InfoBytes
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB Issues Mortgage Servicing Standards
On January 17, the CFPB issued final rules amending Regulation Z (TILA) and Regulation X (RESPA) to implement certain mortgage servicing standards set forth by the Dodd-Frank Act and to address other issues identified by the CFPB. The rule amending Regulation Z includes changes to (i) periodic billing statement requirements, (ii) notices about adjustable rate mortgage interest rate adjustments, and (iii) rules on payment crediting and payoff statements. The rule amending Regulation X addresses (i) force-placed insurance requirements, (ii) error resolution and information request procedures, (iii) information management policies and procedures, (iv) standards for early intervention with delinquent borrowers, (v) rules for contact with delinquent borrowers, and (vi) enhanced loss mitigation procedures. While many of the rules implement changes required by the Dodd-Frank Act, other proposed requirements incorporate requirements similar to those placed on servicers as part of the national mortgage servicing settlement earlier this year, or corrective actions taken in 2011 by the prudential regulators. The new standards go into effect on January 10, 2014. The rule provides certain exemptions for servicers that service 5,000 or fewer mortgage loans and service only mortgage loans that they or an affiliate originated or own. BuckleySandler will provide additional analysis of key issues in the rules once we complete our review of them.
CFPB Plans Release of Mortgage Loan Originator Rule
On January 18, the CFPB announced that it will release a final rule regarding mortgage loan originator compensation and qualifications on Sunday, January 20. According to its press release, the rule will (i) prohibit steering incentives, (ii) prohibit “dual compensation,” and (iii) set qualification and screening standards for loan originators, but it will not require, as proposed, that mortgage loan originators make available a loan option with no upfront discount points or origination fees, if they were making available one with upfront discount points or origination fees. The press release states that while the majority of the loan originator rule will take effect in January 2014, certain provisions related to mandatory arbitration restrictions will take effect in June 2013. BuckleySandler will review the rule once it is released and provide additional analysis.
FDIC Approves Joint-Agency Appraisal Rule for Higher-Risk Mortgages
On January 18, the Federal Reserve Board, the OCC, the FDIC, the NCUA, the FHFA, and the CFPB issued a final rule to implement Dodd-Frank Act amendments to TILA that require creditors to meet certain appraisal conditions before making a higher-risk loan. The rule uses the term “higher-priced mortgage loan,” which covers: (i) a loan for which the APR exceeds the average prime offer rate (an average market rate) by 1.5 percent for a first-lien loan, (ii) 2.5 percent for a first-lien jumbo loan, and (iii) 3.5 percent for a subordinate-lien loan. For such loans, the final rule requires that a creditor obtain a written appraisal from a certified or licensed appraiser that is based on a physical property visit of the interior of the property. During the application process, the creditor must issue a disclosure stating (i) the purpose of the appraisal, (ii) that the creditor will provide the applicant a copy of any written appraisal, and (iii) that the applicant may choose to have a separate appraisal conducted at his or her own expense. The creditor must provide the borrower with a free copy of any written appraisals at least three business days before closing. Additional appraisal requirements apply under certain circumstances. As did the proposed rule, and consistent with the statute, the final rule exempts loans that are considered “qualified mortgages,” as recently defined by the CFPB, as well as reverse mortgages, loans secured by manufactured homes, and certain other loans.
On the same day, the CFPB issued a related rule to implement a Dodd-Frank Act provision that adds similar appraisal requirements to ECOA. The final rule generally mirrors the rule as proposed and requires that for any loan to be secured by a first lien on a dwelling, a creditor must (i) notify applicants within three business days of receiving an application of their right to receive a free copy of written appraisals and valuations and (ii) provide applicants a free copy of all written appraisals and valuations promptly after receiving them, but in no case later than three business days prior to closing on the mortgage. The rule prohibits creditors from charging additional fees for providing a copy of written appraisals and valuations, and allows applicants to waive the three day requirement, provided a copy of all written appraisals and valuations are provided at or prior to closing. Together, the revisions to TILA and ECOA, as implemented by these rules, require creditors to provide two appraisal disclosures to consumers applying for a higher-risk loan secured by a first lien on a borrower’s principal dwelling. The rules take effect January 18, 2014.
