Special Alert: CFPB Issues Guidance On Supervision And Enforcement Of Mini-Correspondent Lenders

This afternoon, the CFPB issued policy guidance on supervision and enforcement considerations relevant to mortgage brokers transitioning to mini-correspondent lenders. The CFPB states that it “has become aware of increased mortgage industry interest in the transition of mortgage brokers from their traditional roles to mini-correspondent lender roles,” and is “concerned that some mortgage brokers may be shifting to the mini-correspondent model in the belief that, by identifying themselves as mini-correspondent lenders, they automatically alter the application of important consumer protections that apply to transactions involving mortgage brokers.”

The guidance describes how the CFPB evaluates mortgage transactions involving mini-correspondent lenders and confirms who must comply with the broker compensation rules, regardless of how they may describe their business structure. In announcing the guidance, CFPB Director Richard Cordray stated that the CFPB is “putting companies on notice that they cannot avoid those rules by calling themselves by a different name.”

The CFPB is not offering an opportunity for the public to comment on the guidance. The CFPB determined that because the guidance is a non-binding policy document articulating considerations relevant to the CFPB’s exercise of existing supervisory and enforcement authority, it is exempt from the notice and comment requirements of the Administrative Procedure Act. Read more…

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Special Alert: CFPB Guidance States That Successors Are Not Subject to the ATR/QM Rule

On July 8, the CFPB issued an interpretive rule stating that the addition of a successor as an obligor on a mortgage does not trigger the Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule) requirements if the successor previously received an interest in the property securing the mortgage by operation of law, such as through inheritance or divorce.  Creditors may rely on the interpretive rule as a safe harbor under section 130(f) of TILA.

In adopting the interpretations described below, it appears that the CFPB primarily intended to respond to inquiries from the industry and consumer advocates about situations where one family member inherits a home from another and, in order to keep the home, requests to be added to the mortgage and to modify its terms, such as by reducing the rate or payments.

Click here to view the special alert.

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Questions regarding the matters discussed in the 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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BuckleySandler Achieves Landmark Settlement in Navajo Nation Breach of Trust Lawsuit Against United States

WASHINGTON (June 1, 2014)BuckleySandler LLP is proud to announce that it has obtained a $554 million settlement on behalf of its client the Navajo Nation. The settlement resolves the Nation’s landmark lawsuit alleging that the U.S. had breached its historical fiduciary obligations by failing to manage, invest and account for tribal trust funds and resources under the custody and control of the U.S. in a manner that would maximize the financial return from those assets.  This is the largest settlement obtained in any action by a single Tribe against the U.S. and exceeds, by more than $170 million, the largest single resolution in the more than 100 natural resource breach of trust cases filed against the U.S. by American Indian Tribes. Read more…

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Special Alert: VA Adopts Its QM Rule

On May 9, 2014, the Department of Veterans Affairs (VA) issued an interim final rule defining what constitutes a “qualified mortgage” (QM) for purposes of the loans it guarantees, insures, or originates. The VA stated that, to quell persistent uncertainty among lenders regarding the treatment of VA loans under the temporary QM definition established by the Consumer Financial Protection Bureau, it was adopting a rule designating all VA loans as QMs and all VA loans other than a subset of VA streamlined refinancings as safe harbor QMs.

Click here to view our special alert.

Questions regarding the matters discussed in the 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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Special Alert: CFPB Proposes Amendments To Mortgage Rules

On April 30, the Consumer Financial Protection Bureau (CFPB or Bureau) proposed targeted amendments to the Dodd-Frank Act mortgage rules that took effect in January 2014. Comments are due 30 days after publication of the proposal in the Federal Register.

Ability-to-Repay/Qualified Mortgage

  • Points and fees cure. The CFPB proposed a post-consummation cure mechanism for loans that are originated with the good faith expectation of qualified mortgage (QM) status but exceed the points and fees limit for QMs. Specifically, the Bureau’s proposal would allow the loan to retain QM status if the excess points and fees are refunded to the borrower within 120 days after consummation by the creditor or assignee.

