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Financial Services Law Insights and Observations


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  • FDIC Releases Second Quarter CRA Examination Schedule


    On February 28, the FDIC issued its Second Quarter Community Reinvestment Act (CRA) Examination Schedule for the following regions: New York, Atlanta, Chicago, Kansas City, Dallas and San Francisco. The entities listed on the schedules were chosen for CRA examinations based on the FDIC’s criteria which states that, absent reasonable cause, for institutions with $250 million or less in assets, those with a CRA rating of “Satisfactory” would be examined no more than once every 48 months, and those institutions with a CRA rating of “Outstanding” would be examined no more than once every 60 months. Public comments on the institutions to be examined under the CRA are encouraged and will be considered if received prior to the completion of the examination.

    Lending Banking CRA FDIC

  • FTC Reaches Settlement in Mortgage Relief Scheme with Final Defendant


    On February 23, the FTC announced that it had reached a settlement with the final defendant facing charges originally brought against six mortgage relief operations in 2014. The FTC had alleged that the defendants preyed on distressed homeowners by claiming to be able to lower mortgage payments and interest rates or prevent foreclosures, while illegally charging advance fees. The stipulated order requires the defendant to pay $105,487, which represents the amount of money he received from the scam, and imposes a total judgment of more than $1.7 million which will become due immediately if it is found that the defendant misrepresented his finances. The defendant was also banned from the mortgage and debt relief business. Certain other defendants reached settlements in 2016, which, in addition to imposing a judgment of more than $1.7 million, also prohibited them from participating in the mortgage and debt relief business.

    Courts Lending FTC Mortgage Fraud

  • Appellate Court Holds Secondary Market Mortgage Investor Not Liable Under ECOA for Discriminatory Conduct of Unaffiliated Originator


    On February 16, the U.S. Court of Appeals for the Fifth Circuit issued an opinion addressing whether Section 8 mortgage applicants may claim discrimination under the Equal Credit Opportunity Act (ECOA) by both a mortgage originator and a subsequent investor in the secondary mortgage market. See Alexander v. AmeriPro Funding, Inc. No. 15-20710, 2017 WL 650193 (5th Cir. Feb. 16, 2017). At issue before the Appellate Court were claims alleging that both the mortgage originator that interacted with borrowers, made credit decisions, and actually gave mortgages to home buyers, and the investor, engaged in the business of investing in or buying mortgages originated by the mortgage originator, were subject to liability for discriminatory conduct in violation of ECOA based upon plaintiffs’ allegations that “they applied for mortgages through [the mortgage originator] and that [the mortgage originator] did not consider their Section 8 income in processing the application because it intended to sell the mortgages to [the investor].”

    Ultimately, the Court denied all but a small subset of the various claims asserted by plaintiffs.  Among other things, the Court held: (i) that the record did not support a claim that the investor—having purchased the mortgages at issue in the secondary market after execution—discriminated against and/or failed to consider Section 8 income in assessing the creditworthiness of any plaintiff; (ii) that plaintiffs’ allegations concerning their application with the mortgage originator could not also be applied to a subsequent secondary mortgage investor such as the investor; and (iii) that the record similarly did not support a finding that  the investor was a “creditor” with respect to the plaintiffs and/or the mortgage agreements entered into with the mortgage originator.

    The Appellate Court did, however, side with plaintiffs as to those claims against the mortgage originator that set forth facts plausibly alleging conduct on the part of the mortgage originator that might constitute improper discounting of Section 8 income in assessing their creditworthiness. The Appellate Court reversed the district court’s dismissal as to those claims and remanded for further proceedings.

    Notably, the Court expressly disagreed with the CFPB’s argument (as amicus) for a broader definition of “creditor” under ECOA and Regulation B’s definition of the term because it determined that “a potential assignee who establishes underwriting guidelines for its purchases but does not influence individual credit it not a creditor,” and that Regulation B’s definition would not include “those who have no direct involvement whatsoever in an individual credit decision.”

    Courts Lending Discrimination ECOA Regulation B

  • California Department of Business Reaches $225 Million Settlement with Servicing Company

    State Issues

    On February 17, the California Department of Business Oversight (DBO) announced a settlement with a national mortgage servicer, resolving allegations that the company committed numerous violations of state and federal laws and regulations. The allegations arose from examinations of the company’s servicing practices by a third-party auditor. The examinations were conducted pursuant to a January 23, 2015 consent order entered into by the DBO and the company, and covered the period of January 1, 2012 through June 30, 2015. The 2017 consent order requires the company to pay $20 million in borrower restitution, mandates that the company provide borrowers with $198 million of debt forgiveness through loan modifications over three years, and imposes $5 million in penalties, attorney’s fees, and costs. However, the terms of the order also restore the company’s ability to service new California mortgages.

