FDIC Announces Video Series to Help Banks Comply with CFPB Mortgage Rules

On November 19, the FDIC announced its first in a series of three videos developed to assist bank employees in ensuring their mortgage lending practices comply with the Bureau Mortgage Rules. As noted in its press release, the first video covers the ATR/QM Rule. Additional videos regarding CFPB mortgage rules are expected to be released at a later time. Those videos will cover mortgage servicing and loan originator compensation. Also available from FDIC as part of its Technical Assistance Video Program are videos addressing (i) issues for new bank directors and (ii) specific technical subjects to help train bankers.

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Nevada District Court Bars Foreclosure Sale of First Lien HUD-Insured Mortgage

Recently, a federal district court held that a homeowners association (HOA) foreclosure sale is not valid against HUD-insured loans. The District Court noted that the Ninth Circuit has held that federal rather than state law applies in cases involving FHA-insured mortgages to assure the protection of the federal program against loss, state law notwithstanding. The court reasoned, therefore, that in situations where a mortgage is insured by a federal agency under the FHA insurance program, state laws cannot operate to undermine the federal agency’s ability to obtain title after foreclosure and resell the property. Because an HOA foreclosure on property insured under the FHA insurance program would have the effect of limiting the effectiveness of the remedies available to the United States, the District Court held that the Supremacy Clause of the U.S. Constitution bars such foreclosure sales and renders them invalid. Washington & Sandhill Homeowners Association v. Bank of America and HUD, U.S. Dist. Ct., District of Nevada, No. 2:13-cv-01845-GMN-GWF (Sept. 25, 2014).

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CFPB Fines Mortgage Lender for Violating Loan Originator Compensation Rule

On November 13, the CFPB ordered a residential mortgage lender to pay $730,000 for violating the Loan Originator Compensation Rule. According to the complaint filed by the CFPB, from June 2011 to October 2013, the mortgage lender paid quarterly bonus payments totaling $730,000 to 32 loan officers based in part on the interest rates of the originated loan. The rule, which has been enforced by the CFPB since July 2011, prohibits mortgage lenders from paying loan officers based on loan terms such as interest rates. As part of the consent order, the mortgage lender agreed to end its current compensation practice and pay $730,000 to affected consumers. The CFPB did not seek a civil penalty.

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NCUA Sues National Bank

On November 10, the NCUA announced the filing of a complaint against a large national bank for its alleged failure to fulfill its duties as a trustee for 121 residential mortgage-backed securities trusts. The NCUA claimed that the bank failed to comply with state and federal laws – Trust Indenture Act of 1939, and the Streit Act – establishing the trustee’s duties to trust beneficiaries. Specifically, NCUA accused the bank of not notifying corporate credit unions of defects in their mortgage loans, which prevented the repurchase, substitution, or cure of defective mortgage loans. NCUA further alleged that the bank’s lack of action contributed to the failure of the credit unions.

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Senate Banking Committee To Hold Oversight Hearing of FHFA

On November 19, the Senate Banking Committee will hold an oversight hearing, “The Federal Housing Finance Agency: Balancing Stability, Growth, and Affordability in the Mortgage Market.” FHFA Director Melvin Watt is a scheduled witness and will give the opening remarks.

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FHFA Announces First CEO For Common Securitization Solutions, LLC

On November 3, FHFA Director Mel Watt announced David Applegate as the CEO for Common Securitization Solutions, LLC (CSS). As detailed in FHFA’s 2014 Strategic Plan for the Conservatorships, the creation of CSS furthers the goal to build a new securitization infrastructure to meet the needs of Fannie and Freddie. Prior to being named to the CEO post at CSS, Applegate served as the President, CEO of Homeward Residential, Inc. In addition, Applegate previously served as an executive with GMAC Mortgage and GMAC Bank. CSS was created by both Fannie and Freddie to operate a new secondary mortgage infrastructure, Common Securitization Platform. The platform is intended to replace certain elements of the GSEs’ proprietary system with regards to securitizing mortgages and performing back-office administrative functions.

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Federal Court Vacates HUD Disparate Impact Rule

On November 3, the United States District Court for the District of Columbia vacated HUD’s Disparate Impact Rule under the Fair Housing Act (FHA). The court, in American Insurance Association v. United States Department of Housing and Urban Development, held that “the FHA prohibits disparate treatment only,” and therefore HUD, in promulgating the Disparate Impact Rule, “exceeded [its] authority under the [Administrative Procedures Act].” (Emphasis in original.)

