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Financial Services Law Insights and Observations


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  • Ginnie Mae to explore a new reverse MBS

    Agency Rule-Making & Guidance

    On January 16, Ginnie Mae announced its plans to consider the development of a new securitization product in connection with broader efforts to expand its existing Home Equity Conversion Mortgage (HECM) mortgage-backed securities program. Specifically, Ginnie Mae is considering the viability of a securitization product that would accept HECM loans with balances above 98% of the FHA’s Maximum Claim Amount. Ginnie Mae stated that the proposed product reflects efforts to address liquidity issues affecting the stability of secondary mortgage markets, which are crucial for older Americans who may need to rely on home equity for financial support. 

    Agency Rule-Making & Guidance Ginnie Mae Reverse Mortgages Mortgages Mortgage-Backed Securities HECM

  • CFPB analyzes impact of rising interest rates on borrowers

    Federal Issues

    On November 30, the CFPB’s Office of Research published a blog post regarding the recent increase of mortgage interest rates. The Bureau combined the quarterly data of 55 financial institutions reporting mortgage activities for the first and second quarters of 2022 with annual data from past years. The Bureau limited the analyses to closed-end home-purchase loans secured by site-built, single-family, and first-lien principal residences, and excluded reverse mortgage loans from its analysis. Among other things, the Bureau found that after two years of decline, the mortgage interest rate began rising in 2021, with a sharp increase in 2022. The Bureau explained that a “direct consequence of higher interest rates is the higher monthly payments borne by borrowers,” and that “though monthly payment information is not reported in HMDA data, using the reported loan amount, loan term and interest rate, [the Bureau] can impute the monthly principal and interest payment of loans at origination.” The Bureau also reported that Hispanic white and Black borrowers reached new debt burden levels, specifically the average debt-to-income (DTI) ratio for Hispanic white borrowers reached over 40 percent, while the average DTI for Black borrowers rose to 39.4 percent. The Bureau noted that increasing interest rates could also affect whether consumers qualify for mortgage loans. For many mortgage applicants who are on the margin of qualifying, the higher projected DTI could potentially lead to their applications being rejected. Compared to 2021, DTI has become more likely to be reported as a denial reason for denied Black, Hispanic white and non-Hispanic white applications in 2022. Indeed, by the end of the second quarter of 2022, the Bureau reported that over 45 percent of all Black and Hispanic white applicants who were denied had DTI reported as a denial reason.

    Federal Issues CFPB Reverse Mortgages Mortgages Interest Rate Refinance Consumer Finance

  • 4th Circuit: Borrower must return loans proceeds to rescind reverse mortgage


    On July 14, the U.S. Court of Appeals for the Fourth Circuit held that a borrower has three years to rescind a reverse mortgage loan if a lender fails to provide required TILA disclosures, but that in order for the cancellation of the loan to be complete the proceeds must be returned. The borrower attempted to rescind a reverse mortgage she took out on her home after discovering the lender allegedly did not provide required TILA disclosures at closing. She notified the lender seeking to rescind the mortgage, but later sued after the lender failed to honor her rescission rights as required by Section 1635(b) of TILA. At trial, a jury sided with the lender, finding that it did not fail to honor the borrower’s attempt to rescind the loan. However, the district court issued judgment as a matter of law for the borrower, holding that the lender violated TILA’s requirements following the borrower’s notice of rescission, and ruling that because of this failure, the borrower was not required to return $60,000 in loan proceeds. The lender appealed.

    In vacating the district court’s order granting judgment as a matter of law, the appellate court held that the district court’s ruling violated TILA’s recission provisions, which are intended to return all parties to their status prior to the loan agreement. “To decide otherwise would bestow a remarkable windfall on a borrower and penalty on the lender divorced from the text of TILA and the entire purpose of rescission,” the Fourth Circuit wrote. Moreover, the appellate court concluded that while a lender’s obligations in response to a rescission notice are mandatory, nothing in Section 1635(b) “specifies that if the lender fails to take these actions, it loses its right to the monies it loaned to the borrower.”

