CFPB And Federal Reserve To Co-Host Third TILA-RESPA Disclosure Webinar

On October 1, the CFPB and the Federal Reserve will co-host a webinar on the TILA-RESPA Integrated Disclosures rule. By consolidating the existing mortgage disclosures required under TILA and RESPA, the integrated rule is intended to “make it easier for consumers to understand and locate key information,” while also integrating “the substantive and procedural requirements for providing these disclosures to consumers.” The webinar will address (i) questions regarding rule interpretation and implementation challenges that creditors, mortgage brokers, and others have raised to the Bureau; (ii) issues regarding how to complete the Loan Estimate; and (iii) portions of the Closing Disclosure. BuckleySandler provided a transcript of the second TILA-RESPA Disclosure webinar, which the CFPB hosted on August 26.

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Unofficial Transcripts of the Joint CFPB/Federal Reserve TILA-RESPA Integrated Disclosures Webinar

To address frequently asked questions regarding the TILA-RESPA Integrated Disclosure Rules that take effect next August, CFPB staff provided non-binding, informal guidance in a webinar hosted by the Federal Reserve Board on August 26.

BuckleySandler has prepared a transcript of the webinar that incorporates the CFPB’s slides. The transcript is provided for informational purposes only and does not constitute legal opinions, interpretations, or advice by BuckleySandler. The transcript was prepared from the audio recording arranged by the Federal Reserve and may have minor inaccuracies due to sound quality. In addition, the transcripts have not been reviewed by the CFPB or the Federal Reserve for accuracy or completeness.

Click here to download the transcript.

Questions regarding the matters discussed in the webinar or the rules themselves 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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CFPB Updates TILA-RESPA Integrated Disclosure Rule Compliance Guide

On September 8, the CFPB released an updated Small Entity Compliance Guide for its TILA-RESPA Integrated Disclosure Rule, which becomes effective next August. The updates include information on where to find additional resources on the rule, additional clarification on questions relating to the Loan Estimate and 7 day waiting period, and additional clarification on questions relating to the timing for revisions to the Loan Estimate. The new guides follow a recent webinar hosted by the CFPB and the Federal Reserve Board to address rule implementation.

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CFPB Fines Online Mortgage Company And Its Owner For Alleged Deceptive Rate Advertising

On August 12, the CFPB announced a consent order with a nonbank mortgage lender, its affiliated appraisal management company (AMC), and the individual owner of both companies to resolve allegations that the lender deceptively advertised mortgage rates to consumers, improperly charged fees before providing consumers with Good Faith Estimates (GFE), and failed to disclose its affiliation with the AMC while allowing the AMC to charge inflated fees.

Allegations

As explained in the consent order, the lender primarily conducts business online through its own website, and also advertises its mortgages through display ads on independent websites and the website of an unaffiliated third-party rate publisher. The CFPB asserts that, over a roughly two-year period, a “systemic problem” caused the lender to list on the rate publisher’s website lower rates for certain mortgages than the lender was willing to honor, and that the lender supplied other rates to the rate publisher that were unlikely to be locked for the majority of the lender’s borrowers. The CFPB claims that the lender failed to perform systematic due diligence or quality control to ensure the accuracy of listed rates, even though the lender was made aware through consumer complaints that certain rates were inaccurate. Read more…

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Ninth Circuit Holds Plaintiffs Not Required To Plead Tender Or Ability To Tender To Support TILA Rescission Claim

On July 16, the U.S. Court of Appeals for the Ninth Circuit held that an allegation of tender or ability to tender is not required to support a TILA rescission claim. Merritt v. Countrywide Fin. Corp., No. 17678, 2014 WL 3451299 (9th Cir. Jul. 16, 2014). In this case, two borrowers filed an action against their mortgage lender more than three years after origination of the loan and a concurrent home equity line of credit, claiming the lender failed to provide completed disclosures. The district court dismissed the borrowers’ claim for rescission under TILA because the borrowers did not tender the value of their HELOC to the lender before filing suit, and dismissed their RESPA Section 8 claims as time-barred.