In the Disparate Impact Rule, HUD provided that “[l]iability may be established under the Fair Housing Act based on a practice’s discriminatory effect . . . even if the practice was not motivated by a discriminatory intent.” 24 C.F.R. § 100.500. It then articulated a burden shifting framework for such claims. Id. § 100.500(c)(1)-(3). In vacating HUD’s Disparate Impact Rule, the court reviewed the text of the FHA and concluded that “the FHA unambiguously prohibits only intentional discrimination.” (Emphasis in original.) The court explained that the FHA lacks the “effects-based language” that makes disparate impact claims cognizable under other anti-discrimination statutes. The court reasoned that this lack of effects-based language created “an insurmountable obstacle to [HUD’s] position regarding the plain meaning of the Fair Housing Act.” The court further reasoned that this textual reading is consistent with the FHA’s statutory scheme and, in the case of insurance products, required by the McCarran-Ferguson Act.

Read more…

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Jesinoski Case Raises TILA Questions

On November 4, the Supreme Court heard oral arguments in Jesinoski v. Countrywide Home Loans, Inc., No. 13-648, to resolve a circuit split on whether under TILA a borrower who has provided notice of rescission within three years must also file a lawsuit within that three-year period, or whether such a borrower may file a lawsuit even after the three-year period lapses. In the court below, the Eighth Circuit Court of Appeals agreed with the creditor that a borrower must file suit within three years to rescind a loan under TILA. As noted in BuckleySandler attorneys’ November 4 article, Justices’ Questioning In Jesinoski May Be Cause For Concern, during oral arguments the Justices closely questioned counsel on the statutory text. While lawyers for the borrowers and the Department of Justice met with little opposition from the bench, the Justices struggled with the argument advanced by counsel for the creditor. Ultimately, as discussed in BuckleySandler’s article, “Questions from both conservative and liberal judges suggest that both camps may be more receptive to the textual reading advanced by the Jesinoskis.” BuckleySandler attorneys also filed an amici curiae brief on behalf of industry groups in this case.

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Webinar Recap: Discussing “The New CFPB Mortgage Origination Rules Deskbook”

On October 28, 2014, BuckleySandler presented the webinar “Discussing The New CFPB Mortgage Origination Rules Deskbook.” Author Joe Reilly and contributors Joseph Kolar and Ben Olson discussed the need for the book and highlighted information from specific chapters. The webinar was moderated by Jeffrey Naimon. This webinar recap covers the highlights from their discussion. For more information about the CFPB Deskbook, including information on obtaining hard copies, email [email protected].

The purpose of the CFPB Deskbook is simple – consolidate in a clear, organized format, material from all of the many sources of regulatory guidance on the Consumer Financial Protection Bureau’s (CFPB) mortgage origination rules. Reilly described the CFPB rulemaking, done in such a short period of time, as “herculean.” However, this short time frame created a major need for clarifications, leading to the development of numerous non-rule sources.

“The number of sources [actual rules, preamble language, CFPB webinars, CFPB Small Entity Compliance Guides and more] cried out for a one-stop shop and that’s what I tried to create,” said Reilly.

Olson, former Deputy Assistant Director for the Office of Regulations at the CFPB, helped write many of the rules discussed in the CFPB Deskbook and finds a great deal of valuable in the book.

“You always wish after you publish a rule that you had said more,” said Olson. “The Bureau has tried to answer some of those questions, but answers can be hard to find. If the Bureau says something about it, it’s in the Deskbook.” Read more…

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Special Alert: Federal Court Vacates HUD’s Disparate Impact Rule

Today, the United States District Court for the District of Columbia vacated HUD’s Disparate Impact Rule under the Fair Housing Act (FHA).  The court, in American Insurance Association v. United States Department of Housing and Urban Development, held that “the FHA prohibits disparate treatment only,” and therefore HUD, in promulgating the Disparate Impact Rule, “exceeded [its] authority under the [Administrative Procedures Act].”  (emphasis in original).

