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Financial Services Law Insights and Observations


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  • CFPB looks at mortgage-pricing differences

    Federal Issues

    On May 24, the CFPB reported price dispersion trends in the mortgage industry, finding that borrowers could save at least $100 per month by choosing cheaper lenders. Price dispersion—the difference in interest rates charged by different lenders for the same loan product—is significant in the mortgage market, the Bureau said, following a review of 2021 HMDA data focusing on numbers for the 20 largest-volume lenders for each of the market segments. Examining price dispersion by loan type, including FHA and Department of Veterans Affairs loans, loans backed by Fannie Mae and Freddie Mac, and jumbo loans, the Bureau considered several potential factors contributing to price dispersion such as lender differences, competition, and increased demand. Additionally, the Bureau found that various options provided by lenders may account for different costs and choices made by consumers who may not select the cheapest option due to other factors that outweigh price differences. Data also suggested that competition in the mortgage market does not always translate into lower prices, the Bureau reported, noting that a recent study administered by the Bureau and the FHFA revealed that “most borrowers who recently took out a mortgage responded that they believe they would pay the same price regardless of which lender they choose” and that few borrowers consider more than two options. The data also found that lenders who choose to take on riskier loans may compensate for the risk by charging higher prices.

    Federal Issues CFPB Consumer Finance HMDA FHA Mortgages Department of Veterans Affairs Fannie Mae Freddie Mac

  • CFPB shutters mortgage lender, alleging deceptive advertising

    Federal Issues

    On February 27, the CFPB entered a consent order against a California-based mortgage lender (respondent) for alleged repeat violations of the Consumer Financial Protection Act, TILA (Regulation Z), and the Mortgage Acts and Practices Advertising Rule (Regulation N), in relation to a 2015 consent order. As previously covered by InfoBytes, in 2015, the Bureau claimed the respondent (which is licensed in at least 30 states and Puerto Rico and originates consumer mortgages guaranteed by the Department of Veterans Affairs and mortgages insured by the FHA) allegedly led consumers to believe it was affiliated with the U.S. government. Specifically, respondent allegedly used the names and logos of the VA and FHA in its advertisements, described loan products as part of a “distinctive program offered by the U.S. government,” and instructed consumers to call the “VA Interest Rate Reduction Department” at a phone number belonging to the mortgage lender, thus implying that the mailings were sent by government agencies. The 2015 consent order required the respondent to abide by several prohibitions and imposed a $250,000 civil money penalty.

    The Bureau contends, however, that after the 2015 consent order went into effect, the respondent continued to send millions of mortgage advertisements that allegedly made deceptive representations or contained inadequate or impermissible disclosures, including that the respondent was affiliated with the VA or the FHA. Additionally, the Bureau alleges that the respondent misrepresented interest rates, key terms, and the amount of monthly payments, and falsely represented that benefits available to qualifying borrowers were time limited. Many of these alleged misrepresentations, the Bureau claims, were expressly prohibited by the 2015 consent order.

    The 2023 consent order permanently bans the respondent from engaging in any mortgage lending activities, or from “otherwise participating in or receiving remuneration from mortgage lending, or assisting others in doing so.” The respondent, which neither admits nor denies the allegations, is also required pay a $1 million civil money penalty.

    Federal Issues CFPB Enforcement Mortgages Military Lending Consumer Finance CFPA TILA MAP Rule Regulation Z Regulation N Department of Veterans Affairs FHA

  • VA reduces funding fee for certain loans

    Agency Rule-Making & Guidance

    On February 14, the Department of Veterans Affairs announced a funding fee charge update for loans closed on or after April 7, 2023. According to Circular 26-23-06, funding fees are charged on VA transactions involving a home loan where a borrower does not qualify for a fee waiver. A reduced funding fee also applies to borrowers purchasing or constructing a home with a five or 10 percent down payment. The VA explained that lenders are to continue charging non-exempt veterans the current funding fee percentage for loans closed prior to April 7 (fee rates are listed here). For loans closed on or after April 7, lenders must charge the new funding fee percentage (fee rates are listed here).