On appeal, the court criticized the district court’s application of the Ninth Circuit’s holding in Yamamoto v. Bank of New York, 329 F.3d 1167 (9th Cir. 2003) that courts may at the summary judgment stage require an obligor to provide evidence of ability to tender. Instead, the appellate court held that borrowers can state a TILA rescission claim without pleading tender, or that they have the ability to tender the value of their loan. The court further held that a district court may only require tender before rescission at the summary judgment stage, and only on a case-by-case basis once the creditor has established a potentially viable defense. The Ninth Circuit also applied the equitable tolling doctrine to suspend the one-year limitations period applicable to the borrower’s RESPA claims and remanded to the district court the question of whether the borrowers had a reasonable opportunity to discover the violations earlier. The court declined to address two “complex” issues of first impression: (i) whether markups for services provided by a third party are actionable under RESPA § 8(b); and (ii) whether an inflated appraisal qualifies as a “thing of value” under RESPA § 8(a).

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CFPB Issues Guidance On Ensuring Equal Treatment For Married Same-Sex Couples

On July 8, the CFPB released guidance designed to ensure equal treatment for legally married same-sex couples in response to the Supreme Court’s decision in United States v. Windsor, 133 S. Ct. 2675 (2013).  Windsor held unconstitutional section 3 of the Defense of Marriage Act, which defined the word “marriage” as “a legal union between one man and one woman as husband and wife” and the word “spouse” as referring “only to a person of the opposite sex who is a husband or a wife.”

The CFPB’s guidance, which took the form of a memorandum to CFPB staff, states that regardless of a person’s state of residency, the CFPB will consider a person who is married under the laws of any jurisdiction to be married nationwide for purposes of enforcing, administering, or interpreting the statutes, regulations, and policies under the Bureau’s jurisdiction.  The Bureau adds that it “will not regard a person to be married by virtue of being in a domestic partnership, civil union, or other relationship not denominated by law as a marriage.”

The guidance adds that the Bureau will use and interpret the terms “spouse,” “marriage,” “married,” “husband,” “wife,” and any other similar terms related to family or marital status in all statutes, regulations, and policies administered, enforced or interpreted by the Bureau (including ECOA and Regulation B, FDCPA, TILA, RESPA) to include same-sex marriages and married same-sex spouses.  The Bureau’s stated policy on same-sex marriage follows HUD’s Equal Access Rule, which became effective March 5, 2012, which ensures access to HUD-assisted or HUD-insured housing for LGBT persons.

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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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Second Circuit Affirms Dismissal Of RESPA Claims Based On Faulty QWR

On June 24, the U.S. Court of Appeals for the Second Circuit held that a borrower failed to state a claim under RESPA because her purported qualified written requests (QWRs) did not trigger the servicer’s RESPA duties. Roth v. CitiMortgage, Inc., No. 13-3839, 2014 WL 2853549 (2d Cir. Jun 24, 2014). A borrower who defaulted on her second residential mortgage sued the servicer of the loan after the servicer threatened to take legal action. The borrower alleged that the servicer violated RESPA by failing to respond to three letters the borrower characterized as QWRs. The court agreed with a Tenth Circuit holding that Regulation X permits servicers to designate an exclusive address for QWRs, and held that the borrower’s letters did not trigger the servicer’s RESPA duties because they were not sent to the QWR address designated by the servicer and provided on the borrower’s mortgage statements. The court further explained that servicers are not prohibited from changing a QWR address. For the same reasons, the court rejected the borrower’s claim that the alleged inadequate QWR address notice violated state prohibitions on unfair and deceptive practices. Finally, the court held that the borrower’s FDCPA claim failed because the servicer did not acquire the debt after it was in default and therefore the servicer did not qualify as a debt collector subject to the FDCPA.

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Latest CFPB RESPA Enforcement Action Targets Employee Referrals

Last week, the CFPB announced its latest RESPA enforcement action, adding to one of the CFPB’s most active areas of enforcement. In this case, the CFPB required a New Jersey title company to pay $30,000 for allegedly paying commissions to more than twenty independent salespeople who referred title insurance business to the company. The matter was referred to the CFPB by HUD.