HHS Issues New HIPAA Rules
On January 17, the Department of Health and Human Services (HHS) issued a new rule under the Health Insurance Portability and Accountability Act (HIPAA). The omnibus rule is intended to enhance patient privacy protections, provide new rights with regard to patient health information, and strengthen the government’s enforcement abilities. For example, the new rights allow patients to (i) request a copy of their electronic medical record in an electronic form and (ii) instruct their provider not to share information about their treatment with their health plan when the patient pays by cash. The rule also sets limits on how information is used and disclosed for marketing and fundraising purposes and prohibits the sale of individuals’ health information without their permission. While the rules are of general interest as an important development regarding privacy rights, HIPAA protections can, in some circumstances, apply to financial service providers. Not only may financial services firms need to take note as a provider of health care benefits to their employees, but also because the rule expands applicability of HIPAA requirements to “business associates” of health care providers, health plans, and other entities that process health insurance claims and receive protected health information.
Fannie Mae Announces Numerous Updates to Selling Guide
On January 17, Fannie Mae issued Selling Guide Announcement SEL-2013-01, which provides notice of updates to several Selling Guide topics. First, eligibility for delivery of FHA-insured, HUD-guaranteed, VA-guaranteed, and RD-guaranteed mortgages is now available on a negotiated basis only. This change is effective for all government loans, including whole loans sold to Fannie Mae on or after May 1, 2013, and government loans in MBS with issue dates on or after May 1, 2013. Second, with regard to borrower refunds for overpayment of fees, effective immediately, the Guide has been updated to allow reimbursements in purchase transactions and limited cash-out refinance transactions to include refunds that may be required in accordance with certain federal laws or regulations. In such cases, the HUD-1 Settlement Statement must clearly identify the refund with a notation for the reason, and the loan file must include documentation to support the amount and reason for the refund. Third, the Announcement details a new policy regarding acceptable principal balance curtailments that may be made prior to delivery of a mortgage loan to Fannie Mae and lists the reasons for which Fannie Mae will permit curtailments, as well as documentation and delivery requirements. Finally, the Announcement lists updates and clarifications related to mortgage loans with an inter vivos revocable trust borrower.
CSBS Announces Implementation Date for National Mortgage Loan Originator Test
On January 16, the CSBS announced that a new national mortgage loan originator (MLO) test with a uniform state component will be available on April 1, 2013. The 2009 SAFE Act requires that MLOs pass a test in order to obtain a state originator license through the NMLS. Since adoption of the SAFE Act, the test has been comprised of two parts: a national component and a state-specific component. The new test administered by the NMLS is meant to streamline the licensing process for originators seeking to obtain licenses in multiple states. Twenty state agencies will no longer require a state-specific test component as of April 1, 2013, with four more states removing the requirement on July 1, 2013. The NMLS posted additional details about the test, including costs and enrollment eligibility.
Sixth Circuit Affirms Fair Lending Class Certification Denial
On January 15, the U.S. Court of Appeals for the Sixth Circuit affirmed a district court’s denial of class certification sought by a proposed class of borrowers alleging that a lender’s mortgage loan pricing policy, which granted discretion to local loan originators, disparately impacted racial minorities. Miller v. Countrywide Bank, N.A., No. 12-5250, 2013 WL 149853 (6th Cir. Jan. 15, 2013). The outcome was expected following the U.S. Supreme Court’s opinion in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), which held that a policy that allows local units discretion to act can only present a common question if the local units share a common mode of exercising that discretion. In this case, the borrowers sued their lender on behalf of a proposed class claiming that the lender’s policy granting local agents discretion to deviate from par rates, within a specified range, when originating loans was racially biased. The appeals court held, as in Dukes, that the borrowers did not assert that the policy guided how local agents exercised their discretion and as such the policy could not have caused or contributed to the alleged disparate impacts. The court rejected the borrowers’ attempts to distinguish Dukes based on the Seventh Circuit’s holding in McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 672 F.3d 482, 490 (7th Cir.), because that case involved companywide policies that contributed to the alleged disparate impact that arose from the delegation of discretion to individual actors. The Sixth Circuit held that no similar policy existed in this case and affirmed denial of class certification.
