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CFPB proposes permanent HMDA thresholds
On May 2, the CFPB issued a Notice of Proposed Rulemaking (NPRM), which would permanently raise coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under the HMDA rules. Specifically, the proposal would permanently raise the reporting threshold for closed-end mortgage loans from 25 loans in each of the two preceding calendar years to either 50 or 100 closed-end loans in each of the preceding two calendar years. As previously covered by InfoBytes, the CFPB temporarily increased the threshold for open-end lines of credit from 100 loans to 500 loans for calendar years 2018 and 2019. The current proposal would extend that temporary threshold to January 1, 2022, and then permanently lower the threshold to 200 open-end lines of credit after that date. Lastly, the proposal incorporates, with minor adjustments, the interpretive and procedural rule issued in August 2018 (2018 Rule), which implemented and clarified the HMDA amendments included in Section 104(a) of the Economic Growth, Regulatory Relief, and Consumer Protection Act (previously covered by InfoBytes here). The proposal includes additional interpretive information related to the partial exemptions in the 2018 Rule, including how the partial exemption rules apply after a merger or acquisition. The Bureau is proposing that these changes take effect January 1, 2020. Comments on the NPRM must be received within 30 days of publication in the Federal Register.
The Bureau also issued an Advance Notice of Proposed Rulemaking (ANPR) seeking information on the costs and benefits of reporting certain data points under HMDA. Additionally, the ANPR also seeks information about the requirement that institutions report certain commercial-purpose loans made to a non-natural person and secured by a multifamily dwelling. Comments on the ANPR must be received within 60 days of publication in the Federal Register.
District Court: Usury claim not preempted by National Bank Act
On April 24, the U.S. District Court for the Western District of Pennsylvania denied in part and granted in part a national bank’s motion to dismiss a complaint alleging violations of, among other things, the Pennsylvania Loan Interest and Protection Act (“Act 6”). The allegations stem from the bank’s servicing of the plaintiffs’ mortgage. Pursuant to a settlement agreement reached between the parties in a separate 2012 lawsuit over alleged misrepresentations made by the bank concerning whether the plaintiffs were in arrears in their mortgage and escrow payments, the mortgage principal was reset. The plaintiffs asserted that although they made timely monthly payments, a 2014 mortgage statement reflected an escrow shortage, including unpaid late charges and outstanding advance/fees. Arguing that because the loan servicers refused their allegedly timely payments, which increased the principal balance, the plaintiffs claimed that the bank breached the terms of the settlement agreement by adding the unauthorized charges without providing notice. However, the bank argued—and the court concurred—that the breach of contract claim was outside the applicable statute of limitations. The plaintiffs further alleged that the bank charged an interest rate that exceed the rate permitted under Act 6, and that the loan servicer charged the plaintiffs “undisclosed, excessive, and retaliatory attorney’s fees ‘from at least one if not two prior lawsuits,’ in violation of the [s]ettlement [a]greement and Act 6,” along with other “unwarranted charges.”
Concerning the bank’s motion to dismiss the Act 6 usurious interest rate claims based upon preemption, the court referred to the loan’s origination and rejected the bank’s argument that the usury claim was preempted by the National Bank Act, explaining that the homeowners’ mortgage was originated by a non-national bank even though a national bank was later assigned the note and mortgage. Additionally, the court rejected the bank’s argument that the Act 6 claim of unlawful attorney fees was barred by the applicable four-year statute of limitations. According to the court, “an Act 6 claim for excessive fees accrues upon payment of said fee; it does not accrue upon charge of the fee or upon the obligor’s knowledge of the fee.” However, the court determined that the plaintiffs failed to adequately allege that they made “the requisite unlawful payments of usurious interest or unlawful attorney’s fees” required to state valid Act 6 claims. As such, the court dismissed the Act 6 claims without prejudice.
4th Circuit: RESPA time-bar annulled by fraudulent concealment
On April 26, the U.S. Court of Appeals for the 4th Circuit reversed a district court’s dismissal of five plaintiffs’ putative class actions alleging RESPA violations, concluding that the claims were not time-barred due to the fraudulent concealment tolling doctrine. According to the opinion, between 2009 and 2014, several banks and mortgage companies (collectively, “defendants”) referred plaintiffs to a title company to procure title insurance and obtain settlement services, which allegedly provided the defendants with “several forms of ‘unearned fees and kickbacks’ to induce those referrals” in violation of RESPA. The plaintiffs alleged the kickbacks came in the form of payments to advertising and marketing shell companies for the referrals, which would then make payments to brokers or loan officers of the defendants. The district court dismissed the class actions because the first of the five class actions was not filed until June 2016, which was well beyond the one-year statute of limitations under RESPA.
