InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Massachusetts Regulator Offers Interpretation of Mortgage Loan Originator Exclusivity Requirement
On May 10, the Division of Banks of the Massachusetts Office of Consumer Affairs and Business Regulations (Division) issued a letter determining that a professional employer organization (PEO) may provide limited human resources services to Massachusetts licensed mortgage lenders and brokers without violating an exclusivity requirement governing the employment of mortgage loan originators in the Commonwealth. The exclusivity requirement prohibits Massachusetts licensed mortgage loan originators from being employed by more than one “entity,” which, as defined by Massachusetts General Laws Chapter 255F, Section 4(b), effectively prohibits a mortgage loan originator from being employed by more than one mortgage lender or broker. The opinion letter stems from a request made last year from a Massachusetts-based human resources service provider (Service Provider) inquiring as to whether the exclusivity requirement prohibits Massachusetts licensed mortgage lenders and brokers employing mortgage loan originators from outsourcing human resource services. The Service Provider—operating as a PEO—stated that it provides human resources services to small business clients, and while it is deemed the “employer” of the client's employees solely for designated human resource functions, the client remains the employer for all other purposes. Because of this, and since the Service Provider offers functions that are unrelated to a loan originator's mortgage industry work, the Division asserted “that the exclusivity provision . . . operates to limit a mortgage loan originator to a single licensed mortgage broker or lender for purposes of the originator's mortgage industry work.” Accordingly, the Division concluded that the Service Provider may provide its services to Massachusetts licensed mortgage lenders and brokers without violating the exclusivity requirement.
California Department of Business Reaches $1.4 Million Settlement with Michigan-Based Mortgage Lender and Servicer
On April 10, the California Department of Business Oversight (DBO) announced a settlement with a California-licensed mortgage lender and servicer—whose principal place of business is based in Michigan—resolving allegations that the company violated California’s statutory restriction on per diem interest. California law prohibits lenders from “charging interest on mortgage loans prior to the business day that immediately precedes the day the loan proceeds are disbursed.” Pursuant to the consent order, the allegations against the company arose from two regulatory examinations conducted by DBO in 2011 and 2013, whereby the company—in order to avoid an enforcement action—agreed to cooperate fully with DBO’s request for audits, to refund per diem overcharges, and to consent to the issuance of the final order to pay refunds, penalties, and discontinue further violations. The terms of the consent order include $293,127 in refunds previously provided to approximately 3,400 borrowers for loans funded between August 2011 and May 2015, as well as future restitution to additional borrowers identified in required self audits of loans made between from June 2015 through February 2018. The order further requires the company to pay an additional $1.1 million in penalties for identified overcharges, as well as $125 for each additional violation discovered in the self audits.
CFPB Proposes Amendment to Regulation B to Harmonize Regulation B with Other Mortgage Lending Regulations
On March 24, the CFPB announced the release of its proposal to amend Regulation B (12 CFR Part 1002), which implements the ECOA, a federal civil rights law that protects applicants from discrimination by lenders. According to the Bureau, the proposed amendment is intended to “provide additional flexibility for mortgage lenders concerning the collection of consumer demographic information.” Specifically, the regulation, as amended, would allow lenders to use the updated Uniform Residential Loan Application form adopted by Fannie Mae and Freddie Mac in 2016, rather than the 2004 version currently included in Regulation B, along with additional changes that would permit lenders to employ more uniform practices.
As explained in a March 24 CFPB blog post, a core justification for the proposed change is consistency and clarity with respect to other Bureau rules. While ECOA and Regulation B generally prohibit creditors from asking loan applicants about their race, religion, ethnicity, national origin, or gender, in some cases, such as mortgage loans, other regulations (i.e., Regulation C and the HMDA) require creditors to specifically ask for some of the very same information – including, for instance, race and ethnicity. To address this issue, the proposed amendments would allow institutions not subject to HMDA reporting requirements to choose on an “application-by-application basis” between two approaches to collecting personal demographic data from applicants: either the more limited, aggregate race and ethnicity categories required by Regulation B, or the disaggregated and more expansive categories required for HMDA-reporting institutions under revisions to Regulation C effective in 2018. The new rule would also create a safe harbor allowing for the collection (in certain circumstances) of data previously barred by Regulation B, establish consistent race and ethnicity categories that could be used in complying with both Regulation B and C.
Comments on the proposal will be due within 30 days of its publication in the Federal Register.
CFPB Issues Largest HMDA Fine in Bureau History Against Nonbank Mortgage Lender
On March 15, the CFPB announced a consent order assessing a $1.75 million civil money penalty against a national mortgage lender for failing to accurately report mortgage data in violation of the Home Mortgage Disclosure Act (“HMDA”). The Bureau alleged that, during the supervision process, it found the lender’s HMDA compliance systems to be flawed, and that the flaws led to the generation of “significant, preventable” errors in its mortgage lending data. The following violations were also alleged: (i) a failure to “maintain detailed HMDA data collection and validation procedures”; (ii) a failure to “implement adequate compliance procedures”; and (iii) a failure to “consistently define data among its various lines of business,” which resulted in data discrepancies. As reported by the Bureau, the size of the penalty reflects the lender’s market size, the magnitude of the errors, and its history of violations. The terms of the consent order require the lender to pay a $1.75 million penalty, develop an effective compliance management system to prevent future violations, and review and correct HMDA reporting inaccuracies for the defined time period. Notably, the consent order does not provide for consumer redress.
