DISB to Host Second Annual Insurance Open House
DISB announces its second annual open house sponsored by the Insurance Bureau on Thursday, September 27, from 10 am to 3:30 pm at 810 First Street, NE, Suite 701. The open house is for insurance compliance professionals representing companies doing business in the District of Columbia. Attendees will meet DISB Commissioner Thomas E. Hampton, the associate commissioners and the insurance regulatory staff who assist in the regulatory process.

Topics this year include:

• Market conduct/market analysis procedures and issues;
• Financial examination-requirements and issues;
• Proposals to address terrorism coverage for property and casualty insurers after the Terrorism Risk Insurance Act;
• Agent or company licensing information and processing;
• Consumer complaints; 
• Fraud compliance and submission;
• Accelerated benefits in life, accident and health policies;
• Information on the System for Electronic Rate and Form Filings.

Appointments will be available for company compliance professionals to meet one-on-one with regulators responsible for expediting form filings in property and casualty, life and accident, and health. To attend the open house, contact Commissioner Hampton’s executive assistant, Carmelita Snowden at (202) 442-7773. Deadline for registration is Sept. 14, 2007.

DISB Supports Bank Charter Modernization Amendment Act of 2007
The Council of the District of Columbia voted June 21 to enact the Bank Charter Modernization Amendment Act of 2007, which eliminated the legislative requirement for the Council to approve bank charters issued in the District. DISB Commissioner Thomas E. Hampton, whose agency regulates financial industries in the District, including locally chartered banks, issued a statement announcing that DISB was pleased that the Council voted for the legislation, which puts the District of Columbia’s bank chartering process on equal footing with the rest of the nation. The previous process duplicated DISB’s regulatory actions, putting the District at a competitive disadvantage in comparison to other state and federal bank regulatory agencies.

Public Hearing for Industrial Bank’s Conversion to District Chartered Bank
DISB will hold a public hearing to gather input on the bank application for Industrial Bank to convert to a DC Chartered bank on August 10. The 73-year-old bank applied recently to re-convert its national charter to a District-chartered bank. It is currently the fourth largest African-American-owned commercial bank in the United States, and is reported to be the oldest and largest minority-owned commercial bank in the metropolitan Washington region. The bank was previously chartered in 1934 as a District bank by an act of Congress. Industrial was founded by real estate investor, broker and attorney Jesse H. Mitchell, grandfather of its current president and chief executive officer, B. Doyle Mitchell Jr. The bank operates six branches in the District and two in Maryland. Industrial, which is on Georgia Avenue, NW, is a full service commercial bank. Under a District charter, DISB will supervise Industrial, which may become the fourth bank, chartered and regulated under District law. Should DISB approve the charter, subsequent approval by the Council is no longer required given the June 21 passage of the Bank Charter Modernization Amendment Act of 2007. The hearing will be August 10 at DISB’s office at 810 First Street, NE, Suite 701, at 10:30 am.

Legislation to Create Affordable Housing Directory Introduced
Ward 6 Councilmember Tommy Wells recently introduced the Affordable Housing Clearinghouse Directory Act of 2007 that would create a Clearinghouse Directory to be maintained by the District’s mayor. The legislation requires development projects receiving public funds and assistance—whether through tax abatement, tax increment financing, direct appropriation or other means—to file quarterly reports containing information on affordable housing units being created. The directory would become a resource for District residents needing information about where and when affordable units will be constructed, income qualifications, type of housing, number of bedrooms and bathrooms and contact information. While the legislation requires the directory to be maintained online, print copies will be made available at several public offices throughout the District to ensure access to all residents.

