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  • FHFA includes rental history in underwriting

    Agency Rule-Making & Guidance

    On August 11, FHFA announced that Fannie Mae will consider rental payment history in its risk assessment processes to expand access to credit in a safe and sound manner. According to FHFA, the update to Fannie Mae’s systems will provide future borrowers the benefit of a positive rental payment history to be included in an underwriting decision.

    Agency Rule-Making & Guidance FHFA Fannie Mae Underwriting Mortgages

  • CFPB finds varying pandemic response among servicers

    Federal Issues

    On August 10, the CFPB released an overview report of Covid-19 pandemic responses from 16 large mortgage servicers (servicers). The CFPB used supervisory data from the servicers to understand how they are interacting with homeowners throughout the pandemic and if those interactions are effective. The CFPB’s observations include the following:

    • According to the report, most servicers reported abandonment rates, a measure of how many borrowers disconnected from servicing calls before completion, of less than 5 percent during the reporting period, while others exceeded 20 percent, and one peaked at 34 percent.
    • Many servicers saw increased rates of borrowers who were delinquent upon exiting pandemic hardship forbearance programs in March and April 2021 compared to previous months. According to the report, these borrowers “may be at risk of harm from advanced delinquency, foreclosure and foreclosure-related costs, and negative credit reporting.”
    • Delinquency rates ranged from about 1 percent to 26 percent for federally-backed and private loans. According to the report, “[d]elinquency rates increased sharply around March 2020 and remain elevated.”
    • According to the CFPB, “[n]early half of servicers in the report clearly stated that they did not collect or maintain information about borrowers’ LEP [limited English proficiency] status, which may lead to borrowers not receiving needed language assistance. Some of the servicers also reported not maintaining data on borrowers’ race, which may raise the risk of fair lending violations.”
    • The report found that denial rates for Covid-19 hardship forbearance requests were consistently low for both federally-backed loans and private loan forbearance programs.

    According to the CFPB, the Bureau “will continue its oversight work through examinations and enforcement, and it will hold servicers accountable for complying with existing regulatory requirements, as well as the amended Mortgage Servicing Rules that take effect August 31, 2021.”

    Federal Issues CFPB Mortgage Servicing Mortgages Covid-19 Forbearance Consumer Finance

  • Fed announces flood insurance violations

    Federal Issues

    On August 3, the Federal Reserve Board announced an enforcement action against a Tennessee-based bank for alleged violations of the National Flood Insurance Act (NFIA) and Regulation H. The consent order assesses a $26,500 penalty against the bank for an alleged pattern or practice of violations of Regulation H but does not specify the number or the precise nature of the alleged violations. The maximum civil money penalty under the NFIA for a pattern or practice of violations is $2,252 per violation.

    Federal Issues Federal Reserve Enforcement Flood Insurance National Flood Insurance Act Regulation H Mortgages Bank Regulatory

  • 2nd Circuit: Bankruptcy rule on post-petition mortgage fee notices does not authorize punitive sanctions

    Courts

    On August 2, the U.S. Court of Appeals for the Second Circuit vacated a sanctions order imposed on a mortgage servicer in three chapter 13 cases. According to the opinion, the servicer sent the debtors monthly mortgage statements listing fees that allegedly had not been properly disclosed in the three bankruptcy cases. The United States Bankruptcy Court for the District of Vermont then sanctioned the mortgage servicer $225,000 for violating court orders issued in two of the debtors’ cases, which had declared the debtors current on their mortgages and enjoined the servicer from challenging that fact in any other proceeding. The bankruptcy court also sanctioned the servicer $75,000 for violating Bankruptcy Rule of Procedure 3002.1, which requires creditors to provide formal notice to a debtor and trustee of new post-petition fees and charges and authorizes the bankruptcy court to impose sanctions for non-compliance.

    On appeal, the 2nd Circuit held that Rule 3002.1 “does not authorize punitive monetary sanctions,” and that the servicer “did not, as a matter of law, violate the court orders.” The appellate court added that “[a] broad authorization of punitive sanctions is a poor fit with Rule 3002.1’s tailored enforcement mechanism and limited purpose,” noting that the bankruptcy court in this case is “apparently the first and only one to impose punitive monetary sanctions under the rule.” While the bankruptcy court raised “serious concerns” about whether the servicer “is making a good faith effort to comply with Rule 3002.1,” the appellate court concluded that “[a] concern, even a serious concern, is not a finding.” Concluding that the $225,000 sanction was based on an improper finding of contempt, the appellate court vacated and reversed the order.