Later that day, the mortgage lender issued a statement announcing the resolution of the Bureau’s examination and highlighting the company’s efforts “over the past two years” to “proactively ma[ke] substantial investments in new staff, training and technology to enhance all of [their] HMDA-related processes and controls.”
Illinois-Based Lender, HUD Resolve Fair Housing Act Matter
On March 10, HUD released a Conciliation Agreement with an Illinois-based lender alleged to have discriminated against African-American and Hispanic borrowers seeking mortgage loans. The complaint, brought by HOPE Fair Housing Center (HOPE), claims the lack of bank branches in majority African-American and Hispanic communities resulted in fewer financial services being offered to applicants based on their race and national origin in violation of the Fair Housing Act. HOPE’s complaint also claims that African-American and Hispanic applicants were more likely to receive less favorable mortgage terms than other races. As part of the settlement, the lender will establish a $1 million loan program to “increase mortgage lending to residents in majority African-American and Hispanic areas” and will pay $75,000 to HOPE. Among other things, the agreement also states the lender will offer consumer education outreach in minority areas and provide fair lending training for its staff.
Fannie Mae Reports Earnings of $5 Billion for Fourth Quarter; $12.3 Billion for 2016
On February 17, Fannie Mae announced that it had reported net income of $5 billion for the fourth quarter of 2016 and $12.3 billion for fiscal year 2016. These figures exceeded previous earnings of $3.2 billion for the third quarter of 2016 and $11.0 billion for fiscal year 2015. According to a company statement, “fair value gains in the fourth quarter of 2016 were due primarily to increases in longer-term interest rates positively impacting the value of the company’s risk management and mortgage commitment derivatives.” The fourth quarter 2016 net income, while higher than in the third quarter, was “partially offset by a shift to a provision for credit losses in the fourth quarter compared with a benefit for credit losses in the third quarter.” Fannie attributed its year-over-year net income increase to “a higher benefit for credit losses and lower foreclosed property expense” and “[l]ower fair value losses in 2016 compared to 2015.”
Following the strong results, Fannie said it would pay a $5.5 billion dividend to the U.S. Treasury in March, bringing its total dividend payments to $159.9 billion since it entered federal conservatorship in 2008.
Kentucky Regulator Announces New Licensing Requirement for Mortgage Servicers
On December 22, the Kentucky Department of Financial Institutions (the “Department”) issued a memorandum stating that master servicers and sub servicers are required to be licensed as mortgage loan companies under the Kentucky Mortgage Licensing and Regulation Act, unless they can document to the Department in writing that an exemption applies to them. The memorandum defines “master servicer” as “any entity or individual that owns the right to perform servicing of a mortgage loan. A master servicer typically reserves the legal right to either perform the servicing itself or to do so through a sub servicer.” The memorandum specifies that “[a] sub servicer does not own the right to perform mortgage servicing, but performs servicing on behalf of a master servicer, generally premised upon duties enumerated in a contract between the sub servicer and master servicer.” The licensing requirement is effective March 1, 2017.
CFPB Outlines Fair Lending Priorities for 2017
On December 16, the Director of the Office of Fair Lending and Equal Opportunity at the CFPB announced the Bureau’s fair lending priorities for 2017. According to Ms. Ficklin’s blog post, the CFPB will increase its efforts to prevent credit discrimination and improve credit access by focusing on redlining, mortgage and student loan servicing, and small business lending. Specifically, the Bureau will increase its focus on evaluating: (i) whether lenders are intentionally avoiding lending in minority neighborhoods; (ii) if delinquent borrowers face more difficulty in working out payment arrangements with mortgage or student loan servicers because of their race or ethnicity; and (iii) whether women-owned and minority-owned small businesses experience discrimination when applying for credit.
FHFA Increases Conforming Loan Limits for 2017
Last week, on November 23, the FHFA announced that it will raise the maximum conforming loan limits for mortgages purchased by Fannie Mae and Freddie Mac in 2017 from $417,000 to $424,000. The announcement marks the first time FHFA has increased the baseline loan limit since 2006. In high-cost areas, such as Los Angeles, New York, San Francisco, and Washington, D.C., the maximum loan limit will be $636,150. Meanwhile, limits rose in all but 87 counties in the country. View the list of counties seeing increases here.
Supreme Court Hears Oral Arguments on Whether City Has Standing to Bring Mortgage Suits
On November 8, the Supreme Court heard oral arguments in Bank of America Corp. v. City of Miami, addressing whether the Fair Housing Act permits Miami to sue mortgage lenders as an “aggrieved person” for alleged racial discrimination in the sale, rental, and financing of housing. The questions presented to the Court for decision are whether (i) the language in the Fair Housing Act that limits standing to sue to “aggrieved person[s]” means that Congress meant to impose a more narrow standing requirement than that in Article III of the Constitution; and (ii) the proximate cause standard in the Fair Housing Act requires that the plaintiffs show more than the possibility that the defendants could have foreseen the harm that occurred through a chain of consequences.