On June 28, the CFPB released a report to Congress detailing the characteristics and evolving uses of reverse mortgages in today’s marketplace. The report presents findings from a CFPB study on reverse mortgages required by the Dodd-Frank Act. Among the findings, the CFPB report states that reverse mortgages are often difficult for consumers to understand. The report further observes that reverse mortgages are being used by younger borrowers to obtain all available equity upfront, a use that contravenes the original and intended use of reverse mortgage products and may pose substantial risks to consumers. Concurrent with the release of the report, the CFPB issued a Notice and Request for Information on topics related to reverse mortgages and will accept comments for 60 days following publication of the Notice in the Federal Register. The CFPB intends to use the information and comments received from the public, as well as the findings from its study, to determine whether further consumer education or regulatory action related to reverse mortgages is necessary.
On June 28, the CFPB released a final rule that will govern how it handles privileged information submitted by supervised financial institutions. In the final rule, the CFPB adopted the proposed rule without modification. The rule allows parties to submit information to the CFPB in the supervisory or regulatory process without waiving any applicable privileges; it further permits the CFPB to share that information with federal and state agencies without affecting federal or state privileges. The rule takes effect 30 days following its publication in the Federal Register.
On June 26, the U.S. Court of Appeals for the Sixth Circuit concluded that a misrepresentation of the creditor’s name in a foreclosure action may constitute a false representation actionable under Section 1692e of the FDCPA. Wallace v. Washington Mut. Bank, F.A., No. 10-3694, 2012 WL 2379664 (6th Cir. June 26, 2012). In Wallace, a law firm allegedly brought a foreclosure action before the firm’s bank client received an assignment of the mortgage and transfer of the promissory note. The borrower contended that the law firm violated the FDCPA in foreclosing on behalf of the bank before the transfer and assignment occurred. The district court dismissed the case, holding that the failure to record an assignment before filing a foreclosure action is not a deceptive practice under the FDCPA. The Sixth Circuit disagreed and reversed, holding that the borrower’s allegations were sufficient to support a claim of material misrepresentation that would confuse or mislead an unsophisticated consumer.
Massachusetts Supreme Judicial Court Rules That Lenders May Foreclose Without Possessing Mortgage Note, But Only In Certain Circumstances
On June 22, the Massachusetts Supreme Judicial Court held that lenders do not need to be in physical possession of a mortgage note to foreclose on a property, but that they must establish that they are acting on behalf of the noteholder. Eaton v. Federal Nat’l Mortgage Ass’n, No. SJC-11041, 2012 WL 2349008 (Mass. June 22, 2012). The lower court had preliminarily enjoined defendant Fannie Mae from evicting the plaintiff following a foreclosure sale; that court interpreted the term “mortgagee,” as used in Massachusetts’ statutes, to refer to a person holding both the mortgage and the mortgage note. At the time of the foreclosure, the foreclosing party held only the mortgage. Reversing the lower court, the Supreme Judicial Court found that the term “mortgagee” refers to a person who (i) holds the mortgage, and (ii) either physically holds the mortgage note or acts on behalf of the mortgage note holder. Recognizing that it was common prior practice to interpret the term “mortgagee” as requiring possession of only the mortgage, the court held that its new interpretation of “mortgagee” should be given only prospective effect.
On June 26, the FTC filed a complaint in the U.S. District Court for the District of Arizona alleging that Wyndham Worldwide Corporation (and several of its subsidiaries) violated the FTC Act by misrepresenting the adequacy of their data security procedures. The FTC specifically maintains that Wyndham and its subsidiaries engaged in unfair and deceptive practices when they represented on their website that they maintained measures adequate to protect customers’ personal information. In truth, the FTC alleges, Wyndham failed to maintain such protections. According to the FTC, the companies’ lack of reasonable data security allowed intruders to obtain unauthorized access to that information on three separate occasions. These breaches purportedly resulted in more than $10.6 million in fraud loss and the export—to a foreign-registered domain—of payment card account information for hundreds of thousands of consumers.