mortgage loan.
(b) Documentation: Income and employment documentation and evidence of the
terms and monthly payments of the prior loan.
3. (a) Factor: Total debt-to-income ratio of 39% or less and no "60-day
delinquency" as defined in P.XV.B.14(i) of this Agreement.
(b) Documentation: Income and debt documentation.
4. (a) Factor: Mortgage proceeds to be used to add, repair, or renovate an
income-producing unit provided that the borrower's residual income is 90% of
the amount required by this Agreement.
(b) Documentation: Income and employment documentation together with (i)
contract with licensed contractor demonstrating that loan proceeds are
sufficient to complete the job; (ii) documentation demonstrating anticipated
market rent for the new unit; and (iii) evidence of at least two months of
savings sufficient to allow the borrower to meet all monthly obligations.
5. (a) Factor: Documented financial emergency requiring significant commitment
of funds.
(b) Documentation: Documentation verifying the financial emergency.
6. (a) Factor: Ability to manage credit obligations as evidenced by borrower
having been no more than 30 days delinquent on a prior mortgage within the
preceding 12 months with less than 20% increase in monthly obligations.
(b) Documentation: Credit report and/or verification of mortgage.
7. (a) Factor: Mortgage proceeds used for business or investment purposes
provided that the borrower's residual income is 90% of the amount required by
this Agreement.
24
(b) Documentation: Income and employment documentation together with (i)
purchase contract evidencing investment; and/or (ii) business plan.
8. (a) Factor: Mortgage proceeds to be used for education of borrower or
person associated with borrower provided that the borrower's residual income is
90% of the amount required by this Agreement.
(b) Documentation: Income and employment documentation together with
evidence of acceptance or enrollment at an educational institution.
(CC) DTI GREATER THAN 50% (PARAGRAPH XV.B.14(III))
1. (a) Factor: A
reduction in monthly obligations (such reduction shall be at least 10 percent
with respect to borrowers who, on the date the new loan is closed, are "60 days
or more delinquent" as defined in P. XV.B.14(i) of this Agreement) where, except
in the case of balloon mortgages, the remaining term of the old mortgage loan is
at least three years.
(b) Documentation: Income and employment documentation and evidence of the
terms and monthly payments of the prior loan.
2. (a) Factor: Mortgage proceeds used to pay off balloon mortgage, so long as
balloon mortgage is coming due within twelve months of the date of application
for the mortgage loan.
(b) Documentation: Income and employment documentation and evidence of the
terms and monthly payments of the prior loan.
3. (a) Factor: Mortgage proceeds to be used for business or investment purposes
provided that the borrower's DTI ratio does not exceed 55%.
(b) Documentation: Income and employment documentation together with (i)
purchase contract evidencing investment, and/or (ii) business plan.
4. (a) Factor: Mortgage proceeds to be used for education of borrower or person
25
associated with borrower provided that the borrower's DTI ratio does not exceed
55%.
(b) Documentation: Income and employment documentation together with evidence
of acceptance or enrollment at an educational institute.
G. ECOA JUSTIFICATIONS & SUPPORTING DOCUMENTATION
(AA) RESIDUAL INCOME (PARAGRAPH XV.B.20(I))
1. (a) Factor: A reduction in monthly obligations (such reduction shall be at
least 10 percent with respect to borrowers who, on the date the new loan is
closed, are "60 days or more delinquent" as defined in P. XV.B.14(i) of this
Agreement) where, except in the case of balloon mortgages, the remaining term of
the old mortgage loan is at least three years.
(b) Documentation: Income and employment documentation and evidence of the
terms and monthly payments of the prior loan.
2. (a) Mortgage proceeds used to pay off balloon mortgage so long as balloon
mortgage is coming due within twelve months of the date of application for the
mortgage loan.
(b) Documentation: Income and employment documentation and evidence of the
terms and monthly payments of the prior loan.
3. (a) Factor: Total debt-to-income ratio of 39% or less and no "60-day
delinquency" as defined in P.XV.B.14(i) of this Agreement.
(b) Documentation: Income and debt documentation.
4. (a) Factor: Mortgage proceeds to be used to add, repair, or renovate an
income-producing unit, provided that the borrower's residual income is 90% of
the amount required by this Agreement.
(b) Documentation: Income and employment documentation together with (i)
contract with licensed contractor demonstrating that loan proceeds are
sufficient to complete the
26
job; (ii) documentation demonstrating anticipated market rent for the new
unit; and (iii) evidence of at least two months of savings sufficient to allow
the borrower to meet all monthly obligations.
5. (a) Factor: Documented financial emergency requiring significant commitment
of funds.
