On November 19, the Federal Reserve announced a plan to redistribute unclaimed funds from the Independent Foreclosure Review Payment Agreement (Agreement). Under the Agreement, borrowers whose homes were in any state of the foreclosure process in 2009 or 2010 received payment from Federal Reserve -regulated servicers, resolving allegations of improper mortgage servicing and foreclosure practices. The Fed’s recently announced plan gives borrowers who have yet to cash or deposit their original check until December 31, 2015 to request a replacement check; all checks must be deposited by March 31, 2016. In an effort to distribute the maximum amount of funds to borrowers affected by alleged deficient servicing and foreclosure practices, the Federal Reserve will instruct the paying agent company to redistribute the remaining funds after March 31, 2016 to the borrowers who did cash or deposit their original checks.
On November 18, the U.S. House of Representatives passed by voice vote H.R. 1210 and H.R. 1737, both of which will affect CFPB policies governing the mortgage and auto lending industries. The “Portfolio Lending and Mortgage Access Act” – H.R. 1210 – would amend the Truth in Lending Act to create a safe harbor from certain requirements for depository institutions making residential mortgage loans held in portfolios. Specifically, the bill permits loans that appear on a depository institution’s balance sheet to be treated as a Qualified Mortgage subject to certain limitations, thus permitting such loans to fall under the Ability-to-Repay Rule’s safe harbor provisions. The “Reforming CFPB Indirect Auto Finance Guidance Act” – H.R. 1737 – would invalidate CFPB Bulletin 2013-02, which provides guidance to indirect auto lenders regarding compliance with federal fair lending laws.
Second Circuit Upholds District Court Decision, Applies New York’s Six-Year Limitations Period on Contractual Claims
On November 16, the Court of Appeals for the Second Circuit affirmed the Southern District of New York’s decision to dismiss a leading global bank’s complaint against a nonbank mortgage lender alleging breach of contractual obligations to repurchase mortgage loans that violated representations and warranties. Deutsche Bank Nat’l Trust Co. v. Quicken Loans Inc., No. 14-3373 (2nd Cir. Nov. 16, 2015). The bank, under its right as Trustee of the loans, alleged that the lender breached aspects of representations and warranties contained in a 2006 Purchase Agreement, including those related to (i) borrower income; (ii) debt-to-income ratios; (iii) loan-to-value and combined loan-to-value ratios; and (iv) owner occupancy. The bank’s complaint also alleged that it sent the lender a series of notification letters between August 2013 and October 2013 demanding cure or repurchase of the loans, which the lender allegedly failed to do without justification. The bank challenged the District Court’s decision by arguing that New York’s six-year statute of limitations on contractual claims did not apply because the terms of the representations and warranties contained an “Accrual Clause” placing future obligations on the lender. Read more…
On November 16, HUD released FHA’s annual report to Congress on the financial condition of its Mutual Mortgage Insurance (MMI) Fund. For the first time since 2008, the report shows that FHA’s MMI fund’s capital ratio exceeds the congressionally required 2% threshold, standing at 2.07%. The report points to FHA policy changes and program improvements as the driving factors behind the improved MMI fund capital ratio. Notably, the report states that the agency’s decision to reduce annual mortgage insurance premiums by a half percent (i) marginally decreased the projected time to reach the 2% capital ratio; (ii) enabled over 75,000 new creditworthy borrowers to purchase homes; and (iii) compensated for the credit risk of the Forward mortgage loan program. Finally, the report highlights the agency’s efforts to reduce risk and improve loss mitigation by making substantial revisions to its credit guidelines, including strengthening its underwriting guidelines to discourage extreme risk layering and prohibiting seller-funded down-payment assistance.
Bank Settles with DOJ for $81.6 Million for Failing to Timely File Payment Change Notices for Homeowners in Bankruptcy
On November 5, the DOJ announced a proposed settlement with a bank for allegedly violating bankruptcy rules by not providing homeowners with required notices that would have allowed them to challenge the accuracy of increased mortgage rates. According to the DOJ, the bank acknowledged that, from December 1, 2011 to March 31, 2015, it failed to (i) file payment change notices (PCNs) 21 days before adjusting a debtor’s monthly mortgage payment, as required by federal regulations; and (ii) perform timely escrow analyses. Under the settlement, the bank will be required to pay over $80 million in restitution to homeowners in bankruptcy that were affected by its actions and will be required to update its internal procedures to prevent further violations, including improving its employee training and its quality control processes to ensure that PCNs are filed within the appropriate timeframe. The settlement was filed in the U.S. Bankruptcy Court for the District of Maryland and is subject to court approval.