    In proposing this amendment, the Bureau acknowledged that “[t]he calculation of points and fees is complex and can involve the exercise of judgment that may lead to inadvertent errors.” The Bureau further acknowledged that “some creditors may not originate, and some secondary market participants may not purchase, mortgage loans that are near the [QM] limits on points and fees because of concern that the limits may be inadvertently exceeded at the time of consummation.” As a result, creditors seeking to originate QMs may establish buffers to avoid exceeding the points and fees limit and “refuse to extend mortgage credit to consumers whose loans would exceed the buffer threshold, either due to the creditors’ concerns about the potential liability attending loans originated under the general ability-to-repay standard or the risk of repurchase demands from the secondary market if the qualified mortgage points and fees limit is later found to have been exceeded.” The Bureau expressed concern that such buffers would negatively affect the cost and availability of credit.

Read more…

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Special Alert: Supreme Court To Hear TILA Rescission Case

On April 28, the U.S. Supreme Court granted certiorari in Jesinoski v. Countrywide Home Loans, Inc., No. 13-684, an appeal of the U.S. Court of Appeals for the Eighth Circuit’s September 2013 holding that a borrower seeking to rescind a loan transaction under TILA must file suit within three years of consummating the loan, and that written notice within the three-year rescission period is insufficient to preserve a borrower’s right of rescission.

TILA Section 1635 grants borrowers the right to rescind a transaction “by notifying the creditor” and provides that a borrower’s “right of rescission shall expire three years after the date of consummation of the transaction” even if the “disclosures required . . . have not been delivered.” In Jesinoski, the Eighth Circuit cited its July 2013 holding in Keiran v. Home Capital, Inc., 720 F.3d 721 (8th Cir. Jul. 12, 2013), in which the court reasoned that the text of the statute, as explicated by the Supreme Court in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), established a strict limit on the time for filing suits for rescission. The Eighth Circuit expressly rejected an argument presented in an amicus brief filed by the CFPB that the lender, rather than the obligor, should be required to file suit to prevent rescission. To adopt the CFPB’s position, the court explained, “would create a situation wherein rescission is complete, in effect, simply upon notice from the borrower, whether or not the borrower had a valid basis for such a remedy. Under this scenario, the bank’s security interest would be unilaterally impaired, casting a cloud on the property’s title, an approach envisioned and rejected by Beach.”

In holding in favor of the lender, the Eighth Circuit joined the majority of the circuit courts that have addressed the issue—the First, Sixth, Ninth, and Tenth Circuits all previously have held that a borrower must file suit within the three-year rescission period, while the Third, Fourth, and Eleventh Circuits have held that written notice is sufficient to preserve a borrower’s statutory right of rescission. BuckleySandler filed an amicus brief in Keiran on behalf of a group of industry trade groups, as it has done in three other circuit court cases on this issue.

The Supreme Court now may resolve this circuit split. Like the prior circuit court cases, the Supreme Court’s review of the issue likely will draw attention and briefs from lenders, the CFPB, and consumer groups.

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Special Alert: CFPB Supports Mortgage eClosings and Announces Pilot Program

On April 23, in conjunction with its “Know Before You Owe” initiative, the CFPB hosted a mortgage closing process forum, which featured remarks from Richard Cordray, HUD Secretary Shaun Donovan, consumer advocates, and industry representatives, including BuckleySandler’s David Whitaker.  The Bureau published a report summarizing the results of its Request for Information about the challenges consumers face when closing on a home.  The Bureau identified several “pain points” consumers regularly experience during the closing process.  Consumers reported being frustrated by:

  • The short amount of time they have to review a large number of closing documents, even when they did not understand the terms;
  • The lack of resources capable of providing explanations about closing documents, which are often full of legalese and technical jargon; and
  • Minor errors in paperwork resulting in long delays affecting multiple parties.

The CFPB’s Know Before You Owe rule, which combines the current TILA and RESPA mortgage disclosures, seeks to address several of these concerns by requiring that the new closing disclosure be provided at least three business days prior to closing.  The new rule will be effective August 1, 2015.