(b) Documentation: Documentation verifying the financial emergency.
6. (a) Factor: Ability to manage credit obligations as evidenced by borrower
having been no more than 30 days delinquent on a prior mortgage within the
preceding 12 months with less than 20% increase in monthly obligations.
(b) Documentation: Credit report and/or verification of mortgage.
7. (a) Factor: Mortgage proceeds used for business or investment purposes
provided that the borrower's residual income is 90% of the amount required by
this Agreement.
(b) Documentation: Income and employment documentation together with (i)
purchase contract evidencing investment; and/or (ii) business plan.
8. (a) Factor: Mortgage proceeds used for education of borrower or person
associated with borrower provided that the borrower's residual income is 90% of
the amount required by this Agreement.
(b) Documentation: Income and employment documentation together with
evidence of acceptance or enrollment at an educational institute.
(BB) MONTHLY OBLIGATIONS INCREASE BY MORE THAN 2.5% OF NEW FUNDS
(PARAGRAPH XV.B.20(II))
1. (a) Factor: New mortgage shortens term of old mortgage by 25% or more.
(b) Documentation: Copy of note and/or verification of mortgage.
27
2. (a) Factor: Mortgage proceeds used to pay off balloon mortgage, so long as
either (i) balloon mortgage is coming due within twelve months of the date of
application for the mortgage loan, or (ii) less than one third of the term of
the balloon mortgage remains outstanding.
(b) Documentation: Income and employment documentation and evidence of prior
loan.
3. (a) Factor: New loan is fixed rate and old loan is adjustable rate.
(b) Documentation: Copy of note and/or verification of mortgage.
4. (a) Factor: Mortgage proceeds used to prevent foreclosure when the borrower
is 90 or more days delinquent.
(b) Documentation: Credit report or verification of mortgage demonstrating
that the borrower is 90 or more days delinquent.
5. (a) Factor: Mortgage proceeds used to pay off back real estate taxes that
constitute a lien on the borrower's property.
(b) Documentation: Title report, tax search and/or tax bills.
(CC) PREPAYMENT PENALTY (PARAGRAPH XV.B.20(III))
1. (a) Factor: New mortgage shortens term of old mortgage by 25% or more
(b) Documentation: Copy of note and/or verification of mortgage.
28
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of this 17th day of September, 1999.
THE NEW YORK STATE
BANKING DEPARTMENT
By: /S/ XXXXXXXXX XXXXXX
---------------------
Name: Xxxxxxxxx XxXxxx
Title: Acting Superintendent
DELTA FUNDING CORPORATION
Mortgage Banker Licensed pursuant
to Article 12-D of the Banking Law
By: /S/ XXXXXX X. XXXX
----------------------
Name: Xxxxxx X. Xxxx, Xxxxxxxxxxx & Xxxxxxxx, LLP
Title: Counsel to XXX
00
XXXXXXX X-0
Form of Initial Notice
Dear
You borrowed money from Delta Funding Corporation ("Delta") between
October 1, 1995 and September 17, 1999. We write to notify you that Delta has
entered into a settlement agreement with the New York State Banking Department
(the "Department") and the Office of the New York State Attorney General, Xxxxx
Xxxxxxx, to resolve certain lending claims that were raised by the Department
following its examination of our institution. The Department has alleged that
the policies and practices of Delta has resulted in violations of HOEPA, RESPA,
ECOA, the Fair Housing Act, Article 12-D of the New York Banking Law and/or
Section 296-a of the Executive Law. We have denied those allegations and
continue to assert that we have never violated such laws.
Nevertheless, we have agreed with the Department voluntarily to resolve
this controversy, in part, through reducing the mortgage loan payments of those
persons allegedly injured by these practices.
You may be entitled to a payment reduction on your mortgage loan with
Delta. If you wish to be considered for a payment reduction, please check the
box at the end of the enclosed, duplicate copy of this letter, sign and date the
letter on the lines provided, and return the signed, duplicate copy of this
letter to us in the enclosed envelope within thirty (30) days of your receipt of
this letter.
THIS IS A SERIOUS DECISION AND YOU SHOULD CONSIDER IT CAREFULLY. IF YOU
APPLY FOR A PAYMENT REDUCTION, THE DEPARTMENT COULD DETERMINE THAT YOU ARE NOT
ELIGIBLE TO RECEIVE ANY PAYMENT REDUCTION. IN THE EVENT THAT A PAYMENT REDUCTION
IS AWARDED, YOU WILL BE REQUIRED TO SIGN A GENERAL RELEASE IN WHICH YOU WILL
AGREE TO ACCEPT THIS PAYMENT REDUCTION IN EXCHANGE FOR YOUR AGREEMENT NOT TO
MAKE A CLAIM AGAINST OR XXX DELTA, OR ANY ENTITY AFFILIATED WITH DELTA, ON YOUR
OWN. The General Release will only waive your right to make a claim against or
xxx Delta for any alleged violation of law regarding the mortgage loan you
received from Delta during the period October 1, 1995 through September 17,
1999.
