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  • Yellen testifies on FSOC Annual Report, key areas of focus

    Federal Issues

    On February 8, the U.S. Senate Committee on Banking, Housing, and Urban Affairs held a hearing titled “The Financial Stability Oversight Council Annual Report to Congress” with testimony provided by U.S. Treasury Secretary Janet Yellen. Secretary Yellen discussed progress, and continued focus, related to five topics addressed in FSOC’s 2023 Annual Report (covered by InfoBytes here): capital risks posed by nonbank financial institutions; climate-related financial stability risks; cybersecurity risks; monitoring artificial intelligence (AI) use in financial services; and digital asset oversight. In response to questioning from Senator Cortez Masto (D-NV), Yellen discussed how FSOC highlighted that about 70 percent of single-family mortgages were originated by nonbank mortgage originators during the first half of 2023. When Secretary Yellen was asked if the shift from banks to nonbanks in the mortgage space poses a financial stability risk “due to non-banks’ lack of access to deposits,” she responded that FSOC is “very focused” on the issue since non-banks are reliant on short-term financing. In addition, Yellen spoke about AI and learning its impact on vulnerabilities and risk, as well as the Basel III proposal, urging regulators to “finalize these rules as quickly as possible.”

    Federal Issues FSOC Department of Treasury U.S. Senate Basel Mortgage Lenders

  • FHFA releases comprehensive report of entire FHLBank system

    On November 7, the FHFA released a report titled “FHLBank System at 100: Focusing on the Future,” providing a comprehensive overview of the Federal Home Loan Banks (FHLBank) system in its entirety. The FHLBank system is comprised of domestic and small, community-focused lenders that are connected to the global capital markets, engendering lenders to “better support housing and community development” through liquidity. The FHFA’s report acknowledged that the banking sector volatility in March 2023 led to a “significant advance demand” and it “provided a record volume of advances” to their members.

    Furthermore, the report details the background of the FHLBank System, such as its history, member type, and business functions. The features from the FHLBank system’s mission are to provide liquidity to members, as well as support housing and community developments. The chapter on stable and reliable sources of liquidity confirms that the FHLBank system is not the lender of last resort due to its funding structure of bonds and short-term notes. In addition, the Moving Forward chapter offers a list of goals for the FHLBank system to adopt. Interestingly, Appendix 5 of the report highlights an analysis of four crises from the banking failures from March to May 2023.

    Special Alerts Federal Issues FHFA FHLB Banking Mortgage Lenders

  • CFPB sues nonbank mortgage lender for alleged HMDA and CFPA violations

    Federal Issues

    On October 10, the CFPB filed a lawsuit against a Florida-based nonbank mortgage originator for allegedly failing to accurately report mortgage data in violation of the Home Mortgage Disclosure Act (HMDA). According to the complaint, in 2019 the Bureau found that the lender violated HDMA by intentionally misreporting data regarding applicants’ race, ethnicity and gender from 2014-2017, which resulted in the lender paying a civil money penalty and taking corrective action. In this action, the Bureau alleges that during its supervision process, it found the lender submitted HMDA data for 2020 contained “widespread errors across multiple data fields” including 51 errors in 159 files and the lender violated a 2019 consent order condition that required it to improve its data practices. The alleged errors include (i) mistakes in inputting data concerning subordinate lien loans and acquired loans; (ii) inclusion of loans in HMDA reporting that did not meet the HMDA criteria for reportable applications; (iii) incorrect characterization of purchaser type for tens of thousands of loans; (iv) erroneous rate spread calculations, leading to errors in interconnected fields; (iv) inaccurate data related to lender credits; and (v) incorrect categorization of specific loan applications as “approved but not accepted” when they were, in fact, withdrawn, resulting in discrepancies in associated fields. Along with the HDMA violations and the violations of the 2019 consent order, the CFPB also alleges violations of the CFPA and requests that the court permanently enjoin the lender from committing future violations of HMDA, require the lender to take corrective action to prevent further violations of HMDA, injunctive relief, and the imposition of a civil money penalty.  

