On February 17, Governor Steve Bullock of Montana signed S.B. 98 into law, which amends the Montana Mortgage Act to clarify licensing requirements. Among other things, the revised Montana Mortgage Act (i) modifies education and experience requirements; (ii) revises the responsibilities of designated managers; (iii) allows reports and notices to be filed and delivered through the NMLS; and (iv) amends the licensing requirements for loan processors and loan underwriters.
On February 13, the FDIC released the third and final technical assistance video intended to assist bank employees to comply with certain mortgage rules issued by the CFPB. The final video addresses the Mortgage Servicing Rules and the “Small Servicer” exemption. The first video, released on November 19, 2014, covered the ATR/QM Rule, and the second video, released on January 27, covered the Loan Originator Compensation Rule.
On February 12, the CFPB announced a civil suit against a Maryland-based mortgage company and consent orders with two additional mortgage companies headquartered in Utah and California for allegedly misleading consumers with advertisements implying U.S. government approval of their products in violation of the Mortgage Acts and Practices Advertising Rule (MAP Rule or Regulation N) of the Consumer Financial Protection Act (CFPA). In its complaint against the Maryland-based mortgage company, the CFPB alleges that the company’s reverse mortgage advertisements appeared as if they were U.S. government notices. Further, the CFPB claims that the company misrepresented whether monthly payments or repayments could be required and that there was a scheduled expiration date or deadline for the FHA-insured reverse mortgage program. The CFPB is seeking a civil fine and permanent injunction to prevent future violations with respect to the Maryland company. Similarly, the CFPB alleges that the Utah-based mortgage company disseminated direct-mail mortgage loan advertisements that improperly suggested that the lender was, or was affiliated with the FHA or VA, including that the company was “HUD approved” when it was not. The Utah company was ordered to pay a $225,000 civil penalty. In the separate consent order with the California-based mortgage company, the CFPB alleges that the lender’s mailings contained an FHA-approved lending institution logo and a website address that implied the advertisements were from, or affiliated with, the U.S. government, and were therefore deceptive and in violation of the CFPA. The company was ordered to pay an $85,000 civil penalty. In addition to civil penalties, each consent order requires the mortgage companies to submit a compliance plan to the CFPB and comply with specified record keeping, reporting, and compliance monitoring requirements.
CFPB Orders Nonbank Mortgage Lender to Pay $2 Million Penalty for Deceptive Advertising and Kickbacks
On February 10, the CFPB announced a consent order with a Maryland-based nonbank mortgage lender, ordering the lender to pay a $2 million civil money penalty, in part for allegedly failing to disclose its financial relationship with a veteran’s organization to consumers. According to the consent order, the CFPB alleged that the lender, whose primary business is originating refinance mortgage loans guaranteed by the VA, paid a veteran’s organization a fee to be named the “exclusive lender” of the organization and that failing to disclose this relationship in marketing materials targeted to the organization’s members constituted a deceptive act or practice under the Dodd-Frank Act. The CFPB further alleged that, because the veteran’s organization urged its members to use the lender’s products in direct mailings from the lender, call center referrals, and through the organization’s website, the monthly “licensing fee” and “lead generation fees” paid to the veteran’s organization and a third party broker company as part of marketing and referral arrangements constituted illegal kickbacks in violation of RESPA. In addition to the civil penalty, the consent order requires the lender to end any deceptive marketing, cease deceptive endorsement relationships, submit a compliance plan to the CFPB, and comply with additional record keeping, reporting, and compliance monitoring requirements.
On February 9, the CFPB released a report detailing complaints associated with reverse mortgages. According to the report, a high volume of complaints concern requests for changes to loan terms, issues related to loan servicing, and foreclosure activities. The report covers approximately 1,200 complaints received from December 1, 2011 through December 31, 2014. The report also notes that “[s]ince the CFPB began accepting reverse mortgage complaints in December, 2011, HUD has issued more than 10 policy changes to the HECM [Home Equity Conversion Mortgage] program.” One of these policy changes, effective after March 2, 2015, will require lenders to conduct financial assessments of prospective borrowers prior to approving the loan. The change is expected to decrease defaults due to non-payment of real estate taxes and insurance for loans originated after March 2.
On February 9, the DOJ announced a $123 million settlement with five national mortgage servicers for allegedly violating sections of the SCRA. Specifically, the DOJ alleges that the mortgage servicers subjected over 900 service members to unlawful non-judicial foreclosures between January 1, 2006 and April 4, 2012. Under the SCRA portion of the 2012 National Mortgage Settlement, the five mortgage servicers will reimburse millions of dollars to service members who should have been protected from foreclosure, as per Section 533 of the SCRA, which “prohibits non-judicial foreclosures against service members who are in military service or within the applicable post-service period, as long as they originated their mortgages before their period of military service began.” The mortgage servicers are cooperating with the Justice Department to compensate service members affected by the alleged non-judicial foreclosures.
On February 11, HUD Secretary Julián Castro delivered remarks at the U.S. House Financial Services Committee (HFSC) hearing, “The Future of Housing in America: Oversight of the Federal Housing Administration.” In his testimony, Castro stressed that FHA did not cause the housing crisis, but actually saved the market stating, “FHA stepped in and stepped up to fill the void created when private capital retreated – work that independent economists say prevented a further collapse in home prices.” Looking forward, Castro noted that FHA’s challenge will be to make homeownership more affordable, and he emphasized the importance of improving underwriting standards and strengthening the agency’s Mutual Mortgage Insurance Fund.