If you have any questions, you should contact an attorney or other legal
advisor. You should also feel free to call [name of Delta representative] at
____.
Sincerely,
Delta Funding Corporation
by:___________________
Name:
Title:
[ ] Yes, I would like to be considered for a payment reduction on my mortgage
loan with Delta.
------------------------------ -------------------
(signature) date
-------------------------------
(printed name)
EXHIBIT A - 2
FORM OF ADDITIONAL NOTICE
Dear _______
We recently sent you a notice of our settlement with the New York State
Banking Department (the "Department"), under which you may have the right to
seek a reduction of your mortgage loan payments at Delta's expense. A copy of
the original notice is attached. The notice asked you to inform us whether or
not you wished to participate in the process to determine whether or not you are
eligible for mortgage loan payment reduction.
[We have not received any response from you.] or [You indicated that you
wished not to participate.] It is important for you to know that based on an
initial review of our loans, the Department believes that your loan might
qualify and has instructed us to provide you this additional notice and an
additional opportunity to participate.
Accordingly, please inform us, in the next thirty (30) days, whether you
wish to participate.
Sincerely,
Delta Funding Corporation
by:___________________
Name:
Title:
Exhibit B
Form of General Release
STATE OF __________)
) ss.:
COUNTY OF ________)
WHEREAS, I/we, _________ and ________, understand that the New York State
Banking Department (the "Department") has conducted an examination of Delta
Funding Corporation ("Delta") and has alleged that Delta violated the provisions
of the federal Home Ownership and Equity Protection Act, the federal Real Estate
Settlement Procedures Act of 1974, the federal Equal Credit Opportunity Act, the
federal Fair Housing Act, Article 12-D of the New York Banking Law and/or
Section 296-a of the New York Executive Law;
WHEREAS, I/we understand that Delta denies that it violated any laws;
WHEREAS, I/we obtained a home mortgage loan with Delta during the
period October 1, 1995 through September ___, 1999; and
WHEREAS, I/we understand that in order to avoid protracted and costly
litigation, Delta and the Department resolved the matter by entering into a
Remediation Agreement and that I/we will be entitled to monthly mortgage payment
reductions from the Remediation Fund and/or Amelioration Fund established by
Delta pursuant to the Remediation Agreement provided that I/we execute the
General Release described below.
THEREFORE, I/we agree to the following:
In consideration of a monthly mortgage payment reduction of $__________,
to be received by me/us out of the Remediation Fund established pursuant to the
Remediation Agreement, I/we ______ and________ hereby agree, effective upon
receipt of the first payment reduction contemplated herein, to release and
forever discharge Delta and its current, former and future officers, directors,
employees, agents, parent companies, affiliates, assignees and
successors-in-interest from all legal and equitable claims or causes of action
that have been or might have been asserted by me/us or the Department, as of the
date of execution of this General Release, including, without limitation, those
that arise out of any alleged violation by Delta of the federal Home Ownership
and Equity Protection Act, the federal Real Estate Settlement Procedures Act of
1974, the federal Equal Credit Opportunity Act, the federal Fair Housing Act,
Article 12-D of the New York Banking Law and/or Section 296-a of the New York
1
Executive Law, and the regulations promulgated under each of the foregoing
states, respectively, in connection with my/our mortgage loan.
I/we understand that the payment reductions to be made to me/us do not
constitute an admission by Delta of the validity of any claims by me/us or by
the Department on our behalf.
I/we understand that, by accepting payment reductions from the Remediation
Fund, I/we am/are waving my/our right to pursue my/our own legal action for
damages and any other relief to which I/we may be entitled.
This General Release constitutes the entire agreement between Delta and
me/us without exception or exclusion.
This General Release may not be amended or modified by oral agreement.
I/we have read this General Release and understand the contents hereof,
and I/we execute this General Release of my/our own free act(s) and deed(s).
Signed this ___, day of _______, 1999, at ________________.
-----------------
Social Security Number ___________
Other Identification ______________
SWORN TO AND SUBSCRIBED
Before me this ______ day of ____________, 1999.
----------------------
Notary Public
(SEAL)
---------------------
Social Security Number ___________
Other Identification ______________
SWORN TO AND SUBSCRIBED
Before me this ______ day of ____________, 1999.
----------------------
Notary Public
(SEAL)
2