    Courts Consumer Finance Reverse Mortgages Mortgages Appellate Fourth Circuit TILA Disclosures

  • NYDFS issues industry letter on reverse mortgage lending

    State Issues

    On May 17, NYDFS announced an industry letter to establish its expectations for all institutions engaged in reverse mortgage lending in the State on cooperative apartment units (coop-reverse mortgages) once newly enacted Section 6-O*2 of the New York Banking Law takes effect May 30. The letter noted there is a comprehensive regulatory framework that addresses the marketing, origination, and servicing of reverse mortgages in New York and stated that most of the existing requirements apply equally to coop-reverse mortgages. This includes Title 3 of the New York Code of Rules and Regulations Part 79 (3 NYCRR 79), which establishes various requirements relating to the marketing, origination, servicing, and termination of reverse mortgage loans in New York, and Title 3 of the New York Code of Rules and Regulations Part 38 (3 NYCRR 38), which addresses issues involving, among other things, commitments and advertising for mortgage loans generally. Even so, the letter noted that NYDFS is considering amending its existing regulations to specifically address coop-reverse mortgages, or issuing a separate regulation governing this as a new product. Finally, the letter explained that “institutions that seek to originate, or service coop-reverse mortgages are directed to comply with the provisions of 3 NYCRR 79, and 3 NYCRR 38 in originating or servicing such mortgages” (subject to described clarifications, modifications, and exclusions). However, NYDFS stated that “in the event of any inconsistency between the provisions of Section 6-O*2 and provisions of either 3 NYCRR 79 or 3 NYCRR 38, the provisions of Section 6-O*2 will govern; and in the event of any inconsistency between the provisions of 3 NYCRR 79 and 3 NYCRR 38, provisions of 3 NYCRR 79 will govern.”

    State Issues NYDFS Mortgages New York Reverse Mortgages State Regulators

  • OCC seeks comments on compliance risk for reverse mortgages

    On January 28, the OCC published a notice and request for comment in the Federal Register seeking feedback on the renewal of its guidance for managing compliance and reputation risks for reverse mortgage products. The OCC, along with the FDIC, Federal Reserve Board, and the NCUA issued final guidance in 2010 focusing on the need for institutions “to provide adequate information to consumers about reverse mortgage products, to provide qualified independent counseling to consumers considering these products, and to avoid potential conflicts of interest.” The 2010 guidance also addressed related policies, procedures, internal controls, third party risk management, training, and program maintenance. The current notice seeks feedback on (i) whether the collection of the information is necessary and carries a practical utility; (ii) the accuracy of the estimates of the information collection burden; (iii) methods for enhancing the quality, utility and clarity of the information to be collected; (iv) ways to minimize the information collection burden for respondents; and (v) “[e]stimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.” Comments are due March 29.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance OCC Federal Register Reverse Mortgages Compliance Risk Management

  • 3rd Circuit: Filed-rate doctrine precludes borrowers’ fraud claims


    On July 1, the U.S. Court of Appeals for the Third Circuit affirmed the dismissal of a class action challenging the lender placed insurance practices of a mortgage servicer, concluding that the filed-rate doctrine blocked the claims. According to the opinion, borrowers from North Carolina and New Jersey filed suit against their reverse mortgage lender and insurance company, alleging the lender and insurer colluded to overcharge consumers for lender placed insurance in violation of TILA, the federal Racketeer Influenced and Corrupt Organizations Act (RICO), and various state laws. Specifically, the plaintiffs asserted that the insurance company charged an insurance rate, which was appropriately filed with state regulators, that was higher than the mortgage lender paid. The plaintiffs asserted the insurer then returned a portion of the profits back to the lender in order to induce continued insurance business. The district court dismissed the action, holding that the filed-rate doctrine blocked the claims.

    On appeal, the 3rd Circuit agreed with the lower court. The appellate court emphasized that under the filed-rate doctrine, there is no distinction between “challenging a filed rate as unreasonable and…challenging an overcharge fraudulently included in a filed rate.” Because the plaintiffs sought damages in connection with the alleged overcharge of insurance premiums, the appellate court concluded that the plaintiffs were “functionally challeng[ing] the reasonableness of rates filed with state regulators.” Moreover, the appellate court noted that if the court were to award damages to the plaintiffs, the court would essentially be “giving these borrowers a better price for [lender placed insurance] than other [] borrowers using a different lender,” but the same insurer. Thus, because the insurance rate was appropriately filed with the state regulators, the appellate court had no ability to decide whether the rate was “unreasonable or fraudulently inflated,” because the claims were precluded by the filed-rate doctrine.