    Courts Mortgages Bankruptcy Appellate Second Circuit

  • FDIC releases June enforcement actions

    Federal Issues

    On July 30, the FDIC released a list of administrative enforcement actions taken against banks and individuals in June. During the month, the FDIC issued 14 orders and one decision, consisting of “four Orders to Pay Civil Money Penalties, one Section 19 Application, two Orders Terminating Consent Orders, four Orders of Termination of Insurance, and six Orders of Prohibition from Further Participation.” Among the orders is a civil money penalty imposed against a South Dakota-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank “[m]ade, increased, extended or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without requiring that the collateral be covered by flood insurance.” The order requires the payment of a $30,000 civil money penalty.

    The FDIC also imposed a civil money penalty against a Missouri-based bank concerning alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank “made, increased, extended or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without providing timely notice to the borrower and/or the servicer as to whether flood insurance was available for the collateral.” The order requires the payment of a $1,000 civil money penalty.

     

     

    Federal Issues FDIC Enforcement Flood Insurance Flood Disaster Protection Act Mortgages Bank Regulatory

  • DFPI releases report on CRMLA

    State Issues

    On August 2, the California Department of Financial Protection and Innovation released a report examining residential mortgage lending, rates, consumer complaints, foreclosures, and other data elements during 2020. The DFPI compiled data submitted by licensed non-bank mortgage lenders under the California Residential Mortgage Lending Act (CRMLA). According to the report, “nonbank residential mortgage loans doubled from 2019 to 2020 as more Californians refinanced or obtained new loans in response to lower interest rates despite the economic downturn that resulted from the COVID-19 pandemic.” The report also noted that there was an approximate 68 percent decrease in foreclosures in response to Covid-19 moratoriums meant to protect consumers and an almost 19 percent decline in complaints. Other key findings include that (i) the number of mortgage loans originated increased by 100.5 percent; (ii) the number of loans brokered increased by 52.7 percent; and (iii) the aggregate average amount of loans serviced by licensees each month increased by 12.4 percent compared to 2019.

    State Issues DFPI Mortgages Nonbank Covid-19

  • CFPB, FHFA release updated data on borrowers’ mortgage experiences

    Federal Issues

    On July 29, the CFPB and FHFA released updated loan-level data for public use, which provides insights into borrowers’ experiences during the process of obtaining residential mortgages, as well as their perceptions of the mortgage market and future expectations. The data, collected through the National Survey of Mortgage Originations, adds mortgage data from 2018 through 2019. Key highlights include: (i) the percentage of respondents who reported not being concerned about qualifying for a mortgage during the application process increased from 48 to 51 percent for home purchase mortgages and 57 to 66 percent for refinances; (ii) having an option for a paperless online mortgage process continued to remain relatively high in terms of importance (40 percent for home purchase mortgages and 44 percent for refinances); and (iii) the percentage of respondents who applied for a mortgage through a mortgage broker increased from 42 to 46 percent for home purchase mortgages and 30 to 38 percent for refinances, whereas the percentage of respondents who applied directly through a bank or credit union decreased from 54 to 49 for home purchase mortgages and 67 to 61 for refinances.

    Federal Issues CFPB FHFA Mortgages Mortgage Origination Consumer Finance

  • District Court approves supplemental $22 million class action foreclosure settlement

    Courts

    On July 26, the U.S. District Court for the Northern District of California granted preliminary approval of a proposed supplemental class settlement, adding new class members who were not part of the list of borrowers included in the court’s October 2020 original settlement order. The supplemental settlement provides more than $21.8 million for additional class members who lost their homes after allegedly being denied loan modifications from a national bank. Class members include borrowers who allegedly should have qualified for loan modifications but were not offered a home loan modification or repayment plan “due to excessive attorney’s fees being included in the loan modification decisioning” and “whose home[s] [the bank] sold in foreclosure.” According to the court’s order granting class certification, a software glitch allegedly caused a calculation error, which resulted in certain fees being misstated and led to incorrect mortgage modification denials. The original settlement set aside $1 million to compensate borrowers who endured “severe emotional distress” as a result of the error, and the supplemental settlement will provide new class members the same opportunity to apply for additional settlement amounts.