Mandatory Arbitration of Securities Disputes
An independent study released July 13 by Daniel Solin, a securities lawyer, and Edward O’Neal, an assistant finance professor at Wake Forest University’s Babcock Graduate School of Management, found that individual investors bound to resolve securities disputes through the NASD/NYSE arbitration process have been winning fewer cases and recovering a declining percentage of damages sought. Some of the key findings of the report, Mandatory Arbitration of Securities Disputes: A Statistical Analysis of How Claimants Fare, are that claimant win rates have steadily declined—investors won 44 percent of the time in 2004, down from a 59 percent win rate in 1992. Claimant win rates are lower against larger brokerage firms; the larger the case, the lower the award as a percent of the amount claimed, and the average amount an investor can expect to recover going into arbitration has declined from a high of 38 percent in 1998 to a low of 20 percent in 2004. The study also highlighted the high costs associated with arbitration, which range from forum fees, travel and lodging costs, attorney contingency fees and expert witness costs. In recent years, a debate has ensued over the fairness of the mandatory arbitration system and authors of the study pointed out those settlement agreements are confidential and there is no way to analyze the typical or average settlement outcome.

DISB Testifies on Mortgage Disclosure Amendment Act of 2007
DISB Commissioner Thomas E. Hampton testified at a hearing before the Committee on Public Services and Consumer Affairs on the Mortgage Disclosure Amendment Act of 2007. The amendment, which was introduced by committee chair Councilmember Mary Cheh, attempts to require disclosure of practices that have become associated with predatory residential real estate related transactions and the subprime mortgage market. These practices have included prepayment penalties that offer no benefit to the consumer, a balloon payment requiring a consumer to pay off the entire outstanding amount in a lump sum after a certain period has passed, the lack of mandatory escrow accounts for property taxes and hazard insurance, and risks related to no-documentation-mortgage- loan products. Specifically, the amendment adds a new paragraph to the Mortgage Lender and Broker Act to define “non-conventional mortgage loan” to mean any mortgage loan that is not a 15-year or 30-year fixed rate mortgage loan. Non-conventional mortgages include interest-only mortgages, mortgages with a two- or three-year teaser rates or any mortgage other than a 15- or 30-year fixed rate. The legislation requires mortgage lenders and brokers to provide disclosures in writing within one business day of application for a mortgage loan, including information on monthly payments when principal and interest become due; if the interest rate increases to the full allowable amount, the calculation of the monthly payments shall include real property taxes and an estimate of real property insurance. Consumers also have the right to know of any fees and any amounts held in escrow, prepayment penalties, and the manner of calculation of the penalty, and when it may be imposed. The borrower also has the ability within five business days of receiving the disclosures to cancel the application for the loan with no loss of security deposit or other funds applied to guarantee an interest rate, not including reasonable fees incurred by the mortgage lender or broker.

Justice Department Alerts Public About Fraudulent Spam Email
The US Department of Justice (DOJ) has recently become aware of fraudulent spam e-mail messages claiming to be from DOJ. Based upon complaints from the public, it is believed that the fraudulent messages are addressed “Dear Citizen.”  The messages are believed to assert that the recipients or their businesses have been the subject of complaints filed with DOJ and forwarded to the Internal Revenue Service.  In addition, such email messages may provide a case number, and state that the complaint was “filled [sic] by Mr. Henry Stewart.” A DOJ logo may appear at the top of the email message or in an attached file.  Finally, the message may include an attachment that supposedly contains a copy of the complaint and contact information for Mr. Stewart. The DOJ warns that these email messages are a hoax and that District residents should not respond. The Department of Justice did not send these unsolicited email messages—and would not send such messages to the public via email. Similar hoaxes have been recently sent in the names of various governmental entities, including the Federal Bureau of Investigation, the Federal Trade Commission, and the Internal Revenue Service. Email users should be especially wary of unsolicited warning messages that allege to come from U.S. governmental agencies directing them to click on file attachments or to provide sensitive personal information. These spam email messages are bogus and should be immediately deleted. Computers may be put at risk simply by an attempt to examine these messages for signs of fraud.  It is possible that by “double-clicking” on attachments to these messages, recipients will cause malicious software—e.g., viruses, keystroke loggers or other Trojan horse programs—to be launched on their computers. Do not open any attachment to such messages. Delete the email and empty the deleted items folder. If you have received this, or a similar hoax, please file a complaint.

