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Colorado enacts insurance proceeds disbursement requirements for mortgage servicers
On May 20, Colorado enacted HB24-1011 (the “Act”), which predominantly addressed mortgage servicers’ disbursement of insurance proceeds.
The Act states that, upon the borrower’s request, mortgage servicers must disclose the specific conditions under which the servicer will disburse insurance proceeds in the event that the underlying property was damaged and an insurance company paid proceeds to satisfy the claim. Among other requirements, if the borrower is not delinquent or was less than thirty-one days delinquent in respect of his or her mortgage payments, the borrower is responsible for creating a repair or rebuild plan for the mortgaged property and submitting such plan to the mortgage servicer for approval. In turn, the mortgage servicer is responsible for approving or denying a plan within thirty days of receipt. Additionally, the borrower is entitled to reimbursement of certain advance payments made to a contractor or to purchase materials for the repair or rebuild. The Act outlines a different process if a borrower is more than thirty-one days delinquent on a mortgage payment. The Act provides for additional details regarding the disbursement of proceeds, including the amounts of disbursement.
Additionally, the Act provides that (1) mortgage servicers must disclose, among other items of information, the mortgage interest associated with mortgages upon the commencing of servicing and thereafter as the request of the borrower, and (2) a mortgage servicer must keep all communications with a borrower for at least four years. The Act became effective upon passage.
2nd Circuit rules that text messages are not artificial voices
Recently, the U.S. Court of Appeals for the Second Circuit ruled that a text message did not violate the Telephone Consumer Protection Act (TCPA) and affirmed the lower court’s order. The appellate court granted the defendant’s motion to dismiss for failure to state a claim based on its finding that the TCPA did not apply. In December 2016, the defendant sent an automated text message to the plaintiff’s cell phone to market the defendant’s free chips promotion. The plaintiff no longer wished to receive these text messages, and accordingly, she responded to the promotion with a “STOP” message. The defendant then received a response stating that she would “no longer receive any more messages.” A few days later, the plaintiff received another automated text message with an offer.
The Court found that the TCPA did not apply because (1) the underlying system used to send the plaintiff a text message was not an automatic telephone dialing system (but rather a “stored” list of telephone numbers used), and (2) the message did not utilize “artificial or prerecorded voice,” each of which were required elements of prohibited activity under the TCPA.
Ginnie Mae outlines recovery planning requirements for issuers with over $50 billion
On May 20, Ginnie Mae released “APM 24-08: Mandatory Recovery Planning Requirements for Certain Issuers,” which outlined Ginnie Mae’s introduction of recovery planning requirements for issuers whose portfolios exceed $50 billion. Issuers will be required to submit recovery plans to Ginnie Mae no later than June 30, 2025. The submitted recovery plans must include, among other things, corporate structures (like organizational charts, locations, key personnel, etc.), information systems (detailed inventory mapping of management systems and processes), and recovery planning (which would meet the requirements of the Ginnie Mae Guaranty Agreement and included a plan to unwind its MBS portfolio in a timely and efficient manner). Covered issuers will be required to demonstrate their assessment of the risks that their organizational structure and business activities pose and that they have taken steps to mitigate such risks. Further, covered issuers must update their plans every two years or confirm their prior plans remain current. More details can be found within the two attachments: the Issuer Recovery Plan Requirements, and Chapter 3 of the Ginnie Mae MBS Guide.
CFPB holds its Consumer Advisory Board Meeting
On May 15, the CFPB held its Spring 2024 Consumer Advisory Board Meeting (CAB) to discuss mortgage servicing and origination, consumer data reporting accuracy, and medical debt on credit reports. The CAB met with the CFPB leadership to discuss broad policy matters related to the CFPB’s Unified Regulatory Agenda and scope of authority. The discussions on mortgage servicing and origination covered capping closing costs to make homeownership more accessible. Additional concerns related to the impact of private equity on the housing market and how it changes home affordability in certain neighborhoods. Additionally, CAB members raised yet another implication which would make home ownership difficult in the refinancing space for small-balance mortgages. Predatory practices involving solar lending were of concern due to the influx of funds related to the Inflation Reduction Act. CAB members shared the challenges faced by mortgage servicing and foreclosure prevention services leading to delays in loss mitigation processing and high-touch mortgage servicing areas. Additional talking points included topics such as tenant screening and employment background checks, purpose limitations under the FCRA, creation of a “Public Credit Registry,” reduced time limits on negative information reporting, and restricted use of credit scores in employment and rental decisions.
Congressmembers push for swift FDTA implementation
On May 14, the Chairman of the House Financial Services Committee, Patrick McHenry (R-NC), Ranking Member Maxine Waters (D-CA), U.S. Senator Mike Crapo (R-ID), and U.S. Senator Mark Warner (D-VA) sent a letter to federal financial regulators urging them to implement their respective obligations under the Financial Data Transparency Act (FDTA) as directed by the National Defense Authorization Act for Fiscal Year 2023 (NDAA). The letter was addressed to various heads of financial regulatory agencies from members of Congress regarding FDTA, specifically urging the agencies to expedite their rulemaking processes in accordance with the timelines established by the FDTA. The letter asserted that implementation of the FDTA will reduce reporting burdens and increase accessibility, uniformity and usefulness of federal financial data. The letter also highlighted those advancements in technology, like artificial intelligence, were already used by the private market to utilize data, and that publishing machine-readable data in a consistent format under the FDTA, will allow those viewing the data to use such technologies with greater efficiency and provide for more transparency. The legislators also note that the FDTA has bipartisan support and stressed the importance of these agencies' adherence to implementing these efforts.
