On September 13, the DOJ announced a $52.4 million settlement with a top 20 bank to resolve allegations that it violated the False Claims Act by knowingly originating and accepting FHA-insured mortgage loans that did not comply with HUD origination, underwriting, and quality control requirements. It is the smallest settlement of a False Claims Act FHA-insured mortgage loans case against a bank to date as part of the government’s recent enforcement initiative in this area. According to the Statement of Facts issued as part of the settlement agreement, from January 1, 2006 through December 31, 2011 (relevant time period), the bank, while acting as a direct endorsement lender (DEL) in the FHA program, (i) certified certain mortgage loans for FHA insurance that failed to meet HUD underwriting requirements regarding borrower creditworthiness; (ii) failed to adhere to various HUD quality control requirements; and (iii) failed to adhere to HUD’s self-reporting requirements. The DOJ noted that the “claims asserted against [the bank] are allegations only, and there has been no determination of liability.” BuckleySandler represented the bank in this matter.
On September 15, the FDIC announced two new resources intended to provide community bankers with information on federal housing programs: the Affordable Mortgage Lending Guide, Part I: Federal Agencies and Government Sponsored Enterprises and the Affordable Mortgage Lending Center. The FDIC released the guide in response to feedback from community bankers, who claimed “they did not understand the wide array of federal housing programs.” The purpose of the resource center, according to the FDIC, is to assist community bankers “[to] compare a variety of current affordable mortgage programs and to identify the next steps if they seek to expand or initiate affordable mortgage lending.” The FDIC plans to release Part II, State Housing Finance Agencies, and Part III, Federal Home Loan Banks, of the guide at a later date this year.
On July 11, the California Department of Business and Oversight (DBO) published its 2015 Annual Report: Operation of Lenders and Servicers under the California Residential Mortgage Lending Act, which compiles consolidated data from unaudited annual reports filed by mortgage lenders and servicers licensed under the California Residential Mortgage Lending Act. Notably, the report identifies a significant increase in the number and aggregate principal amount of mortgage loans that were originated by such licensees in 2015 as compared to 2014 (an increase of 47.3 percent and 56.7 percent, respectively). Additionally, among other things, the aggregate principal amount of mortgage loans serviced by such licensees increased each month in 2015 compared to 2014 (by 7.4 percent), while the number of foreclosures reported by such licensees somewhat decreased in 2015 compared to 2014 (by 3.6 percent).
On June 30, the CFPB released its twelfth edition of Supervisory Highlights providing supervisory observations from its examiners in the areas of auto origination, debt collection, mortgage origination, small-dollar lending, and fair lending. In the area of auto origination, examiners determined that one or more institutions engaged in deceptive advertising practices related to the benefits of gap coverage products and the effects of payment deferrals, and failed to implement adequate compliance management systems. In the area of debt collection, examiners found that debt sellers sold thousands of debts that were unsuitable for sale because: (i) the accounts were in bankruptcy; (ii) the debts were the product of fraud; or (iii) the accounts had been paid in full. CFPB examiners further observed violations of the Fair Debt Collection Practices Act (FDCPA), determining that at least one collector falsely represented to consumers that a down payment was necessary in order to establish a repayment arrangement, when no such down payment was required by the collectors’ policies and procedures. For mortgage origination, CFPB examiners focused on compliance with provisions of CFPB’s Title XIV rules, the Truth in Lending Act (TILA), as implemented by Regulation Z, and the Real Estate Settlement Procedures Act (RESPA), as implemented by Regulation X, disclosure provisions, and other applicable consumer financial laws. Read more…
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…