On February 2, the FDIC announced a settlement for more than $62 million with a New York-based financial institution to resolve “federal and state securities law claims based on misrepresentations in the offering documents for 14 RMBS [residential mortgage-backed securities] purchased by three failed banks.” The FDIC, as the receiver of the three failed banks, filed four lawsuits from February 2012 to January 2014 against the financial institution and other defendants for their alleged involvement in the sale of the RMBS to the three failed banks. These lawsuits are four of the 19 RMBS-related lawsuits that the FDIC has filed, as of December 31, 2015, on behalf of eight failed institutions.
On February 1, HUD announced a $1.9 million settlement with a Memphis-based bank to resolve alleged violations of the Fair Housing Act. Specifically, the complainant alleged that the bank “was responsible for discriminatory terms and conditions for making loans, discrimination in the making of loans, and discriminatory financing, with respect to real estate transactions.” In addition, the complainant alleged that the bank engaged in discriminatory practices by failing to place bank branches in minority-concentrated areas, ultimately denying African-American and Hispanic applicants mortgage loans. The bank denied the allegations, but agreed to “voluntarily settle [the] controversy and resolve [the] matter without the necessity of an evidentiary hearing or other judicial process . . . .” Under the agreement, the bank will (i) establish a subsidy fund of $1.5 million over three years to provide interest rate reductions on home mortgages, along with down payment or closing cost assistance to qualified borrowers in identified regional areas; (ii) contribute $270,000 over the course of three years to support governmental or community-based organizations’ efforts to help homeowners repair properties in predominantly minority communities, or to provide credit, financial, homeownership, or foreclosure-prevention services to homeowners in affected areas; (iii) pay directly to the complainant $105,000 to fund similar home repair, credit, financial, homeownership, and foreclosure services; and (iv) pay directly to the complainant $25,000 in damages.
On January 28, the U.S. District Court for the Western Division of Washington, having determined that a mortgage loan servicer violated the Real Estate Settlement Procedures Act (RESPA) and committed the tort of outrage, ordered the servicer to pay more than $200,000 in economic and emotional distress damages to a borrower. Lucero v. Cenlar FSB, No. 13-0602 (W.D. Wash. Jan. 28, 2016). The borrower and servicer had agreed to a loan modification in early 2013. However, the borrower believed that the servicer was misreporting her loan as delinquent, in spite of the modification. In April 2013, the borrower filed a lawsuit against the mortgage servicer alleging “that [it] violated its credit reporting obligations” and “seeking damages related to the way in which [the mortgage servicer] (and others) had sought to foreclose on her mortgage.” The servicer then began charging the plaintiff for attorney’s fees and costs that it was incurring in defending the ongoing litigation. The plaintiff requested additional information regarding the charges on numerous occasions, but it was not until June 2014 that the servicer’s counsel said “that the fees that were charged to her account had incurred in this litigation, that they are recoverable under the Deed of Trust, and that the notifications were required by a federal regulation.” The court found that the servicer “failed to timely and fully respond to [the plaintiff’s] March 25, 2014 requests for information regarding the nature of and jurisdiction for the fees that were appearing on her monthly statements,” a violation RESPA, which requires “servicers to respond to a qualified written request…for information within specified time frames.” It also held that the charging of attorney’s fees to the borrower was not permitted under the Deed of Trust under the circumstances. In awarding emotional distress damages, the court stated that the servicer’s message to the plaintiff – “continue this litigation and we will take your home” – was “beyond the bounds of decency and  utterly intolerable.”
On January 22, Virginia State AG Mark Herring announced a settlement with eleven banks over their alleged misrepresentation of residential mortgage-backed securities to the Commonwealth of Virginia and the Virginia Retirement System. Virginia recovered more than $63 million collectively from the banks involved, making it the “largest non-healthcare-related recovery ever obtained in a suit alleging violations of the Virginia Fraud Against Taxpayers Act,” and, according to AG Herring, “one of the largest of its kind in the nation.” As part of the settlement, the Commonwealth dismissed the claims against the defendants with prejudice and the defendants did not admit liability.