In the Disparate Impact Rule, HUD provided that “[l]iability may be established under the Fair Housing Act based on a practice’s discriminatory effect . . . even if the practice was not motivated by a discriminatory intent.”  24 C.F.R. § 100.500.  It then articulates a burden shifting framework for such claims.  Id. § 100.500(c)(1)-(3).
Read more…

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CFPB Report Highlights Errors In Mortgage And Student Loan Servicing

On October 28, the CFPB released the fifth edition of its Supervisory Highlights report. The report highlighted the CFPB’s recent supervisory findings of regulatory violations and UDAAP violations relating to consumer reporting, debt collection, deposits, mortgage servicing and student loan servicing. The report also provided updated supervisory guidance regarding HMDA reporting relating to HMDA data resubmission standards.  With respect to consumer reporting, the report identified a variety of violations of FCRA Section 611 regarding dispute resolution.  The report noted findings of several FDCPA and UDAAP violations in connection with debt collection, including: (i) unlawful imposition of convenience fees; (ii) false threats of litigation; (iii) improper disclosures to third parties; and (iv) unfair practices with respect to debt sales.  For deposits, the report identified several Regulation E violations found, including: (i) error resolution violations; (ii) liability for unauthorized transfers; and (iii) notice deficiencies.   The report outlines four main compliance issues identified in the mortgage servicing industry: (i) new mortgage servicing rules regarding oversight of service providers; (ii) delays in finalizing permanent loan modifications;  (iii)  misleading borrowers about the status of permanent loan modifications; and (iv) inaccurate communications regarding short sales. Finally, the report outlines six practices at student loan servicers that could constitute UDAAP violations: (i) allocating the payments borrowers make to each loan, which results in minimum late fees on all loans and inevitable delinquent statuses; (ii) inflating the minimum payment due on periodic and online account statements; (iii) charging late fees when payments were received during the grace period; (iv) failing to give borrowers accurate information needed to deduct loan interest payments on tax filings; (v) providing false information regarding the “dischargeable” status of a loan in bankruptcy; and (vi) making  debt collection calls to borrowers outside appropriate hours.

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Fed Ends QE3

On October 29, the FOMC released its policy statement announcing an end to the Fed’s mortgage and treasury bond purchase program used to boost the economy. Quantitative Easing 3 (QE3) was the third in a series of subsequent monetary policy tools used to spur investing and spending in part by keeping long-term interest rates low. The end of QE3 marks a significant milestone in the post-crisis era. Regarding the end of QE3, the FOMC noted that it had seen “a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month.”

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Ohio Appeals Court Rules Documents Flawed, Reverses Previous Foreclosure Judgment

On October 22, the Ninth District Court of Appeals reversed a summary judgment decision allowing a trust unit of a bank to foreclose on a home. In this case, the loan servicers were unable to prove who held the promissory note when the trust unit requested a foreclosure order from the trial court. Employees at both servicers failed to attach records relied upon in their respective affidavits, but rather provided copies of the promissory note, mortgage, and the assignment of the mortgage. The Court held that the copies “do not establish when or if the Bank came into possession of the Note or that the Bank was in possession of the Note at the time of the filing of the complaint.” Deutsche Bank Natl. Trust Co. v. Dvorak, 2014-Ohio-4652 29, Ohio. Ct. App., 27120 (Oct.22, 2014)

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New York Appeals Court Clarifies Law on Out-of-State Affidavits

Recently, the New York Appellate Division held an affidavit supporting an Oklahoma bank’s motion to foreclose a New York mortgage conformed to New York statutory requirements. An affidavit acknowledged out of state must be accompanied by a certificate of conformity under N.Y. Civil Practice Law and Rules §2309(c), providing that an oath taken outside New York is treated as if taken in New York if accompanied by a certificate required to entitle a deed to be recorded in New York. Oaths acknowledged outside New York by non-New York notaries require a certificate of conformity in substantially the form set out in Real Property Law §309-b. Here, an affidavit of the holder’s senior foreclosure litigation specialist established the mortgage, the default and assignment of the mortgage. It was accompanied by a “Uniform, All Purpose Certificate of Acknowledgment” which substantially conformed to Real Property Law §309-b. The borrowers did not oppose the motion to foreclose; the holder was therefore entitled to judgment. Midfirst Bank v. Agho, 991 N.Y.S.2d 623 (Aug. 13, 2014).

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POSTED IN: Mortgages, State Issues

Special Alert: CFPB Finalizes Points-and-Fees Cure and Other Mortgage Rule Amendments

Last week, the CFPB finalized an important amendment to its ATR/QM Rule that provides a mechanism for curing points-and-fees overages on qualified mortgage (“QM”) loans, as well as more minor amendments to its mortgage origination and servicing rules.  The new rules, which were proposed in April, are detailed below.  The discussion below regarding the new origination rules, including the points-and-fees cure, will also appear with the American Bankers Association/BuckleySandler publication, The New CFPB Mortgage Origination Rules Deskbook.  (Click here for information about obtaining copies of the Deskbook.)

Click here to view the full special alert.

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.

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