OIG makes recommendations for CFPB’s examiner commissioning program
On May 15, the Office of Inspector General (OIG) for the Fed and CFPB published a report entitled “The CFPB Can Enhance Certain Aspects of Its Examiner Commissioning Program.” The report assessed the CFPB’s examiner commissioning program (ECP) and included recommendations to enhance the program. The OIG made three high-level recommendations in the report:
- Create clear guidelines delineating the duties and expectations for those servicing in ECP support roles, including (i) mentorship during acting EIC assignments, (ii) provide regional training leads support during rotations, and (iii) field manager assistance in selecting suitable examinations and identifying acting examiner in charge (EIC) tasks for commissioning candidates.
- Establish a uniform method for supervision learning and development and regional offices to jointly offer additional support to examiners during their ECP preparation.
- Review and improve the feedback parameters for the EIC case study assessment, ensuring examiners receive detailed, constructive feedback while maintaining the integrity of the EIC case study assessment. Update the feedback guidelines accordingly and provide training on these new standards.
FCC suspects robocaller of illegal call traffic
On May 20, the FCC released a notification of suspected illegal traffic against a voice service provider (VSP) for allegedly originating illegal robocall traffic. According to the FCC, it appeared that the VSP claimed to offer financial services by delivering prerecorded messages related to debt consolidation loans, and it claimed to be from one of three financial institutions, two of which contained names that were confusing to unrelated financial institutions. The two unrelated financial institutions posted warnings on their websites notifying consumers of the misuse of their names to make “spam” type calls. The FCC reviewed 13 traceback calls from the approximately 78 million calls the company solicited between November 2023 and February 2024. Upon review, the FCC claimed that the VSP was the originating provider of these calls, and that the VSP did not contest the calls.
The FCC alleged the call traffic was illegal since the prerecorded messages contained advertisements without any consents of the called party, nor was there any emergency purpose for the calls. The FCC noted three potential consequences that may arise, including blocking of upstream, downstream, and intermediate providers. Additionally, the FCC noted that in the event all deficiencies are not cured, the VSP may face removal from the Robocall Mitigation Database (RMD). Notably, intermediate and other VSPs are only permitted to accept traffic from a domestic VSP if that provider was listed in the RMD.
In a public notice, the FCC notified all U.S.-based VSPs of unlawful robocalls related to debt consolidation loans originating the from the VSP in the above notification.
Minnesota amends list of deceptive practices to include hidden fees
On May 20, the Governor of Minnesota approved HF 3438 (the “Act”) which rewrote two sections of Minnesota’s statutes to 1) redefine the scope of engaging in a deceptive trade practice, and 2) indemnify certain exemptions. Under the revised statute, in Minnesota, a person will engage in a deceptive trade practice when it lists the price of a good or service but does not include all mandatory fees or surcharges. Further, a mandatory fee will include, but is not limited to, a fee that must be paid in order to purchase the goods or services advertised, was not reasonably avoidable by the consumer, or that would be reasonably expected in the purchase of a good or service. A mandatory fee would not include taxes imposed by a government entity. When a consumer would complete a purchase on a delivery platform, the delivery platform must display “in a clear and conspicuous manner” any additional flat fees or percentages which are charged for that purchase. Upon checkout, the delivery platform must display the subtotal and any additional fees added to the total cost. The second amended section referred to exemptions related to lawful fees in association with the purchase or lease of an automobile from a dealership. The Act will go into effect on January 1, 2025.
Ginnie Mae updates its rules on the securitization of digital collateral
On May 20, Ginnie Mae released an All Participant Memorandum (APM) titled “APM 24-07: Commingling Digital Collateral with Paper Collateral in Ginnie Mae Pools,” which included opening Ginnie Mae’s Digital Collateral Program Pilot from July 2020 to allow any issuer to participate in the Digital Collateral Program. In the program, Ginnie will permit the securitization of digital collateral into the same pools as traditional paper collateral. As highlighted in the memorandum, digital collateral was comprised of mortgage loans which have promissory notes that are “Eligible eNotes” as published in Ginnie Mae’s Digital Collateral Program Guide. These updates were implemented to “promote liquidity and increase participation” in the program by modernizing and digitizing Ginnie Mae’s Mortgage-Backed Securities program to align with other industry practices more closely. The updated program will go into effect on June 1.
Chopra remarks on how less credit reporting competition may lead to higher mortgage costs
On May 20, CFPB Director, Rohit Chopra, delivered a speech at a trade association event addressing the rising costs in the mortgage lending industry, which may be due to limited competition in the credit reporting sector. According to Chopra, the mortgage industry was dominated by three major conglomerates, and credit scores were provided by a single corporation. These entities have significantly increased the price for credit reports and credit scores in recent years, with increases reaching as high as 400 percent since 2022. These price hikes can increase a lender’s origination fees or interest rates and have impacted both lenders, especially small lenders, and homebuyers disproportionately.
Chopra added how lenders require credit reports and credit scores for loan origination and adhere to secondary market requirements, which would necessitate purchasing these reports multiple times, like for joint applications. Director Chopra also noted that price increases were no longer tied to volume discounts and instead were now based on a flat fee pricing model, exacerbating costs for lenders. Additionally, the CFPB questioned the accuracy of credit reports, with the reporting industry profiting from expedited correction services known as a “rapid rescore.”
Director Chopra emphasized the need for regulatory intervention to address these issues within the mortgage industry. Chopra stated that “limiting chokepoints” was critical. As a result, the CFPB was examining these rising costs and considering regulatory measures to enhance competition and affordability. The Bureau was also promoting “open banking,” which would allow consumers to share their financial data directly with lenders to potentially reduce reliance on traditional credit reports and credit scores.