    Federal Issues CFPB Enforcement Lending Mortgage Lenders Mortgages Consumer Finance HMDA CFPA Data Collection / Aggregation

  • Massachusetts amends mortgage lender/broker licensing provisions

    Recently, the Massachusetts Office of Consumer Affairs and Business Regulation, Division of Banks announced final amendments effective May 27 to certain provisions of Regulation 209 CMR 42.00, which establishes procedures and requirements for the licensing and supervision of mortgage lenders under M.G.L. c. 255E. (See also redlined version of the final amendments here.) Specifically, the amendments:

    • Add and amend certain definitions. The amendments add new terms such as “Bona Fide Nonprofit Affordable Homeownership Organization” and “Instrumentality Created by the United States or Any State,” and amend “Mortgage Broker” to also include a “person who collects and transmits information regarding a prospective mortgage loan borrower to a third party” that conducts any one or more of the following activities: (i) collects a prospective borrower’s Social Security number; (ii) views a prospective borrower’s credit report; (iii) obtains a prospective borrower’s authorization to access or view the borrower’s credit report or credit score; (iv) accepts an application; or (v) issues a prequalification letter.
    • Add licensing exemptions. The amendments provide a list of persons that are not required to be licensed in the state as a mortgage broker or mortgage lender. These include: (i) lenders making less than five mortgage loans and persons acting as mortgage brokers fewer than five times within a 12 consecutive-month period; (ii) banks, national banking associations, federally chartered credit unions, federal savings banks, or any subsidiary or affiliate of the above; (iii) banks, trust companies, savings banks, and credit unions “organized under the laws of any other state; provided, however, that such provisions shall apply to any subsidiary or affiliate, as described in 209 CMR 42.0”; (iv) nonprofit, public, or independent post-secondary institutions; (v) charitable organizations; (vi) certain real estate brokers or salesmen; and (vii) persons whose activities are “exclusively limited to collecting and transmitting” certain quantities of specified information regarding a prospective borrower to a third party.

    The amendments also specifically provide that “a person who collects and transmits any information regarding a prospective mortgage loan borrower to a third party and who receives compensation or gain, or expects to receive compensation or gain, that is contingent upon whether the prospective mortgage loan borrower in fact obtains a mortgage loan from the third party or any subsequent transferee of such information, is required to be licensed as a mortgage broker.”

    Licensing State Issues State Regulators Massachusetts Mortgages Mortgage Lenders Mortgage Broker

  • Texas adopts numerous mortgage-related provisions

    Recently, the Texas Finance Commission promulgated amendments to regulations governing residential mortgage licensees. Specifically, rules applicable to (i) licensed Mortgage Loan Companies under the Residential Mortgage Loan Company Licensing and Registration Act, Tex. Fin. Code Ann. § 156.001 et seq., and (ii) licensed Mortgage Bankers and Mortgage Loan Originators (MLOs) under the Mortgage Banker Registration and Residential Mortgage Loan Originator Act and the Texas Fair Enforcement for Mortgage License Act, Tex. Fin. Code Ann. § 157.001 et seq., included several substantive updates.

    The amendments to rules governing Mortgage Loan Company licensees include:

    • 7 TAC 80.300, which provides in part that a “primary contact person” instead of the qualifying individual will receive any notice of examination.
    • 7 TAC 80.101, .102, .105-.107, which sets forth new sponsorship requirements for MLOs, clarifies renewal procedures, and implements a 10-day notice requirement for any material changes made to a licensee’s Form MU1.
    • 7 TAC 80.203, .204, .206, which sets forth new requirements for advertising, records storage, office locations, branch offices, and administrative offices, including requirements for licensees engaging in remote work.
    • 7 TAC 80.2, which updates references to definitions.

    The amendments to rules governing Mortgage Banker and Mortgage Loan Originator licensees include:

    • 7 TAC 81.300, which provides in part that a “primary contact person” instead of the qualifying individual will receive any notice of examination.
    • 7 TAC 81.101-.111, which sets forth new sponsorship requirements for MLOs, clarifies renewal procedures, implements a 10-day notice requirement for any material changes made to a licensee’s Form MU4, details new background check procedures for MLOs, and provides new criteria for reviewing an MLO applicant’s criminal history.
    • 7 TAC 81.203, .204, .206, which sets forth new requirements for advertising, records storage, office locations, branch offices, and administrative offices, including requirements for licensees engaging in remote work.
    • 7 TAC 81.2, which updates references to definitions.