On appeal, the plaintiffs argued that they were entitled to relief under RESPA because the kickback scheme was allegedly “fraudulently concealed” by the defendants by using “sham” entities and not reporting the payments on the plaintiffs’ HUD-1 settlement statements. The 4th Circuit agreed, concluding that the district court erred in dismissing the plaintiffs’ claims. The appellate court noted that Congress did not intend to “allow individuals and entities that conceal their unlawful kickback schemes and other RESPA violations to reap the benefit of the statute of limitations as a defense.” Rejecting the defendants’ assertion that publicly-available information, including earlier court filings, should have “‘excited further inquiry’” by the plaintiffs to timely file the action, the appellate court emphasized that the fraudulent concealment doctrine requires only “reasonable diligence” and does not “necessarily hold individual borrowers to the diligence standard of combing court filings in potentially related cases, particularly when the borrower has no reason to be aware of the related cases.”
Georgia exempts certain retailers from mortgage licensing requirements
On April 18, the Georgia governor signed HB 212, which amends the Official Code of Georgia Annotated relating to the licensing of mortgage lenders and mortgage brokers. Under the Act, the following persons, who meet certain requirements, are exempt from state licensing requirements: “retailers and retail brokers of manufactured homes, mobile homes, or residential industrialized buildings.” The Act also revises the definition of a “mortgage broker” to remove the aforementioned categories from the term, and further provides that a “mortgage broker” does not include employees of exempt persons who satisfy specific requirements. The Act takes effect July 1.
Maryland approves bills on debt settlement services, mortgage lenders, and credit service businesses
On April 18, the Maryland governor approved several bills concerning debt settlement service providers, mortgage lenders, and credit service businesses.
Under HB 59, registrants providing debt settlement services are required to apply for a license or renewal and obtain a valid unique identifier issued by the Nationwide Multistate Licensing System and Registry (NMLS) on or after July 1. HB 59 also requires the Office of the Commissioner of Financial Regulation (OCFR) to establish a time period of at least two months within which registrants must transfer licensing information to NMLS. Additionally, registration fees are decreased to $400 from $1,000 for the issuance or renewal of a registration.
HB 61 amends the Annotated Code of Maryland related to mortgage lenders, loan servicers, and loan originators to, among other things, (i) alter and clarify certain tangible net worth requirements and criteria for mortgage lenders, servicers, and originators; (ii) repeal a provision that requires licensees to reapply for a license should a location change request not be filed in a timely manner with the OCFR; (iii) extend examination cycle periods; and (iv) amend certain expiration provisions related to mortgage loan originator licensees. The amendments take effect October 1.
Finally, SB 68 amends the definition of a “credit service business” to mean, among other things, any person who represents the ability to provide advice or assistance to consumers concerning improving a consumer’s credit record, establishing a new credit file, or obtaining credit extensions. SB 68 also exempts certain credit services businesses from certain information statement requirements when engaged to obtain an extension of credit for a consumer. Credit services businesses that qualify for an exemption must provide the consumer with certain information concerning the right to file a complaint as well as a copy of the contract before the consumer executes the contract. SB 68 takes effect October 1.
District Court enters first significant decision under CFPB’s ATR/QM Rule
On March 26, the U.S. District Court for the Southern District of Ohio, in what appears to be the first significant decision on claims brought against a mortgage lender under the CFPB’s Ability-to-Repay/Qualified Mortgage Rule, granted summary judgment in favor of the lender. The court rejected plaintiff’s claims that his bank improperly relied on income under his spousal support agreement, stating that “[t]he fact that Plaintiff and [his spouse] did not keep the separation agreement and instead opted to divorce – a series of events which reduced Plaintiff’s income by an order of magnitude – was not an event that was reasonably foreseeable to the Bank.” The court also noted that, “[a]lthough Plaintiff is now in his eighties, he is a repeat player in the field of real estate and mortgages, and a consumer of above-average sophistication.” While this decision does not break new legal ground, it does provide useful insights into how courts may respond to inherently fact-specific claims about the underwriting of individual loans.