Recently, the CFPB released a fact sheet that provides a basic outline for applying Know Before You Owe mortgage disclosures to constructions loans. Specifically, the fact sheet notes that (i) most construction loans are covered by the Know Before You Owe mortgage disclosures, with the exception of those that are open-end transactions or for commercial purposes; and (ii) Regulation Z’s existing provisions for disclosures for certain construction loans and construction-to-permanent loans continue to apply. In addition, the fact sheet provides guidance regarding a creditor’s choice to disclose a construction loan with permanent financing as one or two transactions. According to the fact sheet, the CFPB may release additional guidance to facilitate compliance with the Know Before You Owe mortgage disclosure rule, including a possible webinar regarding construction loan disclosures.
On January 7, the CFPB announced that it will request public feedback on the resubmission of mortgage lending data reported under HMDA. Upon publication in the Federal Register, the Request for Information Regarding Home Mortgage Disclosure Act Resubmission Guidelines (Request for Information) will be open for 60 days. The Bureau’s Request for Information follows the agency’s October release of a final rule amending Regulation C to expand the reporting requirements of the HMDA regulation. Among other things, the amended rule increases the number of data points collected from financial institutions that must be reported to federal regulators beginning March 1, 2019, thus potentially necessitating revisions to the resubmission guidelines, which are the guidelines that describe when supervised institutions will be expected to correct and resubmit data. In response to questions regarding whether the CFPB will adjust mortgage lending data resubmission guidelines to reflect the new data requirements under the amended rule, the Request for Information seeks public comment regarding (among other things): (i) the CFPB’s use of resubmission error thresholds and how they should be calculated; (ii) whether error thresholds should vary depending upon an institution’s LAR entry size; and (iii) whether systemic and non-systemic errors should be treated differently, and, if so, how they should be distinguished from one another.
GAO Publishes Report Regarding the Impact of Dodd-Frank Regulations on Community Banks, Credit Unions, and Systemically Important Institutions
On December 30, the United States Government Accountability Office (GAO) released its fifth report mandated by Section 1573(a) of the Department of Defense and Full-Year Continuing Appropriations Act of 2011 (Act), which amended Dodd-Frank, and requires the GAO to annually review financial services regulations, including those of the CFPB. The report reviews 26 Dodd-Frank rules that became effective from July 23, 2014 through July 22, 2015 to examine whether the agencies conducted the required regulatory analyses and coordination. In addition, it examines nine Dodd-Frank rules that were effective as of October 2015 to determine their impact on community banks and credit unions. Finally, the report assesses Dodd-Frank’s impact on large bank holding companies. The GAO found that the agencies conducted the required regulatory analyses for rules issued under Dodd-Frank and reported required coordination. In addition, surveys of community banks and credit unions suggest that the Dodd-Frank rules under review have resulted in an increased compliance burden, a decline in certain business activities in some cases (e.g., loans that are not qualified mortgages), and moderate to minimal initial reductions in the availability of credit. Although “regulatory data to date have not confirmed a negative impact on mortgage lending,” “these results do not necessarily rule out significant effects or the possibility that effects may arise in the future.” Finally, the GAO concluded that the full impact of Dodd-Frank on large bank holding companies remains uncertain, but summarized the results of certain analyses in the report.
On December 29, 2015, CFPB Director Richard Cordray issued a letter in response to concerns raised by the Mortgage Bankers Association regarding violations of the CFPB’s new TILA-RESPA Integrated Disclosure (“TRID”) rule, also known as the Know Before You Owe rule. In an effort to address concerns that technical TRID violations are resulting in extraordinarily high rejection rates by secondary market purchasers of mortgage loans, Director Cordray acknowledged that, “despite best efforts, there inevitably will be inadvertent errors in the early days.” However, he suggested that rejections based on “formatting and other minor errors” are “an overreaction to the initial implementation of the new rule” and that the risk to private investors from “good-faith formatting errors and the like” is “negligible.” He expressed hope that this issue “will dissipate as the industry gains experience with closings, loan purchases, and examinations.”
