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the latest Or ig i nat ion SECONDARY MARKET FHFA, Citigroup Settle Claims Citi becomes the second defendant to reach settlement regarding faulty securities sold to the enterprises. s e c on da r y m a r k e t a na ly t ic s se r v ic i ng T Agency Details Examination Procedures The bureau rolls out an update on next year's exams. T he Consumer Financial Protection Bureau (CFPB) released updated procedures for examinations of financial institutions and mortgage lenders, which will begin taking place in January. The new procedures, which will be published in the manuals for the Truth in Lending Act and the Equal Credit Opportunity Act, cover a range of topics, including compensation for loan originators, qualification standards for mortgage professionals, consumer rights, arbitration, and appraisals. "The CFPB recognizes that the easier we make it for financial institutions and mortgage companies to follow the new regulations, the better off consumers will be," said Richard Cordray, 60 | The M Report director of the CFPB, with the release of the new procedures. "By releasing details of what our examiners will be looking for well in advance of the effective date of most of the rules, we are giving the industry more time to adjust," he said. New rules prohibit dual compensation for loan originators, which occurs when an originator receives payment from both a consumer and another party in the transaction. Examiners will also look for ethical standards in loan originators, who will have to "meet character, fitness, and financial responsibility requirements; pass criminal background checks; and complete appropriate training," according to the CFPB. The CFPB's new directives also disallow waivers of consumer rights. In other words, originators cannot prevent consumers from filing lawsuits regarding their mortgage loans. Mandatory arbitration is also prohibited. Originators must also provide consumers with copies of all appraisals and valuation documents "developed in connection with certain mortgage loan applications," according to the CFPB. New rules also contain provisions for what the CFPB terms "higher-priced mortgage loans." The minimum time limit for escrow accounts for these loans is now five years as opposed to one year. The CFPB also said with the announcement of the new examination procedures that these "are the first round of updates for what will likely be multiple updates." he Federal Housing Finance Agency (FHFA) and Citigroup have settled over allegations of fraud in the selling of $3.5 billion of mortgage-backed securities (MBS). A recent filing revealed FHFA had dropped its suit against the bank, having reached a settlement. According to FHFA's original complaint, Citigroup and its affiliates misrepresented the credit quality and gave false statistical summaries of the groups of mortgage loans in securities purchased between September 2005 and May 2007, resulting in "substantial losses" to Fannie Mae and Freddie Mac as the loans fell apart. FHFA, acting as conservator for the GSEs, filed suit against Citigroup and a number of other institutions in 2011 seeking restitution for those losses. A spokesperson for FHFA did not comment on the amount of the settlement or the terms, saying that it was "satisfactory." A spokesperson for Citigroup remarked only that the company is "pleased to put this matter behind us." The filing ends one of FHFA's 18 securities fraud suits filed in 2011, each one involving MBS sold to Fannie and Freddie. In January, FHFA dropped a suit against General Electric over $549 million in faulty securities. The remaining 16 actions have yet to be resolved, though the agency's spokesperson said it "remains active in settlement discussions with other parties that were subjects of these lawsuits."