On August 11, the U.S. District Court for the District of New Hampshire rejected the addition of a potential RESPA claim to plaintiff’s complaint due to lack of standing, and the court dismissed the remaining counts for failure to state a claim. Sharp v. Deutsche Bank National Trust Company, As Trustee For Morgan Stanley ABS Capital Inc. Trust 2006-HE3, No. 14-cv-369 (D.N.H. Aug. 11, 2015). Although plaintiff and his father were both mortgagors on the mortgage document, the promissory note identified plaintiff’s father as the sole borrower for the loan. After plaintiff’s father died and plaintiff defaulted on the mortgage, plaintiff sought to enjoin the bank’s subsequent foreclosure proceedings. Plaintiff moved to amend his complaint to add a RESPA claim based on the bank’s allegedly inadequate responses to his requests for information pursuant to 12 C.F.R. § 1024.35 and 12 C.F.R. § 1024.36. The court determined that plaintiff lacked standing to assert his RESPA claim because the RESPA provisions at issue only applied to borrowers, not mortgagors like plaintiff. The court also rejected plaintiff’s argument that his status as the successor-in-interest to his father under 12 C.F.R. § 1024.38 established standing to bring the RESPA claim. The court confirmed that plaintiff was protected by 12 C.F.R. § 1024.38, but the court relied on the CFPB’s official interpretation of 12 C.F.R. § 1024.38 to determine that no private right of action existed to enforce the rule. Read more…
On August 25, Fannie Mae announced that it will begin offering HomeReady, a mortgage loan product featuring new flexibilities for lower to moderate income borrowers. For the first time, income from a non-borrower household member can be considered as a means to qualify for a Fannie loan. In addition, borrowers can include funds received from other sources, such as income from non-occupant parents or rental income from a basement apartment, to satisfy income requirements. Both first-time and repeat homebuyers can qualify for a HomeReady mortgage with a down payment as low as 3 percent. The new product requires borrowers to complete an online housing-counseling course. Fannie Mae is expecting to begin accepting deliveries under the HomeReady guidelines towards the end of 2015, and will soon issue additional details to assist lenders through a Selling Guide announcement.
On August 10, Illinois Governor Bruce Rauner signed into law Senate Bill 1440, the Reverse Mortgage Act which provides new consumer protections for borrowers with respect to reverse mortgage loan transactions. Among other things, the legislation establishes a regulatory framework to govern reverse mortgage loan transactions made within the state including provisions that (i) require lenders to provide certain mortgage disclosures to potential borrowers; and (ii) implement a three-day “cooling off” period in which a potential borrower can rescind the loan. The Act also grants the Illinois Attorney General sole enforcement authority to pursue any violations of the Reverse Mortgage Act, which would constitute as an unlawful practice under the state’s Consumer Fraud and Deceptive Business Practices Act. The law becomes effective January 1, 2016.
CFPB Issues Guidance Reminding Servicers of Requirements for Cancellation and Termination of Private Mortgage Insurance
On August 4, the CFPB issued Compliance Bulletin 2015-03 to provide guidance to mortgage servicers on their compliance obligations related to the private mortgage insurance (PMI) cancellation and termination provisions under the Homeowners Protection Act (HPA). The bulletin summarizes HPA requirements regarding annual disclosures, PMI refunds, borrower-requested cancellation, automatic termination, and final termination of PMI. The bulletin also cautions servicers to implement investor guidelines in a manner that does not violate the HPA. In a statement released by the Bureau, CFPB Director Richard Cordray advised, “We will continue to supervise mortgage servicers to ensure they are treating borrowers fairly, and [the Bureau’s] guidance should help servicers come into compliance with the [HPA].”
In 2014, the Consumer Financial Protection Bureau (“CFPB”) initiated an eClosing pilot program. The eClosing pilot was intended to assist the CFPB in evaluating the use of electronic records and signatures in the residential mortgage closing process. The pilot program has now been completed and on August 5, 2015 the Consumer Financial Protection Bureau (“CFPB”) released a report detailing its findings (“Report”). In the Report, the CFPB indicates that eClosings present a significant opportunity to enhance the closing process for both consumers and the mortgage industry.