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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Benjamin K. Olson, (202) 349-7924
- Clinton R. Rockwell, (310) 424-3901
- Jeffrey P. Naimon, (202) 349-8030
- John P. Kromer, (202) 349-8040
- Joseph M. Kolar, (202) 349-8020
- Jeremiah S. Buckley, (202) 349-8010
- Joseph J. Reilly, (202) 349-7965
- Amanda Raines Lawrence, (202) 349-8089
- Melissa Klimkiewicz, (202) 349-8098
- Jonathan W. Cannon, (310) 424-3903
- Brandy A. Hood, (202) 461-2911
- Steven vonBerg, (202) 524-7893
On December 29, the CFPB responded to a December 21, 2015 letter from the Mortgage Bankers Association (MBA) regarding “lingering misperceptions and technical ambiguities” in TRID regulations that went into effect on October 3. The CFPB’s letter notes that, given inevitable yet unintentional errors in the early stages of the mortgage industry’s implementation of the regulations, regulators’ initial examinations will focus on industry members’ good faith efforts to ensure compliance with the rule. The CFPB further emphasized that examinations will be “corrective and diagnostic, rather than punitive.” Regarding cure provisions for violations of the rule, the letter states that TRID allows for corrections of specific post-closing errors, such as correcting non-numerical clerical errors and curing violations of monetary tolerance limits, if they exist. Moreover, TILA provisions regarding the corrections of errors will continue to apply to integrated disclosures: “TILA has long permitted creditors to cure violations, provided the creditor notifies the borrower of the error and makes appropriate adjustments to the account before the creditor receives notice of the violation from the borrower. 15 U.S.C. 1640(b).” The CFPB’s letter further advises the MBA that while TRID integrates disclosure requirements under RESPA and TILA, it does not “change the prior, fundamental principles of liability under either TILA or RESPA.”
OCC Releases Quarterly Mortgage Metrics Report Showing Continued Improvement through Third Quarter of 2015
On December 14, the OCC released its quarterly Mortgage Metrics Report. The report shows continued improvement of the mortgage performance of first-lien mortgages during the third quarter of 2015. 93.9% of mortgages included in the report were current and performing at the end of the quarter, compared to last year’s 93%. In addition, 30 to 59 days past due mortgages made up 2.3% of the portfolio, representing a 4.4% decrease from a year earlier, and 60 or more days past due mortgages made up 2.6%, representing a 16.1% decrease. The report also highlights a decline in both foreclosure activity and the need for other loss mitigation actions. The OCC’s report reflects performance data on first-lien residential mortgages serviced by eight national banks maintaining large mortgage-servicing portfolios.
On December 15, the FTC announced stipulated court orders banning four individuals from selling debt relief products and services. According to the FTC, the individuals “promised consumers help getting their mortgages modified, but instead stole their mortgage payments, leading some to foreclosure and bankruptcy.” The FTC’s April 2015 complaint states that the defendants targeted homeowners facing foreclosure and “engaged in a course of conduct to advertise, market, sell, provide, offer to provide, or arrange for others to provide [Mortgage Assistance Relief Services], including loan modifications.” The complaint further alleged that consumers never received modifications, lenders did not receive their trial payments, and consumers’ payments were never refunded. The court orders prohibit the individuals from engaging in the practices they respectively exploited, such as telemarketing, selling credit-related financial products and services, using aliases, and using material misrepresentations and unsubstantiated claims to sell financial products and services. Combined, the individuals will pay more than $6,250,000 in monetary judgments.
