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On March 10, a divided U.S. Court of Appeals for the Fourth Circuit affirmed a district court’s summary judgment that an appraisal practice common before 2009 was unconscionable under the West Virginia Consumer Credit and Protection Act. According to the opinion, a class of borrowers filed a lawsuit against a lender and an appraisal management company, alleging the defendants relayed home value estimates provided by borrowers on their applications to appraisers and allegedly asked appraisers “to take another look” if the appraisal value came in lower than the estimated value. The plaintiffs claimed, among other things, that this practice constituted a breach of contract and unconscionable inducement under West Virginia law. Plaintiffs also filed a civil conspiracy claim against the defendants. The district court conditionally certified the class. It ultimately imposed a $9.6 million statutory penalty and awarded class members the appraisal fees paid as damages for breach of contract in an amount totaling nearly $1 million. However, no damages were awarded for conspiracy. The defendants appealed, arguing that summary judgment was wrongfully granted and that the class should not have been certified since individual issues predominated over common ones.
On appeal, the majority determined, among other things, that the acceptability of the challenged practice “shifted dramatically during the class period,” and that “[w]hat started out as a common (though questionable) practice became one that, in short order, was explicitly forbidden.” The majority determined the plaintiffs established their claim for unconscionable inducement, and that it “was unethical for Defendants to attempt to pressure or influence appraisers.” The majority also affirmed the district court’s ruling on the conspiracy claim. However, the appellate court concluded that the district court improperly granted summary judgment on the breach of contract claim and ordered the district court to reexamine whether breach of contract occurred and whether the plaintiffs suffered resulting damages.
The dissenting judge called the majority opinion “startling,” writing that “[t]his is an unjust punishment indeed for a company that followed a practice that was both customary and legal and only later modified to avoid potentially influencing appraisers.”
On March 11, the FHFA announced the extension of several loan origination guidelines put in place to assist borrowers during the Covid-19 pandemic. Specifically, FHFA extended until April 30 existing guidelines related to: (i) alternative appraisal requirements on purchase and rate term refinance loans; (ii) alternative methods for documenting income and verifying employment before loan closing; and (iii) the expanded use of power of attorney to assist with loan closings. The extensions are implemented in updates to Fannie Mae Lender Letters LL-2021-03 and LL-2021-04, and Freddie Mac Guide Bulletin 2021-10 and Selling FAQs.
On October 28, FHA issued Mortgagee Letter 2020-37, which re-extends the effective date of the employment reverification guidance in Mortgagee Letter 2020-05, previously covered here, here, here, and here. The Mortgagee Letter also updates the appraisal scope of work inspection option providing for exterior-only appraisals, which limits face-to-face contact for certain transactions affected by Covid-19. The updated appraisal guidance is effective on November 1, 2020 and is applicable to appraisals with an effective date on or before December 31, 2020. The extension of the employment reverification guidance is effective immediately for cases closed on or before December 31, 2020.
On October 1, 2020, the U.S. Department of Housing and Urban Development issued Mortgagee Letter 20-33, which extends interim procedures regarding site access issues related to Section 232 mortgage insurance applications during the Covid-19 pandemic (previously covered here and here). The guidance provides temporary modifications pertaining to third-party site inspections for Section 232 FHA-insured healthcare facilities effective through December 31, 2020. The letter also provides guidance on other aspects relating to Section 232 properties, including regarding lender underwriter site visits, appraisals, and inspections on new construction, among other things.
Recently, the OCC, Federal Reserve Board, and FDIC (collectively, “the agencies”) adopted four interim final rules issued as a result of the Covid-19 pandemic as two final rules. Highlights of the rules include:
- Regulatory Capital. The agencies issued a final rule covering revisions to the regulatory capital rule and the liquidity coverage ratio (LCR) rule made under three interim final rules. The final rule, which adopts three of the interim final rules as final with no changes, (i) allows financial institutions to participate in the Money Market Mutual Fund Liquidity Facility (MMLF) and Paycheck Protection Program Lending Facility (PPPLF) by neutralizing the regulatory capital effects of participating in each of the programs (covered by InfoBytes here and here); and (ii) modifies the agencies’ LCR rule to support participation in the MMLF and the PPPLF (covered by InfoBytes here).