CFPB Orders Nonbank Mortgage Lender to Pay $2 Million Penalty for Deceptive Advertising and Kickbacks
On February 10, the CFPB announced a consent order with a Maryland-based nonbank mortgage lender, ordering the lender to pay a $2 million civil money penalty for allegedly failing to disclose its financial relationship with a veteran’s organization to consumers. According to the consent order, the CFPB alleged that the lender, whose primary business is originating VA loans, paid a veteran’s organization a fee to be named the “exclusive lender” of the organization and that failing to disclose this relationship in marketing materials targeted to the organization’s members constituted a deceptive act or practice under the Dodd-Frank Act. The CFPB further alleged that, because the veteran’s organization urged its members to use the lender’s products in direct mailings from the lender, call center referrals, and through the organization’s website, the monthly “licensing fee” and “lead generation fees” paid to the veteran’s organization and a third party broker company as part of marketing and referral arrangements constituted illegal kickbacks in violation of RESPA. In addition to the civil money penalty, the consent order requires the lender to submit a compliance plan to the CFPB and comply with additional record keeping, reporting, and compliance monitoring requirements.
On February 3, the Fair Housing Justice Center (FHJC), a regional fair housing non-profit organization based in New York City, filed a complaint alleging that a large bank discriminated in its mortgage lending practices on the basis of race and national origin. According to the complaint, the organization hired nine “testers” of various racial backgrounds to inquire about obtaining a mortgage for first-time homebuyers. Specifically, the complaint claims that the bank’s loan officers (i) used neighborhood racial demographics to steer minority testers to racially segregated neighborhoods and (ii) offered different loan terms and conditions based on race or national origin. The plaintiff is seeking compensatory and punitive damages and injunctive relief to ensure compliance with fair housing and fair lending laws. FHJC et al v. M&T Bank Corp., No-15-cv-779 (S.D. NY. Feb. 3, 2014).
On January 29, the CFPB announced a proposed rule that would provide regulatory relief to more small lenders. Among other things, the proposed rule would (i) increase the loan origination limit to qualify for “small creditor” status from 500 loans to 2,000 loans annually; (ii) include certain mortgage affiliates in the calculation of small-creditor status; (iii) expand the definition of “rural” to include census blocks that are not in an urban area; and (iv) extend the transition period in which small lenders can make QMs with balloon payments, regardless of location, to April 1, 2016. Comments on the proposed rule are due by March 30.
On January 23, the California Department of Business Oversight (DBO) announced a $2.5 million settlement with a national mortgage servicer for failing to provide loan information to the state regulator. According to the consent order, the company must also (i) pay an independent third-party auditor selected by the DBO to ensure the servicer provides all requested information to DBO; (ii) cover administrative costs associated with the case; and (iii) cease acquiring new mortgage servicing rights that include loans secured by California properties until the DBO is satisfied that the servicer can satisfactorily respond to certain requests for information and documentation made in the course of a regulatory exam.
The Indiana Court of Appeals reversed and remanded for further proceedings a trial court’s grant of partial summary judgment and held that because the plaintiff did not show that it controlled the electronic mortgage note (“Note”) for purposes of 15 U.S.C. § 7021(b) as of the date the foreclosure was filed, it had not established that it was the party entitled to enforce the Note as of that date. The plaintiff was not the original lender, and instead, received the mortgage by assignment. The plaintiff filed a complaint to foreclose the mortgage shortly after taking assignment. The Note stated that the only authoritative copy was the copy within the Note Holder’s control. 15 U.S.C. § 7021 provides conditions under which a party can have control and the court found that the evidence put forward by the plaintiff in support of the motion for summary judgment did not properly address satisfaction of those conditions. Specifically, the court stated that the plaintiff did not present evidence demonstrating that control over the Note had been transferred to the plaintiff in accordance with the requirements of 15 U.S.C. 7021. The court specifically noted in the decision that the plaintiff, upon demonstrating it had received a transfer of control, would be entitled to the same rights as the holder of a written promissory note under UCC Article 3, and that delivery, endorsement and possession of a physical note were not required. Good v. Wells Fargo Bank, N.A., No. 20A03-1401-MF-14 (Ct. App. Ind. 2014).
On January 21, the Committee on Financial Services, in a voice vote, agreed to a new oversight plan that identifies the areas that the Committee and its subcommittees plan to oversee during the 114th Congress. Notable sections of the oversight plan include: (i) examining the governance structure and funding mechanism of the CFPB; (ii) reviewing recent rulemakings by the CFPB and other agencies on a variety of mortgage-related issues; (iii) examining the effects of regulations promulgated by Dodd-Frank on community financial institutions; and (iv) examining proposals to modify the GSEs.
On January 19, the New York Attorney General (AG) announced an agreement with a New York-based community bank that the AG alleged had excluded predominantly minority neighborhoods from its mortgage lending business. As part of the agreement, the bank will (i) open two branches in neighborhoods with a minority population of at least 30 percent, with the first located within two miles of a majority-minority neighborhood and the second located within one mile of a majority-minority neighborhood; (ii) create a special financing program to provide $500,000 in discounts or subsidies on loans to residents of majority-minority neighborhoods; and (iii) create a marketing program directed at minority communities. Additionally, the bank agreed to submit to reporting and monitoring by the AG for a three-year period and pay $150,000 in costs to the State of New York.