On November 3, the CFPB released its latest Supervisory Highlights report, which covers examination findings from May 2015 to August 2015. According to the report, which summarizes supervisory observations in the areas of consumer reporting, debt collection, mortgage origination, mortgage servicing, student loan servicing, and fair lending, recent non-public CFPB supervisory actions resulted in $107 million in restitution to more than 238,000 consumers. The report recognizes that certain efforts were made by institutions to improve compliance, including (i) mortgage servicers making improvements to their compliance audits and conducting information technology reviews; and (ii) student loan servicers alerting borrowers of unpaid balances remaining after borrowers attempt to pay off their loans but fall short. The report also discusses the CFPB’s revised exam appeals process, which includes changes to the supervisory appeals process originally outlined in Bulletin 2012-07. Among other things, the revised exam appeals process extends the expected time to issue a written decision on appeals from 45 to 60 days, and “[p]revents an institution from appealing adverse findings or an unsatisfactory rating related to a recommended or pending investigation or public enforcement action until the enforcement investigation or action has been resolved.”
On October 30, the FTC hosted a workshop on online lead generation titled “Follow the Lead.” The workshop focused on lead generation in the mortgage and education lending space and consisted of a number of discussion panels composed of industry representatives, consumer advocates, and FTC regulators.
The first panel was primarily an overview of how web-based advertising is executed and how leads are generated using a variety of methods. Also discussed were the data analytics used to validate and assign value to the data collected. It was also noted that large media companies, such as Google and Facebook, have enacted policies restricting advertisements by participants in certain industries.
The second and third panels focused on online lead generation policies and practices in consumer and education lending, respectively. Industry participants and consumer advocates discussed varying policy viewpoints with respect to the practice of buying and selling data of consumers viewing a particular type of website to participants in a different industry. For instance, lead generators gathering data from consumers searching for jobs and then selling that data to providers of educational services. The panelists generally agreed that this practice was not inherently abusive, but could be harmful when implemented with intent to mislead. All generally agreed that guidance from the FTC and other government agencies would be useful to the extent that standards of conduct and transparency could be more clearly proscribed. Read more…
On October 19, Fannie Mae announced four changes: (i) the availability of trended credit data, which may allow a more thorough analysis of borrowers’ credit history; (ii) the availability of nontraditional credit history in Desktop Underwriter; (iii) a new tool, Fannie Mae Connect, which provides a self-service reporting and data analytics portal for customers and business partners; and (iv) the ability to validate a borrower’s income in Desktop Underwriter using data provided by Equifax’s The Work Number®. These changes follow Fannie Mae’s April notification regarding the integration of Collateral Underwriter, an appraisal and analysis application, with Desktop Underwriter and EarlyCheck – an integration intended to help lenders more effectively manage risk, underwrite strong loans, and build their businesses.
On October 21, HUD announced a proposed rule that would formalize the standards for evaluating harassment claims in housing or housing-related transactions under the FHA. The rule – “Quid Pro Quo and Hostile Environment Harassment and Liability for Discriminatory Housing Practices under the Fair Housing Act” – would define “quid pro quo harassment” and “hostile environment harassment,” respectively, as (i) subjecting a person to an unwelcome request or demand because of the person’s protected characteristic and submission to the request or demand is, explicitly or implicitly, made a condition related to the person’s housing; and (ii) subjecting a person to unwelcome conduct that is sufficiently severe or pervasive such that it interferes with or deprives the person the right to use and enjoy the housing or to exercise other rights protected by the FHA. In addition, the proposed rule also would describe standards for “direct liability” and “vicarious liability”, which would apply to all violations under the Act, not solely harassment. In particular, the proposed rule would define “direct liability” to include (i) a person’s own conduct; (ii) failure to take prompt action with respect to a discriminatory housing practice by an employee or action; and (iii) failing to fulfill a duty to take prompt action to correct and end a discriminatory housing practice by a third-party, where the person knew or should have known of the discriminatory conduct. The proposal was published in the Federal Register on October 21, and comments are due by December 21, 2015.
On October 21, the Georgia Department of Banking and Finance (the Department) announced a consent order with a South Carolina-based mortgage lender and its individual owner to resolve a Notice of Intent to Revoke Annual License and an Order to Cease and Desist. The Department alleged that the individual and the company violated the Georgia Residential Mortgage Act by (i) making false statements or misrepresentations to the Department; (ii) making false statements and misrepresenting material facts in mortgage loan documents; (iii) operating an unapproved branch with an unapproved branch manager; (iv) failing to perform the appropriate background checks on covered employees; and (v) transacting business with an unlicensed person who was not exempt from licensing requirements. Under the terms of the Order, the individual is prohibited from (i) applying for a Georgia mortgage loan originator, mortgage broker, or mortgage lender license; (ii) serving as a director, officer, or any other equivalent role for a Georgia mortgage broker or lender; and (iii) acting as a branch manager for a Georgia branch of a Georgia licensed mortgage broker or lender. In addition, the lender must pay $29,000 to the Department and $1,000 to the State Regulatory Registry, LLC to support the NMLS. The lender also must surrender its license from the Department.