    These amendments are effective on November 4, 2021. It is recommended Mortgage Company, Mortgage Banker, and MLO licensees in Texas review the amendments to these new rules.

    Licensing Texas Mortgages Mortgage Lenders Mortgage Servicing State Issues Loan Origination Mortgage Licensing State Regulators

  • CFPB settles with eighth lender on misleading VA advertising

    Federal Issues

    On September 14, the CFPB announced a settlement with an eighth mortgage lender for mailing consumers advertisements for Department of Veterans Affairs (VA) mortgages that allegedly contained misleading statements or lacked required disclosures. According to the Bureau, the lender offers and provides VA guaranteed mortgage loans, and allegedly sent false, misleading, and inaccurate direct-mail advertisements to servicemembers and veterans in violation of the CFPA, the Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. Among other things, the Bureau alleged the advertisements (i) failed to include required disclosures; (ii) stated credit terms that the lenders were not actually prepared to offer; (iii) made “misrepresentations about the existence, nature, or amount of cash available to the consumer in connection with the mortgage credit product”; (iv) gave the false impression the lenders were affiliated with the government; and (v) used the name of the consumer’s current lender in a misleading way.

    The settlement imposes a civil money penalty of $625,000 and bans the lender from future advertising misrepresentations similar to those identified by the Bureau. Additionally, the settlement requires the lender to use a compliance official to review mortgage advertisements for compliance with consumer protection laws.

    The latest enforcement action is part of the Bureau’s “sweep of investigations” related to deceptive VA-mortgage advertisements. Previously, the Bureau issued consent orders against seven other mortgage lenders for similar violations, covered by InfoBytes herehere and here.

    Federal Issues CFPB Mortgages Department of Veterans Affairs Mortgage Lenders CFPA UDAAP MAP Rule Regulation Z

  • CFPB settles with three more lenders on misleading VA advertising

    Federal Issues

    Recently, the CFPB announced settlements (see here, here, and here) with three mortgage lenders for mailing consumers advertisements for Department of Veterans Affairs (VA) mortgages that allegedly contained misleading statements or lacked required disclosures. According to the Bureau, the lenders offer and provide VA guaranteed mortgage loans, and allegedly sent false, misleading, and inaccurate direct-mail advertisements to service members and veterans in violation of the CFPA, the Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. Among other things, the Bureau alleges the advertisements (i) failed to include required disclosures; (ii)  stated credit terms that the lenders were not actually prepared to offer; (iii) made “misrepresentations about the existence, nature, or amount of cash available to the consumer in connection with the mortgage credit product”; and (iv) gave the false impression the lenders were affiliated with the government. Two of the lenders also allegedly used the name of the consumer’s current lender in a misleading way, and misrepresented that consumers would receive specific escrow refund amounts if they refinanced their mortgages, even though the advertised amounts “were calculated using a methodology that had no bearing on the actual escrow refund amount,” and consumers were often required to fund new escrow accounts upon generating new loans.

    In addition, one of the lender’s advertisements represented to consumers that they could “‘[s]kip two payments’ or ‘miss’ two payments by refinancing with the company,” but failed to disclose, among other things, that the skipped or missed payments would be added to the loan’s principal balance.

    The consent orders (see here, here and here) impose bans on future advertising misrepresentations similar to those identified by the Bureau, require the lenders to use a compliance official to review mortgage advertisements for compliance with consumer protection laws, and require compliance with certain enhanced disclosure requirements. The Bureau further imposes civil penalties of $225,000, $50,000, and $230,000 respectively against the lenders.

    The latest enforcement actions are part of the Bureau’s “sweep of investigations” related to deceptive VA-mortgage advertisements. In August and July, the Bureau issued consent orders against four other mortgage lenders for similar violations, covered by InfoBytes here and here.