- Appraisals and Evaluations. The agencies adopted as final, with one revision, an interim final rule (covered by InfoBytes here) allowing regulated financial institutions to defer completion of appraisals and evaluations for certain residential and commercial real estate transactions, excluding those involving the acquisition, development, and construction of real estate. Financial institutions are allowed up to 120 days from the closing date to obtain the required appraisal or evaluation in order to expedite the liquidity needs of borrowers. The final rule is effective through December 31.
On August 28, the FHA issued Mortgagee Letter 2020-28, which re-extends the effective date of Mortgagee Letter 2020-05, previously covered here, here, and here. The re-extension of appraisal guidance in Mortgagee letter 2020-05 is effective immediately for appraisals with an effective date on or before October 31, 2020. The extension of re-verification of employment guidance is effective immediately for cases closed on or before October 31, 2020.
On August 18, HUD announced the availability of a new electronic appraisal delivery module on the FHA Catalyst platform. According to the announcement, the “FHA Catalyst: Electronic Appraisal Delivery” module can be used by lenders to electronically submit, track, and manage single family appraisal reports and updates for FHA Single Family Title II forward mortgages. Assistant Secretary for Housing and Federal Housing Commissioner Dana Wade noted that the new electronic appraisal module is “one more way FHA is supporting the housing market with innovative technology during the COVID-19 economic recovery.” Among other details, Mortgagee Letter 2020-26 states that lenders may begin using the new module on or after September 1.
Pursuant to Executive Order 202.11 (previously discussed here), the Department of State, Division of Licensing Services, announced that any license issued by the division that expires after March 27, 2020, will remain in effect until September 5, 2020. Further, the announcement notes that the Appraisal Subcommittee of the Federal Financial Institutions Examination Council has advised that appraisers within New York have been granted a 90-day deferment for meeting continuing education requirements. A license holder that is eligible to renew and does not need the extension is encouraged to renew the license. Other license holders may rely on the above extensions.
On June 29, the FHA issued Mortgagee Letter 2020-20, which re-extends the effective date of Mortgagee Letter 2020-05, previously covered here and here. The re-extension of appraisal guidance in Mortgagee letter 2020-05 and of re-verification of employment guidance in Mortgagee Letter 2020-05 are effective immediately for cases closed on or before August 31, 2020.
On May 19, Washington issued guidelines for the real estate industry during Phase 2 of the state’s reopening plan. Among other things, the guidelines prohibit in-person meetings with customers except when necessary to view a property or sign documents and limit attendance at on-site activities—such as such as appraisals, viewings, or walkthroughs — to three people.
- Jonice Gray Tucker to moderate “Pandemic relief response and lasting impacts on access, credit, banking, and equality” at the American Bar Association Business Law Section Spring Meeting
- Jeffrey P. Naimon to discuss "Post-pandemic CFPB exam preparation" at the Mortgage Bankers Association Spring Conference & Expo
- Jonice Gray Tucker to discuss "Making fair lending work for you" at the Mortgage Bankers Association Spring Conference & Expo
- Jonice Gray Tucker to discuss "Reading the tea leaves of President Biden’s initial financial appointees" at LendIt Fintech
- APPROVED Webcast: Staying in the know with Buckley regtech solutions
- Moorari K. Shah to discuss “CA, NY, federal licensing and disclosure” at the Equipment Leasing & Finance Association Legal Forum
- Jonice Gray Tucker to discuss "Compliance under Biden" at the WSJ Risk & Compliance Forum
- Sherry-Maria Safchuk to discuss UDAAP at an American Bar Association webinar
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference