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FFIEC releases 2022 HMDA data
On June 29, the Federal Financial Institutions Examinations Council (FFIEC) released the 2022 HMDA data on mortgage lending transactions at 4,460 covered institutions (an increase from the 4,338 reporting institutions in 2021). Available data products include: (i) the Snapshot National Loan-Level Dataset, which contains national HMDA datasets as of May 1; (ii) the HMDA Dynamic National Loan-Level Dataset, which is updated on a weekly basis to reflect late submissions and resubmissions; (iii) the Aggregate and Disclosure Reports, which provide summaries on individual institutions and geographies; (vi) the HMDA Data Browser where users can customize tables and download datasets for further analysis; and (v) the Loan/Application Register for filers of 2022 HMDA data.
The 2022 data includes information on 14.3 million home loan applications, of which 11.5 million were closed-end and 2.5 million were open-end. The Snapshot revealed that an additional 287,000 records were from financial institutions making use of the Economic Growth, Regulatory Relief, and Consumer Protection Act’s partial exemptions that did not designate closed-end or open-end status. Observations from the data relative to the prior year include: (i) the percentage of mortgages originated by non-depository, independent mortgage companies decreased, accounting for “60.2 percent of first lien, one- to four-family, site-built, owner-occupied home-purchase loans, down from 63.9 percent in 2021”; (ii) the percentage of closed-end home purchase loans for first lien, one- to four-family, site-built, owner-occupied properties made to Black or African American borrowers increased from 7.9 percent in 2021 to 8.1 percent in 2022, while the share of these loans made to Hispanic-White borrowers decreased slightly from 9.2 percent to 9.1 percent and the share made to Asian borrowers increased from 7.1 percent to 7.6 percent; and (iii) “Black or African American and Hispanic-White applicants experienced denial rates for first lien, one- to four-family, site-built, owner-occupied conventional, closed-end home purchase loans of 16.4 percent and 11.1 percent respectively, while the denial rates for Asian and non-Hispanic-White applicants were 9.2 percent and 5.8 percent respectively.”
FHA requires info on language preference, homeowner education in mortgage originations
On June 27, FHA announced lenders will have to submit information about borrowers’ language preferences and homeownership education or housing counseling history through the Supplemental Consumer Information Form when originating mortgages for FHA insurance. According to FHA, borrowers may choose to provide all, some, or none of the information requested on the form, and lenders must transmit any information the borrower disclosed. The information collected from the form will allow the administration to have a better aggregate view of language preferences, which FHA stated, “will influence its future actions to continue breaking down language and other barriers to homeownership.” On June 13, FHA also announced the availability of Chinese, Korean, Spanish, Tagalog, and Vietnamese versions of more than 30 single family mortgage documents and related resources associated with FHA programs.
CFPB levies $25 million penalty for EFTA violations
On June 27, the CFPB entered a consent order against a Nebraska-based payment processor and its Delaware-based subsidiary for alleged violations of the EFTA (Regulation E), and the Consumer Financial Protection Act’s prohibition against unfair acts and practices. According to the Bureau, in 2021 the respondent’s employees allegedly used sensitive consumer financial information while conducting internal testing, without employing the proper information safety protocols. The internal tests allegedly created payment processing files that were treated as containing legitimate consumer bill payment orders. According to the Bureau, the erroneous bill payment orders were allegedly sent to consumers’ banks for processing, which resulted in approximately $2.3 billion in mortgage payments being debited from nearly 500,000 borrower bank accounts without their knowledge or authorization. The Bureau alleged in its order that some consumers accounts were depleted, “depriving Affected Consumers of the use of their funds, including by being prevented from making purchases or completing other legitimate transactions, and many were charged fees, including fees for insufficient funds or overdrawn accounts.” While neither admitting nor denying any of the allegations, the respondent has agreed to pay a $25 million penalty, stop activities the Bureau deemed unlawful, and adopt and enforce reasonable information security practices.
CFPB puts spotlight on “banking deserts” in the south
On June 21, the CFPB published a data spotlight, titled Banking and Credit Access in the Southern Region of the U.S., addressing banking and credit access, particularly mortgage lending, in in the south (Alabama, Arkansas, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee). Considering the prevalence of “banking deserts” in the south, the report seeks to identify gaps and opportunities to increase financial access in the region. The report also includes a comparative analysis of rural and nonrural areas. For example, in rural communities and communities of color, the Bureau reports that “even though 23 percent of the population lives in a rural county, only 14 percent of home purchase loans in 2021 went to those areas. Between 2018 and 2021, only 9 percent of home purchase loans went to Black rural borrowers in the region, even though they represent 24 percent of the region’s rural population.” Moreover, the report notes that home loan applications from rural southerners are more likely to be denied than in the rest of the country. The Bureau also states that mortgage interest rates further set the rural south apart, as they tend to be higher, on average, than interest rates nationally. The Bureau’s initial analysis shows that credit scores alone do not explain these lower levels of lending.