    State Issues Lending Mortgage Servicing DBO

  • 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.

    Lending Fannie Mae Department of Treasury Mortgage Lenders

  • FHFA Seeks Public Comment on Criteria for Evaluating Banks Subject to Review Under FHLB Community Support Program

    Agency Rule-Making & Guidance

    In connection with its 2017 biennial review of all FHLB members under FHFA’s community support requirements regulation, FHFA is seeking public comment on the community support requirements regulation that establishes standards a FHLB member must meet in order to maintain access to long-term advances. The regulation also establishes review criteria that the FHFA must apply in evaluating a member’s’ Community Reinvestment Act performance and their record of lending to first-time homebuyers. Comments must be submitted to the agency by March 31.

    Agency Rule-Making & Guidance Lending FHFA FHLB

  • CFPB’s Monthly Complaint Report Focuses on Mortgages

    Consumer Finance

    On February 8, the CFPB released its monthly complaint report for December 2016. The report focused on complaints about mortgages. Along with debt collection and credit reporting, the report stated that mortgages are consistently among the three products and services generating the most complaints to the CFPB, and that since July 21, 2011, mortgages have been the second-most-complained-about product, representing 24 percent of all complaints. The most common issues raised by consumers are problems that arise when they are unable to pay their mortgage, such as issues related to loan modifications, collection, and foreclosure. Such issues were raised in 49 percent of complaints about mortgages. Other common issues raised in consumer complaints relating to mortgages include making payments (such as the misapplication of payments (33 percent)), applying for a mortgage (9 percent), signing the agreement (5 percent), and getting an offer of credit (3 percent).

    The Report also noted that student loans showed the greatest increase in complaints year-over-year of any product or service—a 109 percent jump. The CFPB believes the increase may be due, at least in part, to the result of a February 2016 update to its student loan intake form allowing the submission of complaints about Federal student loan servicing. During the same period, complaints about prepaid products, payday loans, and mortgages declined by 59 percent, 23 percent, and 5 percent respectively—continuing a trend also observed in the Bureau’s last complaint report.

    Consumer Finance Lending CFPB Consumer Complaints Debt Collection Mortgages

  • CFPB Releases Second Webinar on New HMDA Rule


    On February 14, the CFPB announced the availability of a second Webinar on the New Home Mortgage Disclosure Act (HMDA) Rule (amending Regulation C), a Rule that was itself finalized in late 2015 but that is predominantly not effective until January 1, 2018, or later. The new Webinar, with audio and closed-captioning over a slide-deck, focuses solely on identifiers and other “data points,” including the race and ethnicity of an applicant or borrower, which must be collected under the New HMDA Rule. In August 2016, the CFPB released an initial Webinar on the same Rule, covering a broader range of topics and without the focus on data points in the newer Webinar.

    In addition, the Bureau has now made available a one-page chart to summarize the options a financial institution has for collecting and reporting ethnicity and race information under current Regulation C, Regulation C effective January 1, 2018, and the Bureau’s Official Approval Notice (issued on September 23, 2016). All of the above-mentioned resources and many more related materials (such as an unofficial transcript we prepared of the initial Webinar) can also be found in Buckley Sandler’s HMDA Resource Center.

    Lending Consumer Finance CFPB HMDA Regulation C

  • CFPB to Explore “Alternative Data” as Means to Measure the “Credit Invisible”

    Consumer Finance

    On February 16, the CFPB published a Request for Information seeking information about the “use or potential use” of “alternative data” and/or modeling techniques that might help increase access to credit for consumers who otherwise lack sufficient credit history. As explained by the Bureau in a press release, and as previously covered by InfoBytes, millions of Americans have insufficient credit history to produce a credit score. Accordingly, the Bureau is seeking public feedback on the benefits and risks of utilizing alternative sources of information–such as bills for mobile phones and rent payments–that may be used to make lending decisions involving consumers whose lack of credit history might otherwise exclude them from lending opportunities.

    In prepared remarks delivered at a field hearing on alternative data, CFPB Director Richard Cordray noted, among other things, that "equal access to credit means even more if overall access to credit is expanded and not constrained by lingering uncertainty about how regulators intend to apply fair lending laws. So we have crafted this Request for Information to help us better understand whether and how such uncertainty may be hindering credit access for disadvantaged populations. We also want to learn more about how the Consumer Bureau might reduce that uncertainty while holding fast to the anti-discrimination principles that are the cornerstones of federal law."

    Consumer Finance Lending CFPB Cordray Credit Scores


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