    Agency Rule-Making & Guidance Federal Issues Department of Veterans Affairs Consumer Finance Fees Mortgages

  • VA to update appraisal requirements and guidance for guaranteed housing loans

    Federal Issues

    On December 27, President Biden signed H.R. 7735, the Improving Access to the VA Home Loan Benefit Act of 2022, which requires the Department of Veterans Affairs to update its regulations, requirements, and guidance related to appraisals for housing loans guaranteed by the agency. The regulations and requirements must specify when an appraisal is required, how an appraisal is to be conducted, and who is eligible to conduct an appraisal for such loans. The Act also requires the VA to submit recommendations to Congress no later than 90 days after the date of enactment for improving appraisal delivery times for VA loans. The agency must consider these recommendations when it prescribes its updated regulations and requirements. Additionally, the VA must provide guidance for desktop appraisals, taking into account situations where a desktop appraisal could provide cost savings for borrowers whereas “a traditional appraisal requirement could cause time delays and jeopardize the completion of a transaction.”

    Federal Issues Federal Legislation Appraisal Department of Veterans Affairs Biden

  • VA proposes amendments to IRRRL requirements

    Agency Rule-Making & Guidance

    On November 1, the Department of Veterans Affairs (VA) published a proposed rule in the Federal Register, which would amend the agency’s rules on VA-backed interest rate reduction refinancing loans (IRRRLs). Specifically, the proposed amendments would update existing VA IRRRL regulations to meet current statutory requirements for determining whether the agency can guarantee or insure a refinance loan. The amendments would modify current regulations to reflect requirements related to, among other things, net tangible benefit, recoupment, and seasoning standards. Additionally, due to confusion among program participants, VA is proposing clarifications to minimize the risk of lender noncompliance, thereby safeguarding veterans, easing lender concerns, reducing potential instability in the secondary loan market, and insulating taxpayers from unnecessary financial risk. Comments on the proposed rule are due January 3, 2023.

    Agency Rule-Making & Guidance Federal Issues Department of Veterans Affairs IRRRL Compliance

  • VA seeks comments on loss-mitigation options for guaranteed loans

    Federal Issues

    On October 17, the Department of Veterans Affairs published a proposed rule in the Federal Register related to the Department’s Loan Guaranty Service. The proposed rule requests public comments regarding the expansion of the VA’s incentivized loss mitigation options that are available to servicers assisting veterans whose VA-guaranteed loans are in default. Specifically, the VA encourages comments regarding “any other topic that will help VA as it explores whether to expand the incentivized loss-mitigation options outlined in VA regulation.” Comments are due by January 17.

    Federal Issues Agency Rule-Making & Guidance Department of Veterans Affairs Mortgages Mortgage Servicing Loss Mitigation Consumer Finance

  • VA clarifies Covid-19 forbearance timeline

    Federal Issues

    On September 19, the Department of Veterans Affairs issued a change to Circular 26-21-20 extending the rescission date to align with the end of Covid-19 pandemic, including conforming changes to VA’s expectation as to the completion of a forbearance period. As previously covered by InfoBytes, the VA issued Circular 26-21-20 in September 2021 to clarify timeline expectations for forbearance requests submitted by affected borrowers. The September 2021 Circular stated thar “[f]or borrowers who have not received a COVID-related forbearance as of the date of this Circular, servicers should approve requests from such borrowers provided that the borrower makes the request during the National Emergency Concerning the Novel Coronavirus Disease 2019 (COVID-19) Pandemic,” and that all Covid-19 related forbearances would end by September 30, 2022. However, Change 1 stated that “September 30, 2022” should be replaced with “six months after the end of the National Emergency Concerning the Novel COVID-19 Pandemic.” The circular is rescinded March 1, 2023.