The pilot program focused on the mortgage closing process and measured borrowers’ (i) understanding (both perceived and actual) of the process, (ii) perception of efficiency, and (iii) feelings of empowerment. The program also sought to quantify objective measures of process efficiency. The program was conducted over four months in 2014 with seven lenders, four technology companies, settlement agents, and real estate professionals. About 3000 borrowers participated in the study – roughly 1200 completed the CFPB’s survey.
The CFPB sought to determine if an electronic closing process improved the borrowers’ (i) understanding of the transaction, (ii) perception of efficiency, and (iii) feeling of empowerment. These three criteria were measured in multiple ways. To gauge understanding, the borrower was asked about their perceived understanding of the terms and fees, costs, and their rights and responsibilities. To determine the borrower’s actual understanding of their mortgage, they were given an eight question quiz. Five questions were about mortgages generally and three about their mortgage, specifically. To evaluate the efficiency of the transaction, the CFPB measured the difference between eClosings and paper closings in terms of delays, errors in documents, and the time required between steps in the process. Borrowers were also asked about their perceptions concerning efficiency. Finally, in order to gauge the borrower’s feeling of empowerment, the CFPB asked about the borrower’s feelings of control, his or her role, and the role(s) of others in the process. Read more…
CSBS Announcement: Arizona Department of Financial Institutions Becomes Latest State Agency to Adopt National SAFE MLO Test
On July 29, the Conference of State Bank Supervisors (CSBS) announced that the Arizona Department of Financial Institutions began using the National SAFE Mortgage Loan Originator (MLO) Test, making it the 47th state banking agency to adopt the SAFE MLO Test containing Uniform State Content. Combining both the national and state testing requirements of the SAFE Act and the CSBS/AARMR model state law, the test with Uniform State Content was first made available to state banking agencies on April 1, 2013 to help streamline the application process for MLOs seeking to obtain licensure in more than one state. Since April 1, 2013, according to the CSBS, over 58,000 MLOs have taken the National SAFE MLO Test with Uniform State Content. Notably, applicants who take the test on or after October 3, 2015, will be expected to understand requirements of the TRID Rule as promulgated by the CFPB.
On Thursday, June 30, 2015, a CFPB spokesman issued a statement to HousingWire in response to the announcement by a large lender that it was terminating its MSAs:
[This] decision to exit all marketing services agreements is an important step for the mortgage industry towards ensuring compliance with [the Real Estate Settlement Procedures Act (“RESPA”)] and freeing up more choices for consumers. We are concerned that such agreements can carry significant legal risk for companies and undermine transparency for consumers. Companies should take note of today’s action and consider carefully whether their own business practices comply with the consumer protections provided under the law, which bars kickbacks for customer referrals.
These announcements come in the wake of the CFPB’s September 2014 consent order against Lighthouse Title, Inc. and CFPB Director Cordray’s June 2015 ruling against PHH Corporation and its affiliates. Both matters involved alleged violation of Section 8 of RESPA, which states that “[n]o person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” 12 U.S.C. § 2607(a). However, Section 8 also states that “[n]othing in this section shall be construed as prohibiting … the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.” 12 U.S.C. § 2607(c)(2). Read more…
On July 30, the CFPB ordered a Texas-based mortgage servicer to pay $1.5 million in restitution and $100,000 in civil money penalties for allegedly engaging in faulty servicing practices, according to a settlement announced by the CFPB. The CFPB alleged that, beginning in 2009, the mortgage servicing firm failed to honor “in-process” modifications—trial modifications that were pending when a loan was transferred to the company—until it determined that the prior servicer should have agreed to the trial modification. In addition, the CFPB alleged that the servicing firm provided inaccurate account statements to borrowers related to their loan balance, interest rates, payment due dates, and the amount available in escrow accounts. The CFPB further contends that, in certain instances, the servicing firm coerced consumers into waiving certain legal protections as a condition to being allowed to pay off delinquent payments in installments. Under the terms of the consent order, the servicing firm agreed to, among other things, (i) provide $1.5 million in restitution to consumers whose loan modifications were not acknowledged; (ii) pay a $100,000 civil money penalty; (iii) mitigate the impact of its allegedly unlawful practices by, for example, converting “in-process” loan modifications to permanent modifications and stopping foreclosure processes for certain borrowers; and (iv) honor loss-mitigation agreements entered into by prior servicers and “in-process” loan modifications and engage in outreach to contact borrowers and offer them loss-mitigation options.