The CFPB asserts that from at least 2008 to 2013, the title company offered commissions of up to 40% of the title insurance premiums the company received. The CFPB explained that paying commissions for referrals is allowed under RESPA if the recipient of the payment is an employee of the company that is paying the referral, but claimed in this case that the individuals involved were actually independent contractors and not bona fide employees. The CFPB determined that although the individuals received W-2 forms from the title company, the company “did not have the right or power to control the manner and means by which the individuals performed their duties.”

In determining the penalty amount, the CFPB took into consideration the company’s ability to pay and remain a viable business. Notably, the consent order removes the “employer-employee” exception for this company on a going forward basis, including under existing employment contracts.  The order prohibits the company from paying any employee “any fee, kickback, or thing of value that is contingent on the referral of title insurance business or other settlement services, notwithstanding the ‘employee exception’ contained in 12 C.F.R. §1024.14(g)(vii).” The order also establishes certain compliance, record keeping, and reporting requirements.

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CFPB Fines Realty Firm $500K Over RESPA Disclosures

On May 28, the CFPB ordered the largest real estate company in Alabama to pay a $500,000 civil penalty to settle claims that the company provided inadequate disclosures of its relationship with an affiliated title insurance company. The CFPB alleged that the realty company failed to comply with the disclosure-related provisions of RESPA in connection with affiliated business arrangements (AfBAs). Under RESPA, AfBAs do not violate the prohibition on the exchange of referral fees if, among other things, the party referring a consumer to its affiliate gives the consumer a disclosure clearly stating that the consumer may shop for other, lower-cost providers and that the consumer is not required to use the affiliate. Read more…

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C.D. Cal. Limits Scope Of RESPA Kickback Safe Harbor For “Services Actually Performed”

On April 29, the U.S. District Court for the Central District of California held that RESPA’s preclusion of liability for otherwise illegal kickbacks based on “services actually performed” relates only to “settlement services” as defined in RESPA, and not to some broader set of services. Henson v. Fidelity Nat’l Fin. Inc., No. 14-cv-01240, 2014 WL 1682005 (C.D. Cal. Apr. 29, 2014). Last month in the same case, the court held that the overnight delivery services provided by certain delivery companies to a parent company of various escrow companies were “settlement services” under RESPA and concluded that the borrowers had pleaded facts sufficient to establish that the defendant parent company may have violated RESPA by accepting marketing fees from certain delivery companies in exchange for “referring”—via its escrow subsidiaries—overnight delivery business to those delivery companies. The defendant then moved for judgment on the pleadings, asserting that its subsidiary performed actual services in exchange for the marketing fees it received from the delivery companies, and therefore was not liable under RESPA. The court held that although the relevant RESPA section uses only the general term “services” and not the specific phrase “settlement services” used elsewhere in the statue, “Congress would have vitiated RESPA’s purposes by permitting kickbacks as long as the recipient performed any service—even if the service bore no relationship to a real-estate settlement.” The court held that Congress clearly intended to provide a safe harbor only with regard to “settlement services.” In this case, the court held that issues of fact persist as to whether the services performed were settlement services and denied the motion for judgment on the pleadings.

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CFPB Issues Integrated Mortgage Disclosure Rule Compliance Resources

On April 17, the CFPB issued a guide to completing the disclosure forms required by its November 2013 TILA-RESPA integrated disclosures rule, which generally applies to transactions for which a creditor or broker receives an application on or after August 1, 2015. The guide provides instructions for completing the Loan Estimate and Closing Disclosure and highlights common situations that may arise when completing the forms. The CFPB states in addition to serving as a resource to creditors, the guide also may assist settlement service providers, software providers, and other service providers. The disclosure forms guide follows the release last month of a small entity compliance guide, which summarizes the rule and highlights issues that small creditors, and their partners or service providers, might find helpful to consider when implementing the rule.