    Courts Class Action Settlement Mortgages Foreclosure

  • CSBS releases regulatory prudential standards for nonbank mortgage servicers

    State Issues

    On July 26, the Conference of State Bank Supervisors (CSBS) released model state regulatory prudential standards for nonbank mortgage servicers. The prudential standards provide states with “a consistent framework that ensures covered nonbank servicers maintain the financial capacity to serve consumers and investors with heightened transparency, accountability and risk management standards.” According to CSBS, in the past 10 years, the nonbank mortgage servicer market has grown from 6 percent to 60 percent of the government agency mortgage market, representing at least 45 percent of the servicing market overall, with “[n]onbank mortgage servicers currently administer[ing] roughly three-quarters of the servicing for loans in Ginnie Mae mortgage backed-securities” (encompassing loans to veterans, first-time homebuyers, and low-to-moderate income borrowers). In response to concerns raised by state regulators about the lack of state standards to address servicers’ capital and liquidity levels, as well as inadequate corporate governance and board oversight identified by state and federal examiners, state regulators approved the prudential standards, which focus on two main areas: financial condition and corporate governance. The prudential standards—which “align with existing federal minimum eligibility requirements, wherever practical, to minimize regulatory burden for servicers”—cover both agency and non-agency servicing, and apply to servicers that service at least 2,000 loans and operate in at least two states. Exempt are small servicers that do not meet the minimum requirements, reverse mortgage loan servicers, not-for-profit mortgage servicers, and housing agencies. State agency commissioners are also given the authority to “increase requirements for high-risk servicers or even suspend the requirements in times of economic, societal or environmental volatility.” The prudential standards are part of CSBS’s eight Networked Supervision 2021 priorities, which are intended to advance its “strategy to streamline nonbank licensing and supervision and generate new data for risk analysis through expanded use of technology platforms.”

    State Issues CSBS State Regulators Nonbank Mortgages Mortgage Servicing

  • 7th Circuit vacates $59 million CFPB penalty against mortgage-assistance relief companies

    Courts

    On July 23, the U.S. Court of Appeals for the Seventh Circuit vacated a 2019 restitution award in an action brought by the CFPB against two former mortgage-assistance relief companies and their principals (collectively, “defendants”) for violations of Regulation O. As previously covered by InfoBytes, in 2014, the CFPB, FTC, and 15 state authorities took action against several foreclosure relief companies and associated individuals, including the defendants, alleging they made misrepresentations about their services, failed to make mandatory disclosures, and collected unlawful advance fees. The district court’s 2019 order (covered by InfoBytes here) held one company and its principals jointly and severally liable for over $18 million in restitution, while another company and its same principals were held jointly and severally liable for nearly $3 million in restitution. Additionally, the court ordered civil penalties totaling over $37 million against company two and four principals.

    In 2021, the principals urged the 7th Circuit to vacate the judgment, arguing, among other things, that the restitution order used the company’s net revenues instead of net profits in determining restitution and that they were exempt from liability because Regulation O exempts properly licensed attorneys engaged in providing mortgage-assistance relief services as part of the practice of law, provided they comply with state law and regulations. The principals also disagreed with the district court’s finding that they acted recklessly in calculating the civil penalty amount, contending that “they were not aware of a risk that their conduct was illegal.”

    The 7th Circuit reviewed the application of the U.S. Supreme Court’s ruling in Liu v. SEC, which held that a disgorgement award cannot exceed a firm’s net profits (covered by InfoBytes here). While the Bureau argued that Liu focused on disgorgement and not restitution, the appellate court held that the Bureau’s interpretation was “too narrow a reading of Liu.” According to the appellate court, “Liu’s reasoning is not limited to disgorgement; instead, the opinion purports to set forth a rule applicable to all categories of equitable relief, including restitution.” The appellate court vacated the restitution award and remanded the suit for recalculation based on net profits.

    With respect to the alleged violations of Regulation O, the appellate court affirmed the district court’s ruling, concluding that attorneys who are subject to liability for violating consumer laws “cannot escape liability simply by virtue of being an attorney.” However, the appellate court vacated the recklessness finding in the civil penalty calculation pertaining to certain of the defendants, writing that “[a]lthough we have found that they were not engaged in the practice of law, the question was a legitimate one. We consider it a step too far to say that they were reckless—that is, that they should have been aware of an unjustifiably high or obvious risk of violating Regulation O.” The appellate court ordered the district court to apply the penalty structure for strict-liability violations. Additionally, the 7th Circuit remanded an injunction which permanently banned the principals from providing “debt relief services,” finding that the injunction requires “some tailoring” as the violations at issue involved mortgage-relief services and not debt-relief services.

    Courts CFPB Enforcement Appellate Seventh Circuit Regulation O Mortgages

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