CFPB Settles with Payment Processor and Mortgage Servicer over Deceptive Mortgage Advertisement Allegations
On July 28, the CFPB announced that a Colorado-based payment processor, along with a Virginia-based mortgage servicer, agreed to pay a total of $38.5 million to resolve allegations that both entities used misleading advertisements related to a mortgage payment program. The CFPB alleged that both entities advertised the “Equity Accelerator Program” as a program that would help consumers save on interest payments by making mortgage payments biweekly rather than monthly. However, according to the CFPB, the program failed to make the biweekly payments, and no more than a “tiny” percentage of consumers enrolled in the program benefitted from the promised savings. Under the terms of the consent orders, the payment processor agreed to provide $33.4 million in restitution to affected consumers and pay a $5 million civil money penalty. The mortgage servicer will pay a $100,000 civil money penalty. Both entities also agreed to ensure that any advertisements concerning the mortgage program’s benefits complied with federal law.
On July 22, BuckleySandler secured a substantial victory before the United States Court of Appeals for the Second Circuit. Representing a global insurance company in a nationwide lender-placed insurance (“LPI”) class action brought by mortgage borrowers, the Firm argued on interlocutory appeal that the Second Circuit should reverse the district court’s denial of its motion to dismiss on the basis of the “filed-rate” doctrine. Ordinarily, the filed-rate doctrine provides that rates approved by the applicable regulatory agency – including LPI rates – are per se reasonable and unassailable in judicial proceedings brought by ratepayers. The district court, however, held that the plaintiffs’ claims were not barred by the doctrine because, rather than directly billing the plaintiffs for the LPI premiums, the insurance company initially charged the premiums to the plaintiffs’ mortgage servicer who, in turn, charged the borrowers. The Second Circuit reversed the Southern District of New York’s decision, holding that the filed-rate doctrine applied notwithstanding the fact that the mortgage servicer served as an intermediary to pass on the LPI rates to borrowers. Because the plaintiffs’ claims ultimately rested on the premise that the LPI rates approved by the regulators were too high and included impermissible costs, the Second Circuit held that the claims were barred by the filed-rate doctrine.
NMLS Updates Resource Center: Encourages Public to Submit Comments on Proposed Changes; Responds to Public Comments
On July 21, the Nationwide Mortgage Licensing System (NMLS) updated its resource center to encourage the public to submit further comments – via the Conference of State Bank Supervisors – on certain proposed changes to the Uniform NMLS Licensing Forms and the Mortgage Call Report. The proposed changes to the licensing forms include, but are not limited to: (i) adding a Filing Comment section to the Company Form (MU1) and the Branch Form (MU3); (ii) expanding the Business Activities section by adding “Reverse Mortgage Lending,” “Reverse Mortgage Brokering,” and “Reverse Mortgage Servicing” as available selections; (iii) expanding the Contact Employees section by adding “Annual/Call Report” as an available selection under Area(s) of Responsibility; and (iv) updating language in the Disclosure Questions section. If implemented, changes to the Mortgage Call Report (“MCR”) would include: (i) adding fields that allow for more accurate reporting on Qualified Mortgage standards; (ii) adding an upload option within the Loans Serviced section; and (iii) exploring the “development of a dynamic MCR based on a company’s business activities and license authority.” Comments on the proposals are due August 20.
Also on July 21, the NMLS posted to its resource center responses to the public’s comments regarding the Pre-Licensure Education Expiration Policy, Electronic Surety Bond Tracking, and the Uniform NMLS Licensing Forms and Mortgage Call Report. Feedback received on the initial proposed changes to the Licensing Forms and MCR prompted the additional comment period for the more targeted proposed changes described above.