At the forum, the CFPB expressed the view that more comprehensive use of electronic records and signatures in residential mortgage closings, or “eClosings”, also have the potential to significantly ameliorate these “pain points.”  To that end, the Bureau released guidelines for an upcoming eClosing pilot project to study how eClosings can benefit consumers and address some of the challenges borrowers face at closing.  Because eClosings offer both benefits and risks, the CFPB’s pilot project will evaluate whether they can increase efficiency and consumer understanding while minimize surprises and delays at the closing table.  The guidelines list the minimum functional requirements of an eClosing platform including capabilities related to data security, workflow, and electronic signature collection.  The Bureau is also interested in testing advanced functionality that will empower consumers to better understand and engage in the closing process, enable and reward early document review, and facilitate the detection and correction of errors in closing documents.  Potential pilot participants must submit proposals as a partnership between a technology vendor providing an eClosing platform and a lender that has contracted to close loans utilizing that platform.

The CFPB was joined at the forum by representatives by the VA, FHA, FHFA, USDA, Ginnie Mae, Freddie Mac and Fannie Mae, all of whom voiced support for expanding the use of electronic records and signatures in mortgage closings.  All of the agencies and GSEs expressed their willingness to collaborate with industry and the CFPB on the eClosing pilot project.

An audio and video recording of the forum will be available at consumerfinance.gov shortly.

For more information on the pilot program and eClosings, call Margo Tank at 202-349-8050, or David Whitaker at 202-349-8059. For more information about the TILA-RESPA integrated disclosures rule, please see BuckleySandler’s Special Alert.

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Special Alert: FHA Announces It Will Accept Electronically-Signed Mortgage Documents

On January 30, HUD issued Mortgagee Letter 2014-03, announcing that FHA will now treat electronic signatures as equivalent to handwritten signatures for certain mortgage documents. The announcement sets forth FHA’s first authorization of electronic signatures on mortgage documents (other than certain third party documents – see Mortgagee Letter 2010-14) and applies to FHA Single Family Title I and II forward mortgages and Home Equity Conversion Mortgages. The announcement is consistent with other government agency initiatives to promote a more streamlined and efficient mortgage process for consumers, particularly through the use of technology such as electronic signatures. Earlier this month, for example, the CFPB issued a request for information containing a questionnaire focused on improving the home loan closing process. “By extending our acceptance of electronic signatures on the majority of single family documents, we are bringing our requirements into alignment with common industry practices,” said FHA Commissioner Carol Galante. “This extension will not only make it easier for lenders to work with FHA, it also allows for greater efficiency in the home-buying and loss mitigation process.”

The announcement indicates that, effective immediately, FHA will accept electronic signatures on (i) any documents associated with servicing or loss mitigation; (ii) any documents associated with the filing of a claim for FHA insurance benefits; (iii) the HUD Real Estate Owned Sales Contract and related addenda; and (iv) all documents included in the case binder for mortgage insurance except the Note.  FHA will begin accepting electronic signatures on the Note for forward mortgages, but not Home Equity Conversion Mortgages, on December 31, 2014. FHA already allows electronic signatures on documents originated and signed outside of the lender’s control, such as the sales contract.

FHA requires lenders that accept electronic signatures to comply with the ESIGN Act (15 U.S.C. §§ 7001-7006). The ESIGN Act mandates that the signer be presented the document before the electronic signature is obtained, that the document is true and correct at the time it is signed, and that the signature is attached to, or logically associated with, the documents being electronically signed. Lenders must also take steps to confirm the identity of the signer as a party to the transaction and to establish that the signature may be attributed to the purported signer. Lenders must have systems in place to ensure that information generated to confirm the identity of signers is secure and that electronically signed documents cannot be altered without detection.

In addition to citing the requirements of ESIGN, FHA sets some more specific requirements for certain elements of the signing process. These include requirements for establishing attribution of the signature and authentication of the signer.  FHA also sets requirements for maintaining audit logs, computer systems, controls and documentation, and making them available for FHA inspection.

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Questions regarding the matters discussed in this alert may be directed to any of the lawyers in our Electronic Signatures and Records practice, or to any other BuckleySandler attorney with whom you have consulted in the past.

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Special Alert: HUD Adopts Its Own QM Rule

On December 11, 2013, the Department of Housing and Urban Development (“HUD”) issued a final rule defining what constitutes a “qualified mortgage” (“QM”) for purposes of loans insured by the Federal Housing Administration (“FHA”). With limited clarifications and adjustments, the rule tracks the proposal issued by HUD in September.  This final rule, which applies to all case numbers assigned on or after January 10, 2014, replaces the temporary QM definition for FHA loans established by the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) in its Ability-to-Repay/Qualified Mortgage Rule (“ATR/QM Rule”).