    Federal Issues Department of Veterans Affairs Covid-19 Mortgages Forbearance Consumer Finance

  • Federal government directs agencies to eliminate medical debt as an indicator of creditworthiness

    Federal Issues

    On August 25, the Director of the Office of Management and Budget (OMB) issued a memo directing “agencies with direct loan and loan guarantee programs that focus on consumer loans or small and medium businesses where a consumer’s credit history is a factor, to whenever possible and consistent with the law take actions to reduce the impact of medical debt in the underwriting of Federal credit programs.” Although OMB recognized that some agencies such as the Department Veterans Affairs and the CFPB have already taken some steps to lessen medical debt burdens, it found that these prior efforts have been insufficient. Instead, the memo stresses that “[t]he collective efforts of the Federal Government, working with the private sector” are necessary to “remedy the impact of the issue of medical debt as an indicator for creditworthiness.” The memo outlines guidance for agencies to develop a plan to eliminate medical debt as a factor for underwriting in credit programs. These steps include (i) “[i]dentifying any statutory, regulatory, or administrative changes that would be required to modify criteria and consideration factors, exclude medical debt, or otherwise lessen the impact of medical debt consideration or underwriting in Federal lending programs”; (ii) conducting an “[i]nitial qualitative assessment and cost-benefit analysis of any statutory or regulatory changes” or any anticipated changes; (iii) conducting an “[a]ssessment of whether model updates are required for FCRA cost estimation, especially if the exclusion of medical debt would explicitly or implicitly affect particular underwriting requirements such as debt-to-income ratios, etc.”; and (iv) incorporating stakeholder input and assessing known risks that may impact an agency’s goal of achieving its plan.

    Federal Issues Medical Debt Consumer Finance OMB Underwriting Department of Veterans Affairs CFPB

  • California mortgage lender to pay $1 million to settle fraud allegations

    Federal Issues

    Recently, the United States Attorney for the Eastern District of Washington announced a settlement with a California-based mortgage lender to resolve allegations that it “improperly and fraudulently” originated government-backed mortgage loans insured by FHA, resulting in losses to the government when borrowers defaulted on their mortgages. The settlement concludes a joint investigation conducted by the U.S. Attorney’s Office and the Offices of Inspector General for the Department of Veterans Affairs and HUD, which commenced as required by the False Claims Act after a whistleblower (a former loan processor) filed a qui tam complaint against the lender in 2019. The whistleblower claimed that between December 2011 and March 2019, the lender knowingly underwrote certain FHA mortgages and approved some mortgages for insurance that failed to meet FHA requirements or qualify for insurance. The whistleblower further alleged that the lender “knowingly failed to perform quality control reviews that it was required to perform.”

    “By improperly originating ineligible mortgages, lenders take advantage of the limited resources of the FHA program and unfairly pass the risk of loss onto the public,” the U.S. Attorney said. According to the announcement, the lender agreed to pay more than $1.03 million under the terms of the settlement agreement. The whistleblower will receive $228,172 of the settlement proceeds, plus attorney’s fees, expenses, and costs.

    Federal Issues Courts DOJ FHA Mortgages HUD Department of Veterans Affairs False Claims Act / FIRREA Qui Tam Action

  • VA eliminates pre-approval process for certain loans

    Federal Issues

    On May 19, the Department of Veterans Affairs (VA) issued Circular 26-22-09 to announce new procedures for loan approval and new procedures for processing joint loans. The Circular explains that, historically, the Department conducted a pre-closing review of loan application packages when the borrower had been rated unable to manage financial affairs and has a VA-appointed fiduciary. The Department also conducted a pre-closing review of cases where a loan would include more than one veteran using entitlement. In both cases, “the lender has sent such loan application packages to VA in advance of loan closing, and loan closing has not been able to proceed until after VA has issued approval.” The Circular noted that in an effort to streamline procedures to improve the veteran experience, the Department “has determined that such case-by-case reviews add a step that VA no longer believes necessary for ensuring program integrity.” The Circular also noted that that post-audit oversight would be as effective as a pre-closing review in maintaining program integrity, without the delays and additional administrative burdens that can be associated with the historical process. The Circular is effective immediately.

    Federal Issues Agency Rule-Making & Guidance Department of Veterans Affairs Consumer Finance Mortgages Mortgage Servicing