CFPB Proposes Changes to Mortgage Rules for Small Lenders

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.

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FHFA Director Testifies on the Hill

On January 27, FHFA Director Mel Watt testified at a House Financial Services Committee hearing. In prepared remarks, Watt mentioned the strengthened balance sheet of the GSEs since being placed into conservatorship, recent policy announcements, and future priorities for the agency.

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Mortgage Servicer Settles with California Regulator

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.

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Indiana Court of Appeals Reverses “E-Mortgage” Decision

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).

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House Financial Services Committee Approves Agenda for 114th Congress

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.

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NY Attorney General Announces Agreement To End Bank’s Alleged Mortgage Redlining

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.

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Supreme Court Hears Oral Arguments on Fair Housing Act Disparate Impact Case

On January 21, the U.S. Supreme Court heard oral arguments in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, in which Texas challenged the disparate impact theory of discrimination under the Fair Housing Act (FHA). In their questions to counsel, the Justices focused on (i) whether the phrase “making unavailable” in the FHA provides a textual basis for disparate impact, (ii) whether three provisions of the 1988 amendments to the FHA demonstrate congressional acknowledgement that the FHA permits disparate impact claims, and (iii) whether the Court should defer to HUD’s disparate impact rule. The Court is expected to issue its ruling by the end of June. For more information on the oral argument, please refer to our previously issued Special Alert.

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Large National Bank Faces Class Action Suit Over Alleged SCRA Violations

On January 15, an Army Reserve sergeant filed a class action suit against a large national bank for allegedly violating the SCRA limitation on a lender’s ability to foreclose on an active duty service member’s property. According to the complaint, the bank violated the law by foreclosing on the plaintiff’s home and seizing personal property while the sergeant was on active duty. Wensel et al v. The Bank of New York, No 2:15-cv-00068, (W.D. Penn. Jan. 15, 2015)

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Special Alert: Supreme Court Hears Oral Arguments on Fair Housing Act Disparate Impact Case

This morning, the Supreme Court heard oral arguments in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, in which Texas challenged the disparate impact theory of discrimination under the Fair Housing Act (FHA).  Twice before, the Court granted certiorari on this issue, but in both cases the parties reached a settlement prior to oral arguments.

As described further below, in their questions to counsel, the Justices focused on (i) whether the phrase “making unavailable” in the FHA provides a textual basis for disparate impact, (ii) whether three provisions within the 1988 amendments to the FHA demonstrate congressional acknowledgement that the FHA permits disparate impact claims, and (iii) whether they should defer to HUD’s disparate impact rule.

Read more…

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Special Alert: CFPB Finalizes Amendments to TILA-RESPA Integrated Mortgage Disclosures

On January 20, 2015, the CFPB finalized amendments to the TILA-RESPA Integrated Disclosure (“TRID”) rule that make a number of amendments, clarifications, and corrections, including:

  • Relaxing the redisclosure requirements after a rate lock.  The final rule permits creditors to provide a revised Loan Estimate within three business days after an interest rate is locked, instead of the current requirement to provide the revised Loan Estimate on the date the rate is locked (and instead of the proposed rule that would have allowed only one business day)
  • Creating room on the Loan Estimate for the disclosure that must be provided on the initial Loan Estimate as a condition of issuing a revised estimate for construction loans where the creditor reasonably expects settlement to occur more than 60 days after the initial estimate is provided
  • Adding the Loan Estimate and Closing Disclosure to the list of loan documents that must disclose the name and NMLSR ID number of the loan originator organization and individual loan originator under 12 C.F.R. § 1026.36(g)
  • Providing additional guidance related to the disclosure of escrow accounts, such as when an escrow account is established but escrow payments are not required with a particular periodic payment or range of payments
  • Clarifying that, consistent with the requirement for the Loan Estimate, the addresses for all properties securing the loan must be provided on the Closing Disclosure, although an addendum may be used for this purpose

Read more…

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CFPB Unveils Know Before You Owe “Owning A Home” Initiative

On January 13, the CFPB published a report based on results from its recent survey of consumers who had recently taken out new mortgages. The survey, jointly conducted by the CFPB and the FHFA, found that (i) almost half of consumers who take out a mortgage fail to shop around prior to application; (ii) three out of four consumers only apply with one lender or broker; (iii) 70% of consumers report relying on their lender or broker to get information about mortgages; and (iv) consumers who are knowledgeable about the mortgage process are more likely to shop around for loans. Along with the survey results, and as part of the CFPB’s Know Before You Owe initiative, the Bureau unveiled an interactive online tool called “Owning a Home,” which is designed to inform consumers shopping for a mortgage. The tool takes the borrower from the start of the home-buying process — with a guide to loan options, terminology, interest rates and costs — to the closing table with a closing checklist.