Loans that qualify as QMs provide lenders with some legal protection against borrower lawsuits under the Truth in Lending Act (“TILA”) alleging the lender did not sufficiently consider the borrower’s ability to repay the loan.  Under HUD’s final rule, most FHA loans will qualify for the QM safe harbor if they have Annual Percentage Rates (“APRs”) that are no more than 2.5 percentage points over the Average Prime Offer Rate (“APOR”) for a comparable transaction (as opposed 1.5 percentage points over APOR in the CFPB’s ATR/QM Rule).

Click here to read our 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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Special Alert: Federal Reserve Board Guidance on Managing Outsourcing Risks Mirrors Recent OCC Guidance

On December 5, 2013, the Federal Reserve Board (FRB or the Fed) issued Supervision and Regulation Letter 13-19, which details and attaches the Fed’s Guidance on Managing Outsourcing Risk  (FRB Guidance).  The FRB Guidance sets forth risks arising out of the use of service providers and the regulatory expectations relating to risk management programs. It is substantially similar to OCC Bulletin 2013-29, which the Office of the Comptroller of the Currency (OCC) issued on October 30, 2013.

The FRB Guidance supplements existing guidance relating to risks presented by Technology Service Providers (TSPs) to reach service providers that perform a wide range of business functions, including, among other things, appraisal management, internal audit, human resources, sales and marketing, loan review, asset and wealth management, procurement, and loan servicing.

While a complete roadmap of the FRB Guidance would be largely duplicative of our recent Special Alert relating to the OCC Bulletin 2013-29, key supervisory and enforcement themes emerge from a comparison of the two guidance documents.  Like the OCC, the Fed signals broadly that failure to effectively manage the use of third-party service providers could “expose financial institutions to risks that can result in regulatory action, financial loss, litigation, and loss of reputation.” The Fed also emphasizes the responsibility of the Board of Directors and senior management to provide for the effective management of third-party relationships and activities.  It enumerates virtually the same risk categories as the OCC, including compliance, concentration, reputational, operational, country, and legal risks, though its discussion of those risks is slightly less comprehensive.

The FRB Guidance makes clear that service provider risk management programs should focus on outsourced activities that are most impactful to the institution’s financial condition, are critical to ongoing operations, involve sensitive customer information, new products or services, or pose material compliance risk. While the elements comprising the service provider risk management program will vary with the nature of the financial institution’s outsourced activities, the Fed’s view is that effective programs usually will include the following: Read more…

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Special Alert: CFPB Finalizes Rule Combining TILA and RESPA Mortgage Disclosures

On November 20, 2013, the CFPB finalized its long-awaited rule combining the mortgage disclosures consumers receive under the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”). For more than 30 years, the TILA and RESPA mortgage disclosures had been administered separately by, respectively, the Federal Reserve Board (“FRB”) and the U.S. Department of Housing and Urban Development (“HUD”).  In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) transferred authority over TILA and RESPA to the Bureau and directed the Bureau to create “rules and model disclosures that combine the disclosures required under [TILA] and sections 4 and 5 of [RESPA], into a single, integrated disclosure for mortgage loan transactions covered by those laws.” Congress did not, however, amend TILA and RESPA provisions governing timing, responsibility, and liability for the disclosures, leaving it to the Bureau to resolve the inconsistencies. The final rule generally applies to covered transactions for which the creditor or mortgage broker receives an application on or after August 1, 2015.

Click here to read our 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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Special Alert: Settlement In Key Fair Housing Case Moves Forward, Supreme Court Unlikely To Hear Appeal

Last night, the Mount Holly, New Jersey Township Council voted to approve a settlement agreement that will resolve the underlying claims at issue in a closely watched Fair Housing Act (FHA) appeal pending before the U.S. Supreme Court, Township of Mount  Holly v. Mt. Holly Gardens Citizens in Action, Inc., No. 11-1507. The agreement is subject to approval by the U.S. District Court for the District of New Jersey, after which we expect that the Supreme Court appeal will be withdrawn.