FHFA director Calabria stresses urgency in housing finance reform
On April 15, Mark Calabria was sworn in as the new Director of the FHFA and stressed the importance of mortgage finance reform in his first remarks in the role. Calabria warned that the current mortgage finance system remains “vulnerable,” noting that “[a]fter years of strong house price growth, too many remain locked out of housing, while others are dangerously leveraged. We must not let this opportunity for reform pass.” Calabria also acknowledged the March memo released by the White House, outlining the Administration’s plan for federal housing finance reform (covered by InfoBytes here) which, among other things, directs the Secretary of the Treasury to develop a plan to end the conservatorships of Fannie Mae and Freddie Mac (GSEs). Calabria stated that he looks forward to working with the Administration on such reforms.
DOJ settles with multinational corporation for $1.5 billion over RMBS
On April 12, the DOJ announced that a multinational corporation will pay $1.5 billion in a settlement resolving claims brought under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) that a financial services subsidiary of the corporation misrepresented the quality of loans it originated in connection with the marketing and sale of residential mortgage-backed securities (RMBS). According to the DOJ, between 2005 and 2007, the majority of the mortgage loans sold by the subsidiary for inclusion in RMBS did not comply with the quality representations made about the loans. Specifically, the loan analysts allegedly approved mortgage loans that did not meet criteria outlined in the company’s underwriting guidelines, as they would receive additional compensation based on the number of loans they approved. The DOJ asserts that there were inadequate resources and authority for the subsidiary’s quality control department, resulting in deficiencies in risk management and fraud controls. Additionally, if an investment bank were to reject a loan due to defects in the loan file, the DOJ alleges the subsidiary would attempt to find a new purchaser, without disclosing the previous rejection or identifying the alleged defects. The corporation does not admit to any liability or wrongdoing, but agreed to pay a $1.5 billion civil money penalty to resolve the matter.
New Mexico amends financial lending licensing requirements
On April 2, the New Mexico governor signed HB 584, which amends the Collection Agency Regulatory Act and the Motor Vehicle Sales Finance Act to, among other things, require sales finance companies obtain a license to conduct business in the state. The bill outlines licensing requirements for such companies. State and national banks authorized to do business in the state are not required to obtain a license under the Motor Vehicle Sales Finance Act, “but shall comply with all of its other provisions.” Under HB 584, the Director of the Financial Institutions Division of the Regulation and Licensing Department may utilize the Nationwide Multistate Licensing System and Registry (NMLS) or other entities designated by the NMLS in order to receive and process licensing applications. The Director is also granted the authority to issue and deny licenses.
HB 584 also amends definitions used within the state’s Mortgage Loan Originator Licensing Act, and outlines provisions related to (i) licensing, registration, renewal, and testing requirements; (ii) certain exemptions; (iii) the issuance of temporary licenses to out-of-state mortgage loan originators who are both licensed through the NMLS and complete the mandatory education and testing requirements; and (iv) continuing education requirements. HB 584 also grants the Director the authority to establish rules for licensing challenges; “deny, suspend, revoke or decline to renew a licenses for a violation of the New Mexico Mortgage Loan Originator Licensing Act”; and impose civil penalties for violations.
Furthermore, HB 584 also amends the definitions used within the state’s Uniform Money Services Act and the Collection Agency Regulatory Act by listing licensing application requirements, and granting the Director the same authorities provided above.
The amendments take effect July 1, 2019.
Utah applies RESPA provisions to title entity affiliated business arrangements
On March 29, the Utah governor signed SB 121, which modifies certain title insurance definitions and provisions and adopts, with certain exceptions, Section 8 of RESPA for the purposes of state law governing affiliated business arrangements involving title entities. SB 121 “repeals existing provisions governing controlled business relationships in the title industry,” and permits an “affiliated business arrangement” as defined under 12 U.S. Code § 2602, with the exception that the “services that are the subject of the arrangement do not need to involve a federally related mortgage loan.”
Specifically, title entities with affiliated-business arrangements will be regulated by the state’s Division of Real Estate (Division), which has enforcement authority over the bill’s provisions, including over certain RESPA provisions against real estate licensees such as “failing to timely disclose to a buyer or seller an affiliated business relationship.” Title companies are also required to file annual reports to the Division related to affiliated business arrangements as well as capitalization for the previous calendar year. SB 121 further provides a specific list of RESPA violations pertaining to affiliated business arrangements. The amendments take effect 60 days after adjournment of the legislature.