Sixth Circuit Holds That Mortgage Foreclosures are Debt Collections Under the FDCPA
On January 14, the U.S. Court of Appeals for the Sixth Circuit held that mortgage foreclosures are debt collections under the FDCPA. Glazer v. Chase Home Finance LLC, No. 10-3416, 2013 WL 141699 (6th Cir. Jan. 14, 2013). The decision rejects the view held by a majority of district courts, including the district court in this case, that mortgage foreclosures are generally outside the scope of the FDCPA because they are enforcements of a security instrument, not attempts to collect money. In this case, the borrower brought suit alleging that the law firm that attempted to foreclose on his property violated the FDCPA, and the district court dismissed the claim, ruling that foreclosures are not debt collections. In reaching its conclusion, the Sixth Circuit reasoned that “whether an obligation is a ‘debt’ depends not on whether the obligation is secured, but rather upon the purpose for which it was incurred.” The court explained that collecting such a debt can occur through personal solicitation or legal proceedings. As such, the court held that “every mortgage foreclosure, judicial or otherwise, is undertaken for the very purpose of obtaining payment on the underlying debt,” and, therefore, every mortgage foreclosure is a debt collection. Further, the court held that lawyers who meet the general definition of “debt collector” must comply with the FDCPA when engaged in a mortgage foreclosure. The Sixth Circuit reversed the district court’s dismissal and remanded the case for further proceedings.
Massachusetts Supreme Court Holds Standing in Servicemember Proceeding Requires Evidence of Mortgagee Status
On January 14, the Massachusetts Supreme Judicial Court (SJC) reversed a Land Court decision and held that a trustee lacked standing to bring a servicemember proceeding because the trustee was not the clear holder of either the note or the mortgage. HSBC Bank USA, N.A. v. Matt, 464 Mass. 193 (Mass. 2013). As the court explained, under the Massachusetts Soldiers’ and Sailors’ Civil Relief Act, a lender must file a complaint in equity, a proceeding separate from the foreclosure proceeding, to determine if a borrower is entitled to foreclosure protections under the federal Servicemembers Civil Relief Act (SCRA). Failure to bring a such a servicemember proceeding leaves the title vulnerable to a challenge that the foreclosure sale was defective due to the possibility that it violated a borrower’s rights under the SCRA. On appeal, the borrower argued that the Land Court erred in holding that the trustee bringing the servicemember proceeding satisfied general requirements of standing based on its contractual right to become the holder of a mortgage, even though the trustee failed to establish that it was the current holder of the note or the mortgage. Extending its holding in Eaton v. Fannie Mae that a party with an option to become the holder of a mortgage does not have the present authority to foreclose, the court held that the Massachusetts servicemembers act contemplated that only mortgagees would have the requisite standing to bring a servicemember complaint, and parties with an option to hold the mortgage lack standing. As such, the court held that “only mortgagees or those acting on behalf of mortgagees have standing to bring servicemember proceedings.”
Florida AG Announces Settlement with Prepaid Debit Card Companies
On January 16, Florida Attorney General Pam Bondi announced that she obtained “first of their kind” settlements from the state’s five largest prepaid debit card companies. The settlements resolve claims that the companies failed to properly disclose information about fees and misled consumers with claims that use of the cards would improve credit history. While the agreements are not identical, they each require enhanced compliance measures, which generally relate to fee disclosures, use of comparison charts, and use of claims about credit improvements. Each company also agreed to make a donation to the Central Florida Chapter of Junior Achievement and pay the cost and fees for the matters investigated to the Office of the Attorney General.