On December 14, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s ruling that a 2009 amendment to TILA, which requires creditors to provide borrowers with written notice of the sale or transfer of mortgages, does not apply retroactively. Talaie v. Wells Fargo Bank, No. 13-56314 (9th Cir. Dec. 14, 2015). In the putative class action case, plaintiffs alleged that one of the defendants transferred the deed of trust to the other defendant without providing notice to the borrowers, three years prior to the passage of the TILA amendment. Citing to Supreme Court precedent, the court reasoned that the presumption against retroactive legislation is “deeply rooted in our jurisprudence,” which can only be overcome by a clear and unambiguous Congressional intent. Id (citing Landgraf v. USI Film Prods., 511 U.S. 244, 265 (1994)). Applying Landgraf, the Ninth Circuit held that retroactive application here would (i) impair defendants’ rights at the time when they acted because they could do so without providing notice to the borrowers; (ii) increase the defendants’ “liability for past conduct”; and (iii) impose “new duties” on transactions already completed. The Ninth Circuit further concluded that Congress did not demonstrate a clear or unambiguous intention for the 2009 amendment to be given retroactive effect.
On December 2, a Florida court of appeals issued a decision reinforcing and clarifying the state’s lien priority law. U.S. Bank Nat’l Ass’n v. Grant, No. 4D14-979 (Fla. Dist. Ct. App., Dec. 2). At issue in the case was whether a homeowner’s association (HOA) lien on real property took priority over a mortgagee’s lien on the same property, where the mortgage was recorded prior to the association’s delinquency lien against the homeowners, but after the recording of the Declaration of Covenants and Restrictions for the HOA. The court held that the HOA lien did not take priority over the mortgage lien because, under Florida common law applicable to liens filed prior to July 1, 2007, the HOA lien could only relate back to the filing of the earlier declaration if the declaration “contain[s] specific language indicating that the lien relates back to the date of the filing of the declaration or that it otherwise takes priority over intervening mortgages.” In this case, the declaration did not contain the required language to put parties on notice of ongoing, automatic liens until the payment of periodic HOA fees. Therefore, the HOA lien did not relate back to the filing of the declaration to give the HOA lien priority over the mortgagee’s lien.
Now more than ever, financial services firms need to proactively focus on issues of concern identified by the CFPB and ensure that they are engaged in industry best practices that are clearly identified and carefully monitored. In the mortgage originations sphere, the new TRID/ KBYO rule, MSAs, LO compensation, UDAAP, and fair lending are all issues for companies to focus on in the coming year.
Compliance with the new TILA-RESPA Integrated Disclosure/Know Before You Owe (TRID/KBYO) rule will likely be an area of Bureau concern in 2016. The rule took effect on October 3, 2015 and does not include a “hold harmless” period for errors as lenders implement the new disclosure requirements, although letters from the OCC, FDIC, and CFPB have clarified that regulators will focus in the beginning on institutions’ implementation plans, training, and handling of early technical problems. It is likely that the CFPB will require remediation back to the rule’s compliance date when it identifies tangible consumer harm, but it is unlikely that the Bureau will bring enforcement actions initially based on technical issues where there is no tangible consumer harm.
GSEs have also issued letters stating they will not perform TRID/KBYO compliance file reviews at the beginning of the implementation period. The GSEs further stated that it will not exercise its repurchase and other remedies unless (1) a required form is not used or (2) a practice would impair its enforcement of its rights against borrowers. In contrast, the FHA has stated that it expects lenders to comply with “all federal, state, and local laws, rules, and requirements applicable to the mortgage transaction as outlined in [the] FHA Handbook….” Read more…
On December 9, FHA announced new maximum loan limits for forward mortgages for 2016 in 188 counties due to changes in housing prices. The new loan limits for forward mortgages are effective for case numbers assigned on or after January 1, 2016 through the end of the year. FHA noted that no areas saw a decrease in the maximum loan limits for forward mortgages and that, as detailed in Mortgagee Letter 2015-30, the national standard loan limits for low cost and high cost areas remain unchanged at $271,050 and $625,500, respectively.