On October 15, the Consumer Financial Protection Bureau (the CFPB or Bureau) issued a final rule that will expand the scope of the Home Mortgage Disclosure Act (HMDA) data reporting requirements while seeking to streamline certain existing requirements. Although some of the new data points the Bureau is requiring are expressly mandated by the Dodd-Frank Act, the Bureau is also requiring a significant number of new data points based on discretionary rulemaking authority granted by the Act.
While we describe the amended rule below in greater detail, highlights include:
- Expanded data-collection under the revised rule will begin on January 1, 2018, and reporting will begin in 2019. The Bureau would have been allowed under Dodd-Frank to require data-collection beginning in 2017 (at least nine months after issuance of the rule) but responded to industry requests for more time to convert systems to meet the extensive new data-collection requirements of the amended rule.
- The amended rule substantially expands the number of data points collected from financial institutions, including requiring reporting of rate spreads on most originated loans and lines of credit, not just higher-cost closed-end loans. However, the Bureau still has not decided the extent to which this information, which includes sensitive personal data such as credit scores, will be publicly available. It will solicit additional public input on privacy concerns before it determines how much of the information will be disclosed.
- The amended rule will require financial institutions to report home equity lines of credit (HELOCs) and reverse mortgages. However, in response to widespread criticism by industry commenters, the CFPB did not adopt its proposal to require reporting of all commercial-purpose loans secured by a dwelling.
- The amended rule does not make significant substantive changes to the definition of an “application” or to the “broker rule,” but it does reorganize and clarify existing Commentary provisions on those issues.
- The amended rule requires both depository and nondepository institutions that originated at least 25 closed-end mortgage loans or at least 100 open-end lines of credit in each of the two preceding calendar years to report HMDA data, so long as the institution meets all of the other tests for coverage of that type of institution.
On October 16, HUD’s FHA published a notice of partial withdrawal of its July 6 proposed rule to limit the time frame in which FHA-approved lenders must file insurance claims for benefits. The July 6 proposal would have required mortgagees to file claims (i) within three months from when marketable title to the property was obtained; or (ii) when the property was sold to a third party. In addition, the proposal sought to terminate the FHA’s insurance contract as a penalty for missing the proposed filing deadlines. Based on feedback that HUD received through its notice and comment process, HUD withdrew the proposed provisions to limit the FHA insurance claim period and its proposed amendment to the penalty provisions.
On October 15, the CFPB finalized a rule amending Regulation C to update the reporting requirements of the HMDA. The final rule changes what data financial institutions must provide to Federal agencies. Data points to be reported under the final rule include: (i) information on applicants, borrowers, and the underwriting process, including age, credit score, debt-to-income ratio; (ii) information about the property securing the loan, such as property value and additional information on manufactured and multifamily housing; (iii) information on the features of the loan, such as pricing information, loan term, interest rate, introductory rate period, non-amortizing features, and the type of loan; and (iv) unique identifiers, including the property address, loan originator identifier, and a legal entity identifier for the financial institution. For more on this rule, please read BuckleySandler’s Special Alert.
U.S. House of Representatives Passes Several Financial Regulatory Relief Bills, Including TRID Safe Harbor
On October 7, the U.S. House of Representatives (U.S. House) passed several pieces of bipartisan legislation aimed at providing regulatory relief to lenders and strengthening consumer protection. This legislation included H.R. 3192, the Homebuyers Assistance Act, which was approved by a 303-121 vote, which seeks to provide a formal four-month safe harbor for lenders who in “good faith” work to comply with the CFPB’s new TRID Rule, which went into effect on October 3. The U.S. House also unanimously approved H.R. 1553, the Small Bank Exam Cycle Reform Act, and H.R. 1839, the Reforming Access for Investments in Startup Enterprises (RAISE) Act. The Small Bank Exam Cycle Reform Act would allow well-managed banks with assets under $1 billion to qualify for an 18-month examination cycle, rather than the current 12-month cycle. The RAISE Act is intended to promote a liquid secondary market for shareholders seeking to sell private securities and encourage startups and private companies to raise capital to grow their businesses. This legislation will now go to the U.S. Senate for consideration.
BuckleySandler Files Amicus Curiae Brief on Behalf of Industry Group in RESPA Case; Marks First Appeal Against CFPB Director Decision
On October 5, BuckleySandler attorneys filed an amicus curiae brief on behalf of the Consumer Mortgage Coalition (CMC) in the first case to come up on appeal to the District of Columbia Circuit since the CFPB was founded in 2011. In the CMC’s brief, BuckleySandler attorneys argued that the CFPB Director’s decision to ignore the decades-long interpretation of Section 8 of RESPA will harm consumers by eliminating an important form of risk retention, making the home mortgage closing process more difficult and expensive for consumers, and will particularly harm the country’s least affluent mortgage borrowers.