The Court had agreed to address one of two disparate impact-related questions presented in the appeal—specifically, the threshold question of whether disparate impact claims are cognizable under the FHA. Under current interpretation by several agencies and some Circuit Courts of Appeal, disparate impact theory allows government and private plaintiffs to establish “discrimination” based solely on the results of a neutral policy without having to show any intent to discriminate (or even in the demonstrated absence of intent to discriminate). Though not a lending case, the appeal could have offered the Supreme Court its first opportunity to rule on the issue of whether the FHA permits plain­tiffs to bring claims under a disparate impact theory.

Instead, for the second time in two years, it appears likely that opportunity has been eliminated by a settlement entered shortly before the Court could decide the matter. Last year, the parties in Gallagher v. Magner, 619 F.3d 823 (8th Cir. 2010) similarly settled and withdrew their Supreme Court appeal before the Court had an opportunity to decide the case. The Magner parties’ decision to settle and withdrawal the appeal was followed by numerous congressional inquiries into whether federal authorities intervened to assist the parties in reaching a settlement in order to avoid Supreme Court review of a prized legal theory. One member of Congress has already initiated a similar inquiry with regard to the resolution of Mt. Holly. Read more…

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Special Alert: OCC Updates Third-Party Risk Management Guidance

On October 30, the OCC issued Bulletin 2013-29 to update guidance relating to third-party risk management. The Bulletin, which rescinds OCC Bulletin 2001-47 and OCC Advisory Letter 2000-9, requires banks and federal savings associations (collectively “banks”) to provide comprehensive oversight of third parties, including joint ventures, affiliates or subsidiaries, and payment processors. It is substantially more prescriptive than CFPB Bulletin 2012-3, and incorporates third-party relationship management principles underlying recent OCC enforcement actions.

The Bulletin warns that failure to have in place an effective risk management process commensurate with the risk and complexity of a bank’s third-party relationships “may be an unsafe and unsound banking practice.”  It outlines a “life cycle” approach and provides detailed descriptions of steps that a bank should consider taking at five important stages: Read more…

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Special Alert: Agencies Issue Joint Statement On Fair Lending Compliance And The CFPB’s ATR/QM Rule

On October 22, the CFPB, the OCC, the FDIC, the Federal Reserve Board, and the NCUA (collectively, the Agencies) issued a joint statement (Interagency Statement) in response to inquiries from creditors concerning their liability under the disparate impact doctrine of the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B by originating only “qualified mortgages.”  Qualified mortgages are defined under the CFPB’s January 2013 Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule).  The DOJ and HUD did not participate in the Interagency Statement.

The Interagency Statement describes some general principles that will guide the Agencies’ supervisory and enforcement activities with respect to entities within their jurisdiction as the ATR/QM Rule takes effect in January 2014.  The Interagency Statement does not state that a creditor’s choice to limit its offerings to qualified mortgage loans or qualified mortgage “safe harbor” loans would comply with ECOA; rather, the Agencies state that they “do not anticipate that a creditor’s decision to offer only qualified mortgages would, absent other factors, elevate a supervised institution’s fair lending risk.”  Furthermore, the Interagency Statement will not necessarily preclude civil actions. Read more…

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Special Alert: CFPB ISSUES MORTGAGE SERVICING RULE AMENDMENTS AND GUIDANCE ADDRESSING CONFLICTS WITH BANKRUPTCY AND DEBT COLLECTION RULES

On October 15, the CFPB issued an interim final rule amending certain provisions of its mortgage servicing rules and making technical changes to other January 2013 mortgage rules (the Interim Amendments). As explained in our Special Alert, the amendments address issues raised by bankruptcy trustees and industry about the incompatibility of the servicing rules with protections afforded to consumers by bankruptcy law and the FDCPA. The CFPB also issued a bulletin providing guidance on other aspects of the servicing rules and an advisory opinion on the interaction between the rules and the FDCPA. In addition, on October 16, CFPB staff provided unofficial oral guidance on specific questions about the mortgage servicing rules in a webinar hosted by the Mortgage Bankers Association.  BuckleySandler attorneys attended the webinar and can address any questions you may have.

Like the mortgage servicing rules, the Interim Amendments will take effect on January 10, 2014. The CFPB issued the Interim Amendments without advance notice and public comment because of the impending effective date. The public will have 30 days to provide comments after publication of the amendments in the Federal Register (which has not yet occurred). After the comment period, the CFPB may make adjustments to the Interim Amendments before adopting them in final form.

Questions regarding the matters discussed in this Special 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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