District Court Applies Supreme Court’s Inclusive Communities Decision in Rejecting Disparate Impact Claim
On July 17, the U.S. District Court for the Central District of California granted summary judgment for Wells Fargo in a Fair Housing Act (FHA) case brought by the City of Los Angeles. City of Los Angeles v. Wells Fargo & Co., No. 2:13-cv-09007-ODW (RZx) (C.D. Cal. July 17, 2015). The City alleged that the bank engaged in mortgage lending practices that had a disparate impact on minority borrowers. In rejecting the City’s claims, the court’s opinion heavily relied on the Supreme Court’s recent decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., which imposed limitations on the disparate impact theory of liability under the FHA, despite holding that the theory remains cognizable. 135 S. Ct. 2507 (2015). Citing Inclusive Communities, the district court warned that disparate impact claims may only seek to “remove policies that are artificial, arbitrary, and unnecessary barriers and not valid governmental and private priorities.” The court further held that the City failed to point to a specific defendant policy that caused the disparate impact and failed to show “robust causality” between any of defendant’s policies and the alleged statistical disparity, as Inclusive Communities requires. The court also rejected the notion that disparate impact claims could be used to impose new policies on lenders, and said that the City’s argument that lenders should adopt policies to avoid disproportionate lending was a “roundabout way of arguing for a racial quota,” which Inclusive Communities also warns against. Finally, the court was sharply critical of the City’s argument that Federal Housing Administration loans are harmful to minority borrowers, and that, in any event, any disparate impact from these loans would be a result of the federal government’s policies, not the defendant’s policies.
The CFPB finalized a rule today that delays the effective date of the TILA-RESPA Integrated Disclosure (“TRID”) rule, including all amendments, from August 1 to October 3, 2015. This is consistent with the proposed rule issued last month, which we wrote about here.
The CFPB considered implementing a “dual compliance period” that would have permitted creditors to voluntarily comply with the TRID rule early, but it ultimately declined to do so, citing concerns that “dual compliance could be confusing to consumers and complicated for industry, including vendors, the secondary market, and institutions who act both as correspondent lenders and originators.”
In addition, although the CFPB declined to create a “hold harmless” or “safe harbor” period following the effective date, it stated that it “continues to believe that the approach expressed in Director Cordray’s letter to members of Congress on June 3, 2015,” which we wrote about here, remains fitting:
[O]ur oversight of the implementation of the Rule will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the Rule on time. My statement . . . is consistent with the approach we took to implementation of the Title XIV mortgage rules in the early months after the effective dates in January 2014, which has worked out well. Read more…
On July 14, the DOJ, in coordination with HUD’s Office of Inspector General and the U.S. Attorney’s Office for the Southern District of Florida, announced that a Miami-area real estate developer and mortgage company owner, his business partner, and a senior underwriter with the mortgage company each pleaded guilty to a mortgage fraud scheme that resulted in $64 million in losses to the FHA. According to the August 2014 indictment, the three defendants knowingly participated in a scheme to alter important information contained in potential borrowers’ loan applications so that they appeared qualified for FHA-insured loans when, in reality, they were not qualified. According to the DOJ, the developer/owner and his business partner “admitted to pressuring their employees to approve and close loans using earnings statements and verification of employment forms that made it appear as if the borrowers had higher incomes and more favorable work histories than they actually did, and documents falsely improving or explaining borrowers’ credit histories.” The senior underwriter admitted to providing false information to her co-workers and endorsing borrowers’ applications when she knew that they did not qualify for the loans. Eventually, many of the loans went into foreclosure and HUD was obligated to pay the outstanding loan balances to the financial institution investors. To date, 25 individuals have pleaded guilty to offenses related to this mortgage fraud scheme.
On July 13, HUD announced guidance regarding discrimination on the basis of sexual orientation, gender identity, and marital status. The guidance on Multifamily Assisted and Insured Housing Programs was intended to clarify the 2012 Equal Access to Housing in HUD Programs Regardless of Sexual Orientation or Gender Identity Rule (“Equal Access Rule”). HUD clarified that, in addition to individual program eligibility requirements established by HUD, a determination of eligibility for housing that is assisted by HUD or subject to a mortgage insured by the FHA “will be made available without regard to actual or perceived sexual orientation, gender identity, or marital status.” The guidance also clarifies that owners, administrators, and other recipients and sub-recipients of HUD funds associated with HUD-assisted housing or housing whose financing is insured by HUD may not inquire about the sexual orientation or gender identity of an applicant for, or occupant of, such housing, and notes that the rule is applicable whether such housing is renter or owner occupied. HUD noted that future Management and Occupancy Reviews may include a review for compliance with the Equal Access Rule. The guidance was coordinated with the July 13 White House Conference on Aging, with the White House emphasizing that the Equal Access Rule also applies to Section 202 Supportive Housing for the Elderly.