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Nebraska amends mortgage licensing law
On March 7, the Nebraska governor approved LB 355, which amends various sections of the state’s financial laws, including the Nebraska Residential Mortgage Licensing Act (RMLA). Among other things, the RMLA is being amended to (i) provide requirements for the submission of fingerprints for specified principals of mortgage firm applications; (ii) adopt the transitional licensing process required by federal law, effective November 24, 2019, to allow certain federally-registered mortgage loan originators and mortgage loan originators licensed by another state to temporarily conduct business in Nebraska for up to 120 days after becoming employed by a Nebraska-licensed mortgage firm; (iii) limit the term of inactive mortgage loan originator licensees; and (iv) change the records retention period from three to five years. The amendments take effect September 2019.
FHA removes ten-year protection plan requirements
On March 12, HUD released Mortgagee Letter 2019-05, which alters home warranty requirements for FHA single-family mortgage insurance by removing the policy guidance that required borrowers to purchase ten-year protection plans in order to qualify for certain mortgages on newly constructed single-family homes. The borrower is still required to obtain a one-year warranty, which should commence on the date that title is conveyed to the borrower, the date that construction is completed, or the date that the borrower occupies the house, whichever occurs first. The changes are effective on March 14.
OCC identifies key data fields for HMDA reporters
On March 7, the OCC released Bulletin 2019-12, which identifies the key HMDA data fields for full and partial reporters. Specifically, the Bulletin highlights the 37 key data fields for banks required to report all of the data set forth in the CFPB’s October 2015 and August 2017 HMDA amendments, as well as, the 21 key data fields required for banks that qualify for the partial HMDA exemption pursuant to the May 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act. According to the Bulletin, OCC examiners will focus on the identified key data fields during transaction testing pursuant to HMDA for data collected on or after January 1, 2018. The Bulletin rescinds OCC Bulletin 2017-41, “Home Mortgage Disclosure Act: Interagency Key Fields.”
As previously covered by InfoBytes, in December 2018, the Federal Reserve Board, the FDIC, and the OCC issued joint guidance regarding the same key data fields that Federal Reserve examiners would use to evaluate the accuracy of HMDA data collected since January 1, 2018.
VA encourages loan holders to extend relief to Alabama borrowers
On March 8, the Department of Veterans Affairs (VA) issued Circular 26-19-07, requesting relief for homeowners impacted by severe weather in Alabama. Among other things, the Circular encourages loan holders to (i) extend forbearance to borrowers in distress because of the wildfires; (ii) establish a 90-day moratorium from the date of the disaster on initiating new foreclosures on affected loans; (iii) waive late charges on affected loans; and (iv) suspend reporting affected loans to credit bureaus. The Circular is effective until April 1, 2020. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
Find continuing InfoBytes coverage on disaster relief here.
HOLA preemption question moves to 9th Circuit
On February 27, the U.S. District Court for the Northern District of California granted a national bank’s request to certify for interlocutory appeal whether state law claims involving interest on escrow accounts were preempted by the Home Owners Loan Act (HOLA). As previously covered by InfoBytes, three plaintiffs filed suit against the bank, arguing that it must comply with a California law that requires mortgage lenders to pay interest on funds held in a consumer’s escrow account, following the U.S. Court of Appeals for the 9th Circuit’s decision in Lusnak v. Bank of America. The bank moved to dismiss the action, arguing, among other things, that the claims were preempted by HOLA. The court acknowledged that HOLA preempted the state interest law as to the originator of the mortgages, a now-defunct federal thrift, but disagreed with the bank’s assertion that the preemption attached throughout the life of the loan, including after the loan was transferred to a bank whose own lending is not covered by HOLA. Specifically, the court looked to the legislative intent of HOLA and noted it was unclear if Congress intended for preemption to attach through the life of the loan, but found a clear goal of consumer protection.
By granting the motion for interlocutory appeal, the court noted that the frequency with which the HOLA issue arises, “weighs in favor of allowing the Ninth Circuit to resolve this question.” Moreover, the court cited to a recent 9th Circuit case, in which the appellate court recognized HOLA preemption as a “novel legal issue.” The court also temporarily granted the bank’s request to stay the proceedings pending the resolution of the 9th Circuit action.
CFPB analyzes first-time homebuying data for servicemembers
On March 1, the CFPB released its latest Quarterly Consumer Credit Trends report titled, “Mortgages to First-time Homebuying Servicemembers,” which analyzes mortgages made to first-time homebuying active duty servicemembers and veterans (collectively defined as “servicemembers”). The report, using data from the Bureau’s Consumer Credit Panel (CCP) supplemented with data on military service, offers information on the mortgage choices and mortgage performance outcomes of servicemembers who bought homes between 2006 and 2016. Key findings include:
- The share of first-time homebuying servicemembers using the U.S. Department of Veterans Affairs (VA) guaranteed home loan program significantly increased, from 30 percent before 2007 to 63 percent in 2009. By 2016, 78 percent of servicemembers relied on a VA mortgage for their first home loan.
- Conventional mortgages, which accounted for approximately 60 percent of loans among first-time homebuying servicemembers in 2006 and 2007, declined to 13 percent by 2016. During this period, the use of conventional mortgages among non-servicemembers also decreased, as the use of FHA and U.S. Department of Agriculture (USDA) increased.
- In 2016, the median servicemember first-time homebuyer VA loan amount was $212,000, increasing from $156,000 in 2006.