    Courts Lender Placed Insurance Mortgages Reverse Mortgages Appellate Third Circuit TILA RICO

  • CFPB updates reverse mortgage servicing examination procedures

    Agency Rule-Making & Guidance

    On June 1, the CFPB updated its reverse mortgage servicing examination procedures to incorporate current HUD regulations that provide the structure for Home Equity Conversion Mortgage (HECM) products. The updated procedures also add new exam questions to include issues raised in complaints submitted by older consumers. According to the Bureau’s summary, additions to the procedures include: (i) information regarding situations where a “servicer advances funds to pay for property taxes in any situation where the borrower was not behind on these payments”; (ii) guidance concerning a servicer’s timeliness in providing accurate payoff statements; (iii) new language under “Causes of Default” summarizing the circumstances under which an eligible non-borrowing spouse on an HECM loan may stay in the home after the borrower dies, for loans originated on or after August 4, 2014; and (iv) new language in the background section, which “incorporates HUD’s August 2017 regulatory changes that affected the ways in which lenders and servicers calculate the initial and annual mortgage insurance premiums,” as well as additional language “to provide a fuller description of reverse mortgages.”

    Agency Rule-Making & Guidance CFPB Reverse Mortgages Examination

  • Massachusetts Office of Consumer Affairs and Business Regulation issues guidance on reverse mortgages

    State Issues

    On April 27, the Massachusetts Office of Consumer Affairs and Business Regulation, Division of Banks, issued guidance relating to compliance with the reverse mortgage counseling requirements under An Act Providing for a Moratorium on Evictions and Foreclosures During the Covid-19 Emergency, which was signed into law and effective on April 20, 2020. The act provides that the in-person counseling requirement under specific provisions of Massachusetts law can alternatively be met by synchronous, real-time video conference or by telephone. The division also provides guidance for counseling options for reverse mortgage counseling, HUD Certificate of HECM counseling, and other reverse mortgage programs.

    State Issues Covid-19 Massachusetts Bank Compliance Reverse Mortgages

  • New York outlines HECM requirements

    State Issues

    On December 6, the New York governor signed AB 5626, which amends the state’s real property law related to lenders offering reverse mortgages in the state issued under the FHA’s home equity conversion mortgage for seniors program (HECM program). The Act provides that an authorized lender, or any other party or entity, is prohibited from engaging in any unfair or deceptive practices connected to the marketing or offering of reverse mortgage loans and must not: (i) use the words “public service announcement” in an advertisement or writing; (ii) use the words “government insured” or other similar language to represent that the reverse mortgage loans are “insured, supported and sponsored by any governmental entity” in any form of advertisement or writing; or (iii) “represent that any such loan is other than a commercial product.” Lenders will also be required to provide certain consumer protection information as specified by the NYDFS Superintendent, and must comply with stipulated requirements during the application process.

    The Act also outlines various servicing- and foreclosure-related requirements and restrictions, and provides a private right of action to any person injured by reason of any violation of the Act, or any violation of the rules and regulations of HUD relating to the HECM program, to recover three times the person’s actual damages, plus reasonably attorney’s fees.

    The Act takes effect March 5, 2020.

    State Issues State Legislation HECM Reverse Mortgages NYDFS Mortgages

  • HUD increases FHA loan limits for 2020

    Agency Rule-Making & Guidance

    On December 3, HUD announced the maximum FHA loan limits for 2020, issuing Mortgagee Letter 19-19 for FHA-insured forward mortgage case numbers and Mortgagee Letter 19-20 for FHA-insured Home Equity Conversion Mortgage (HECM) case numbers. The general one-unit property limits “floor” increased to $331,760, and the “ceiling” increased to $765,600, while the HECM claim amount also increased to $765,600, effective January 1, 2020.

    Agency Rule-Making & Guidance FHA HUD HECM Mortgages Reverse Mortgages


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