     

    Federal Issues CFPB Enforcement Mortgages Department of Veterans Affairs Mortgage Broker Mortgage Lenders CFPA UDAAP MAP Rule Regulation Z

  • New York regulator issues guidance to regulated mortgage lenders and servicers regarding fees

    State Issues

    On September 1, the New York Department of Financial Services issued industry guidance instructing regulated mortgage lenders and servicers not to charge (or pass through to) consumers for mortgage default registration fees. The press release announcing the guidance notes that certain counties, cities, and municipalities in New York require mortgagees to pay a fee to register mortgages declared to be in default. Noting that consumers are facing financial hardship arising from the Covid-19 pandemic, the DFS guidance provides that these fees may not be passed on to consumers. Moreover, lenders and servicers who have charged consumers such fees must provide refunds, and must create a log of all borrowers who were charged such fees.

    State Issues Covid-19 New York Mortgages Mortgage Lenders Servicer Mortgage Servicing NYDFS Consumer Finance

  • CFPB settles with two mortgage companies over misleading VA loan advertisements

    Federal Issues

    On August 26, the CFPB announced a settlement with a mortgage company to resolve allegations that the company, which is licensed as a mortgage broker or lender in approximately 11 states, sent false, misleading, and inaccurate direct-mail advertisements to servicemembers and veterans for its VA-guaranteed loans in violation of the CFPA, Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. According to the Bureau, among other things, the mortgage company (i) advertised credit terms that the lenders were not actually prepared to offer; (ii) failed to clearly and conspicuously disclose payment terms; (iii) made numerous “misrepresentations about the existence, nature, or amount of cash available to the consumer in connection with the mortgage credit product”; and (iv) misrepresented the consumer’s repayment obligations by failing to state the amount of each payment that would apply over the term of the loan or failing to clearly and conspicuously state that actual payment obligations would be greater. In addition to a $260,000 civil money penalty, the consent order requires the company to enhance its compliance functions, designate a compliance official to review mortgage advertisements for compliance with consumer protection laws, and comply with certain enhanced disclosure requirements. Additionally, the company is prohibited from making similar misrepresentations in the future.

    Earlier on August 21, the CFPB also announced a settlement with a mortgage company to resolve allegations that the company sent false, misleading, and inaccurate direct-mail advertisements to servicemembers and veterans for its VA-guaranteed loans in violation of the CFPA, Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. According to the Bureau, among other things, the mortgage company (i) advertised credit terms that the lenders were not actually prepared to offer; (ii) described variable-rate loans as “fixed,” when in fact the rates were adjustable; (iii) falsely stated or implied that consumers with “FICO scores as low as 500” would qualify for advertised rates; and (iv) gave the false impression the lenders were affiliated with the government. In addition to a $150,000 civil money penalty, the consent order prohibits the company from making similar misrepresentations and requires the company to designate a compliance official to review mortgage advertisements for compliance with consumer protection laws.

    The latest enforcement actions are part of the Bureau’s “sweep of investigations” related to deceptive VA-mortgage advertisements. In July, the Bureau issued consent orders with two other mortgage lenders for similar violations, covered by InfoBytes here.

    Federal Issues CFPB Mortgages Department of Veterans Affairs Mortgage Broker Mortgage Lenders CFPA UDAAP MAP Rule Regulation Z Enforcement

  • CFPB settles with two mortgage lenders for misleading VA loan advertisements

    Federal Issues

    On July 24, the CFPB announced settlements with two mortgage lenders (here and here) for allegedly mailing consumers advertisements for Department of Veterans Affairs (VA) mortgages that allegedly contained misleading statements or lacked required disclosures. According to the Bureau, both lenders offer and provide VA guaranteed mortgage loans, and allegedly disseminated direct-mail advertisements to servicemembers and veterans in violation of the Mortgage Acts and Practices – Advertising Rule (MAP Rule) and Regulation Z. Among other things, the Bureau alleges the advertisements (i) stated credit terms that the lenders were not actually prepared to offer; (ii) described introductory interest rates as “fixed,” when in fact, the rates were adjustable; (iii) gave the false impression the lenders were affiliated with the government; and (iv) used the name of the consumer’s current lender in a misleading way. Both consent orders impose bans on future advertising misrepresentations similar to those identified by the Bureau and require the companies to use a compliance official to review mortgage advertisements for compliance with consumer protection laws. The Bureau imposes a civil penalty of $460,000 against one lender and a civil penalty of $645,000 against the other.

    Federal Issues CFPB Mortgages Department of Veterans Affairs Mortgage Lenders CFPA UDAAP MAP Rule Regulation Z

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