- Early delinquency rates for nonprime servicemember first-time VA-loan borrowers decreased from an average of 5 percent to 7 percent in 2006 and 2007 to slightly above 3 percent in 2016. Notably, early delinquency rates were lower for active duty VA-loan borrowers than for veteran VA-loan borrowers.
FHFA issues rule on GSE uniformity in TBA market
On February 28, the Federal Housing Finance Authority (FHFA) issued a final rule that requires government-sponsored enterprises Fannie Mae and Freddie Mac (GSEs) to harmonize programs, policies, and practices affecting the cash flows of To-Be-Announced (TBA)-eligible mortgage-backed securities (MBS). The final rule—which codifies requirements that take effect May 6—takes into account commenter feedback by, among other things, making explicit the consequences of misalignment and directing the GSEs to lower the maximum mortgage note rate eligible for MBS inclusion. The final rule applies to both the GSEs’ current offerings of TBA MBS, as well as to the new uniform MBS, which the GSEs will start issuing June 3 (previously covered by InfoBytes here).
Arkansas modifies Fair Mortgage Lending Act
On February 26, the Arkansas Governor signed SB 188, which amends certain provisions of the state’s Fair Mortgage Lending Act (the Act) to comply with recent developments in federal law. Among other things, the amendments, which take effect 90 days after adjournment, include (i) modifying the Act’s definition of an “applicant” and “licensee” to now include transitional loan officers; (ii) specifying that an “exempt person” must comply with outlined compensation limits, mortgage banker affiliation disclosures, and loan term negotiation restrictions; (iii) defining a “transitional loan officer” to mean “an individual who, in exchange for compensation as an employee of, or who otherwise receives compensation or remuneration from, a mortgage broker or mortgage banker, is authorized to act as a loan officer subject to a transitional loan officer license,” with term limits of no more greater than 120 days and is not subject to commissioner reapplication, renewal, or extension requirements; and (iv) outlining transitional loan officer termination conditions and employment restrictions. The amendments also address audited financial statement requirements for mortgage bankers and servicers, and state that transitional loan officers may now be subject to criminal background investigations should the state join a multistate automated licensing system.
District Court denies class certification in RMBS action
On February 15, the U.S. District Court for the Southern District of New York denied class certification in an action brought by an investment company against a bank acting as trustee for five residential mortgage-backed securities trusts in which the company invested. The investment company filed a class action suit against the trustee asserting claims for breach of contract, breach of the duty of trust, and violations of the Trust Indenture Act. Among other things, the allegations concern whether the trustee “failed to fulfil certain contractual duties triggered by the discovery of breaches of ‘representations and warranties’” when the underlying mortgages allegedly were found not to be of the promised quality. The investment company also alleged that the trustee failed to exercise its rights to require the companies that sold the mortgages in question “to cure, substitute, or repurchase the breaching loans.”
In dismissing class certification, the court found that questions of law or fact common to all class members did not dominate individual issues. The court held that there was no proof that the liability claims of potential class members who held certificates in one trust would be relevant to the claims of other potential class members in one of the other trusts, and that the individualized questions “involve relatively complex legal and factual inquiries—requiring considerable resources in comparison to those questions which are capable of class-wide resolution.”
NY high court keeps one RMBS suit alive, rejects another
On February 19, the New York State Court of Appeals issued two rulings in cases brought by a trustee against a seller and sponsor of three residential mortgage-backed securities (RMBS) trusts.
The first action involved a lawsuit filed by the trustee more than six years after the execution of the relevant Pooling and Servicing Agreement (PSA). The seller/sponsor moved to dismiss the complaint asserting that it was time-barred because the trustee failed to comply with the sole remedy provision within the six-year statute of limitations. The trustee alleged that its claim was timely because it should relate back to a similar action a certificate holder had timely filed against the seller/sponsor. The lower court granted the motion to dismiss the action with prejudice and the appellate division affirmed. On review by the state’s highest court, the Court affirmed, noting that a complaint only can relate back to a prior action where a valid pre-existing action has been filed. In this instance, the Court found that the certificate holder’s action was not valid because, as lower courts concluded, the PSA’s no action clause prevented the certificate holder from bringing an action against the seller/sponsor on behalf of itself or the trustee. Thus, there was no valid claim for which the trustee’s claim could relate back.
The second case involved a different action brought by the same trustee against the same seller/sponsor related to a different RMBS trust. In that case, the lower court dismissed the action without prejudice, concluding the action was timely-filed, but the trustee failed to comply with the sole remedy provision of the PSA and other controlling agreements. Specifically, the lower court concluded the trustee failed to provide notice of the suspected breach, allowing the loan originator 90 days to cure or repurchase the allegedly non-compliant loans. The appellate division affirmed the dismissal without prejudice, allowing the trustee to refile. The seller/sponsor appealed, arguing the case should be dismissed with prejudice because the trustee did not comply with its obligations under the sole remedy provision within the six-year limitations period. The Court of Appeals disagreed, determining the sole remedy provision is “a procedural condition precedent that does not impact the running of the six-year statute of limitations,” and therefore, does not foreclose refiling of the action. Thus, the action was properly dismissed without prejudice as CPLR 205(a) states that if a timely-filed action that has been terminated for any reason other than those specified in the statute, a second action based on the same transactions or occurrences can be commenced within six months of dismissal of the first action.