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Supreme Court Holds That Notice of Rescission Is Sufficient For Borrowers to Exercise TILA’s Extended Right to Rescind

As previously reported in our January 15 Special Alert, the Supreme Court held in Jesinoski v. Countrywide Home Loans, Inc. that a borrower seeking to rescind a loan pursuant to the Truth In Lending Act’s (“TILA’s”) extended right of rescission need only submit notice to the creditor within three years to comply with the three-year limitation on the rescission right. TILA gives certain borrowers a right to rescind their mortgage loans. Although that right typically lasts only for three days from the time the loan is made, 15 U.S.C. § 1635(a), it can extend to three years if the creditor fails to make certain disclosures required by TILA, 15 U.S.C. § 1635(f). Petitioners in the case had mailed a notice of rescission to Respondents exactly three years after the loan was made and Respondents responded shortly thereafter by denying that Petitioners’ had a right to rescind. A year after submitting their notice of rescission—four years after the loan was made—Petitioners filed a lawsuit seeking a declaration of rescission and damages. In his opinion for the unanimous Court, Justice Scalia stated that the statutory language “leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. It follows that, so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely.” BuckleySandler submitted an amicus curiae brief in the case on behalf of industry groups, arguing that notice alone is insufficient to effectuate rescission under Section 1635(f).

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Special Alert: Supreme Court Holds That Notice of Rescission is Sufficient For Borrowers to Exercise TILA’s Extended Right to Rescind

The Supreme Court on January 13, 2015 held in Jesinoski v. Countrywide Home Loans, Inc. that a borrower seeking to rescind a loan pursuant to the Truth In Lending Act’s (“TILA’s”) extended right of rescission need only submit notice to the creditor within three years to comply with the three-year limitation on the rescission right. TILA gives certain borrowers a right to rescind their mortgage loans. Although that right typically lasts only for three days from the time the loan is made, 15 U.S.C. § 1635(a), it can extend to three years if the creditor fails to make certain disclosures required by TILA, 15 U.S.C. § 1635(f). Petitioners in the case had mailed a notice of rescission to Respondents exactly three years after the loan was made and Respondents responded shortly thereafter by denying that Petitioners’ had a right to rescind. A year after submitting their notice of rescission—four years after the loan was made—Petitioners filed a lawsuit seeking a declaration of rescission and damages.

The Court’s opinion resolved a circuit split over whether borrowers exercising their right to rescind certain loans pursuant to Section 1635(f) must file a lawsuit to rescind their loans within the three-year period set forth in that section or can satisfy the timing requirements by merely submitting notice of rescission to the creditor. In his opinion for the unanimous Court, Justice Scalia stated that the statutory language “leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. It follows that, so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely.” The Court rejected Respondents’ argument that a court must be involved in a rescission under Section 1635(f). Read more…

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FHA Reduces Annual Insurance Premiums

On January 8, HUD announced that the Federal Housing Administration (FHA) will reduce the annual insurance premiums new borrowers pay by 50 basis points. This policy initiative is intended to boost FHA lending, and FHA projects that, as a result of the policy change, 250,000 new homebuyers will purchase their first home over the next three years.

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CFPB Increases Asset-Size Thresholds Under HMDA and TILA

On December 29, the CFPB published final rules adjusting the asset-size thresholds under HMDA (Regulation C) and TILA (Regulation Z). Both rules take effect on January 1, 2015.

HMDA requires certain lenders to collect and report data about mortgage application, origination, and purchase activity, and to make such data available to the public. Institutions with assets below certain dollar thresholds are exempt from the HMDA collection and reporting requirements. The final rule increases the asset-size exemption threshold for banks, savings associations, and credit unions from $43 million to $44 million, thereby exempting institutions with assets of $44 million or less as of December 31, 2014, from collecting and reporting HMDA data in 2015.

TILA, among other things, require creditors to establish escrow accounts when originating higher-priced mortgage loans (HPMLs). However, TILA exempts certain entities from this requirement, including entities with assets below the asset-size threshold established by the CFPB. The final rule increases this asset-size exemption threshold from $2.028 billion to $2.060 billion, thereby exempting creditors with assets of $2.060 billion or less as of December 31, 2014, from the requirement to establish escrow accounts for HPMLs in 2015.

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