DISB Adopts Guidance for Subprime Lending
DISB Commissioner Thomas E. Hampton announced July that the agency will be adopting a Statement of Guidance on Subprime Mortgage Lending that covers the marketing and underwriting of subprime mortgages by District licensed mortgage lenders and brokers.  This statement has been developed in cooperation with the Conference of State Bank Supervisors (CSBS), the American Association of Residential Mortgage Regulators (AARMR) and the National Association of Consumer Credit Administrators (NACCA), and applies to state licensed mortgage lenders and brokers doing business in the District of Columbia. The guidance will be used to promote consistent regulation in the mortgage market and to address emerging risks associated with certain subprime lending practices. The CSBS, AARMR and NACCA guidance parallels final guidance released June 29, 2007, by the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the National Credit Union Administration. As with the non-traditional mortgage product guidance released by DISB Dec. 5, 2006, the purpose of this guidance is to ensure consumers will see equal protection, and that all originators of residential mortgages will be subject to similar supervisory guidance. The regulatory guidance can be found at the CSBS website. If you need more information, please contact Financial Institution Examination Officer Edna Boateng.

Report on District Mortgage Lending Trends Released
In the District, the ethnicity of buyers remains about the same, but changes can be identified by ward. For example, Wards 4, 5 and 6 have seen drastic decreases in the number of Black borrowers. This is especially pronounced in Ward 5, where Black borrowers have decreased by nearly 30 percent since 1997, and Caucasian borrowers have increased by 23 percent. Percentages of Hispanic and Asian-Pacific Islander buyers have increased, especially in Wards 4, 5 and 7 for Hispanics and Wards 1, 2, 3 and 6 for Asian-Pacific Islanders.

These findings were released in a quarterly report written by Peter Tatian of the Urban Institute. They were released at a breakfast meeting at the DC Housing Finance Agency on June 26. The special mortgage lending trends section of the report, the DC Housing Monitor (Spring  2007), was prepared using data that collects income, race, ethnicity and the sex of mortgage borrowers. It was used to track changes in the economic and demographic characteristics of people buying houses in different parts of the District. Other key findings of the report stated that sales of single family homes in the third quarter of 2006 decreased almost 12 percent compared to the previous year, and condominium sales dropped by 54 percent. The number of new home purchase loans increased in 2005, continuing a steady upward trend. Lone female borrowers continue to account for about one third of all home-purchase mortgage borrowing in the District. And the median sales price of a single family home in the third quarter 2006 was $465,000, which is down 5 percent from the previous year when adjusted for inflation. The median sales price of a condominium in the same period was $354,000, down 10 percent in real terms. Moreover, denial rates for home loan applications rose in 2005 with  almost one quarter of all loan applications in Wards 7 and 8 denied. Purchasers buying a home in Wards 5, 7 and 8 were more than 12 times likely to take out a high interest rate loan than were homebuyers in Ward 3. As housing prices have increased, the share of home purchasers who have low income has dropped dramatically in most wards. According to Tatian, these homebuyer trends have the potential to change dramatically the racial and ethnic composition of the District’s wards and neighborhoods.

CapStat Sessions Drives Accountability in the District
CapStat is a performance-based accountability program that identifies opportunities to make District government run more efficiently, while providing a higher quality of service to its residents. Each agency including DISB participates in the sessions and agency directors prepare for them by examining what they measure, whether they can improve their performance measures and the accuracy of their performance data. Accountability sessions are central to the program, and for an hour, executives responsible for implementing specific actions come together to discuss performance data and explore ways to improve government services, as well as make commitments for follow-up actions. CapStat allows directors to ensure their agency’s performance indicators are accurate and meaningful. This means identifying what outcomes their customers care about and making sure performance measures reflect the customer’s experience.