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C.D. Cal. Court Holds Overnight Delivery Companies Covered By RESPA

On March 21, in a suit brought by borrowers who had paid overnight delivery fees at closing, the U.S. District Court for the Central District of California held that the overnight delivery services provided by certain delivery companies to a parent company of various escrow companies were “settlement services” under RESPA and concluded that borrowers had pleaded facts sufficient to establish that defendant parent company may have violated RESPA by accepting marketing fees from certain delivery companies in exchange for “referring”—via its escrow subsidiaries—overnight delivery business to those delivery companies. Henson v. Fidelity Nat’l Fin. Inc., No. 14-cv-01240, slip op. (C.D. Cal. Mar. 21, 2014). In this case, the defendant parent company’s allegedly required its escrow subsidiaries to use certain delivery companies in connection with loan closings. Defendant parent company, in turn, allegedly received a marketing fee from those delivery companies based on the volume of business it sent to the delivery companies through its escrow subsidiaries. On the parent company’s motion to dismiss, the court held that the overnight delivery service was a “settlement service” under RESPA given that Regulation X specifically lists a “delivery” as a settlement service if provided in connection with a real estate settlement. The court further held that a “referral” under RESPA need not be linked to particular transactions and thus that a RESPA violation could occur where a master agreement required subsidiaries to use certain delivery service providers in exchange for a marketing fee received by a parent company. However, the court agreed with the defendant that the borrowers failed to adequately plead either a split of an unearned fee or that defendant did not perform any service in exchange for the marketing fee it received. Thus the court denied, in part, and granted, in part, the defendant’s motion to dismiss.

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CFPB Continues RESPA Enforcement With Action Against Nonbank Lender

On February 24, the CFPB announced that a nonbank mortgage lender agreed to pay an $83,000 penalty to resolve violations of RESPA’s Section 8. The lender primarily offers loss-mitigation refinance mortgage loans to distressed borrowers. According to the consent order, after the lender ceased obtaining funding for its loans from two subsidiaries of a hedge fund, the lender continued to split loss-mitigation and origination fees with the subsidiaries on 83 additional loans originated over an eight-month period, even though neither subsidiary provided financing or any other service in any of those transactions.

The lender self-reported the violation, admitted liability, and provided information related to the conduct of others, which the CFPB stated has facilitated other enforcement investigations. In addition, the consent order requires the lender make its “officers, employees, representatives, and agents” available for interviews and testimony, and to produce all non-privileged documents requested by the CFPB, “in connection with this action and any related judicial or administrative proceeding or investigation commenced by the Bureau or to which the Bureau is a party.” The company also cannot apply for a tax deduction or credit for the penalty, and cannot seek indemnification from any source. The CFPB indicated that the lender’s self-reporting and cooperation, which were consistent with the Bureau’s Responsible Business Conduct bulletin, played a part in mitigating the penalty.

This consent order is another public action the CFPB has taken under RESPA’s Section 8, although this action appears to be the first under Section 8(b) of RESPA, which prohibits fee-splitting and the payment and receipt of unearned fees. The CFPB has previously enforced Section 8(a), which prohibits referral fees and kickbacks, most recently in the case of a mortgage company that allegedly made inflated rental payments in exchange for mortgage referrals. The Bureau’s Section 8(b) action emphasizes the CFPB’s commitment to enforcing all of the aspects of Section 8, particularly against nonbank lenders.

CFPB Director Richard Cordray summed up the CFPB’s RESPA enforcement stance, stating: “These types of illegal payments can harm consumers by driving up the costs of mortgage settlements. The Bureau will use its enforcement authority to ensure that these types of practices are halted. We will, however, also continue to take into account the self-reporting and cooperation of companies in determining how to resolve such matters.”

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CFPB Takes Action Against Small Lender, President For RESPA Violations

On January 16, in the CFPB’s first settlement of 2014, the agency ordered a non-depository mortgage lender and its former owner to pay $81,076 for violating section 8 of the Real Estate Settlement Procedures Act (RESPA). The lender and its former owner—who currently serves as the company’s president—allegedly provided illegal kickbacks to a bank in exchange for loan referrals, disguised as inflated lease payments for renting office space within the bank. RESPA prohibits, among other things, the receipt or payment of kickbacks for settlement referrals involving federally-related mortgages. The consent order requires the company and its president to forfeit all proceeds from the allegedly unlawfully referred business—a total of $27,076 in origination fees related to 20 loans—and pay a $54,000 civil penalty.

The action extends two of the CFPB’s most recently-active enforcement patterns: RESPA section 8 and individuals. The CFPB press release announcing the action warns that the Bureau will “continue to enforce RESPA’s anti-kickback provisions” and “take action against schemes that steer consumers to lenders through unscrupulous and illegal business practices.”

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