With respect to banking access, the data spotlight highlights the association between the presence of a bank branch and access to necessary financial services—a common concern reported from stakeholders from the south. The Bureau reports that with only 3.6 branches per 10,000 people in the south (as compared to 5.0 branches per 10,000 people nationally), financial services access is limited, particularly when combined with inaccessible online banking due to limited broadband. The report also highlights how small businesses employ nearly half of the region’s workforce; thus, small business lending is a crucial resource to the south. In support of small business lending, the report references resources for business owners to leverage. (As previously covered by InfoBytes, when the Small Business Lending Rule goes into effect, the Bureau believes that it will provide “visibility” into small business lending.) The report further includes a reminder that “lenders have the ability to create Special Purpose Credit Programs, which enable the development of directed lending programs to reach historically underserved populations.” The Bureau goes on to state that even when branch locations are present, top barriers include minimum balance requirements, distrust of banks, high fees, and barriers to meeting identification requirements.
A second report, the Consumer Finances in Rural Areas of the Southern Region, was also published the same day. The report analyzes southern consumer financial profiles, compared to other geographies, including credit scores, financial distress, medical debt, and other debt categories. Among other things, the report highlights the unique position of mortgage borrowers from the rural south. Findings include that the share of chattel loans (for which the land underneath the home is not used as collateral) is seven times higher in the rural south than in other parts of the country. These borrowers are reportedly more venerable to both repossession and rent hikes or eviction. Also, student loan borrowers in the rural south tend to have lower monthly payments and delinquent balance amounts than the respective national averages, but given the area’s lower median incomes, borrowers in this region face a much higher student loan debt burden. Other findings include that rural southerners are less likely to have a credit card or an outstanding mortgage, which is partially reflective of the lower likelihood of successfully taking out credit, even within credit score tiers. According to the report, rural southerners are also more likely to pay higher interest rates on average and are more likely to have medical collections, with medical collections as the most common type of delinquency. These findings, the Bureau says, are an attempt to provide a “starting point” to better understand the financial situations, needs, and challenges of consumers in the south.
CFPB, FTC, and consumer advocates ask 7th Circuit to review redlining dismissal
The CFPB recently filed its opening brief in the agency’s appeal of a district court’s decision to dismiss the Bureau’s claims that a Chicago-based nonbank mortgage company and its owner violated ECOA by engaging in discriminatory marketing and consumer outreach practices. As previously covered by InfoBytes, the Bureau sued the defendants in 2020 alleging fair lending violations predicated, in part, on statements made by the company’s owner and other employees during radio shows and podcasts. The agency claimed that the defendants discouraged African Americans from applying for mortgage loans and redlined African American neighborhoods in the Chicago area. The defendants countered that the Bureau improperly attempted to expand ECOA’s reach and argued that ECOA “does not regulate any behavior relating to prospective applicants who have not yet applied for credit.”
In dismissing the action with prejudice, the district court applied step one of the Chevron framework (which is to determine “whether Congress has directly spoken to the precise question at issue”) when reviewing whether the Bureau’s interpretation of ECOA in Regulation B is permissible. The court concluded, among other things, that Congress’s directive does not apply to prospective applicants.
In its appellate brief, the Bureau argued that the long history of Regulation B supports the Bureau’s interpretation of ECOA, and specifically provides “that ‘[a] creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application.” While Congress has reviewed ECOA on numerous occasions, the Bureau noted that it has never challenged the understanding that this type of conduct is unlawful, and Congress instead “created a mandatory referral obligation [to the DOJ] for cases in which a creditor has unlawfully ‘engaged in a pattern or practice of discouraging or denying applications for credit.’”
Regardless, “even if ECOA’s text does not unambiguously authorize Regulation B’s prohibition on discouraging prospective applicants, it certainly does not foreclose it,” the Bureau wrote, pointing to two perceived flaws in the district court’s ruling: (i) that the district court failed to recognize that Congress’s referral provision makes clear that “discouraging . . . applications for credit” violates ECOA; and (ii) that the district court incorrectly concluded that ECOA’s reference to applicants “demonstrated that Congress foreclosed prohibiting discouragement as to prospective applicants.” The Bureau emphasized that several courts have recognized that the term “applicant” can include individuals who have not yet submitted an application for credit and stressed that its interpretation of ECOA, as reflected in Regulation B’s discouragement prohibition, is not “arbitrary, capricious, or manifestly contrary to the statute.” The Bureau argued that under Chevron step two (which the district court did not address), Regulation B’s prohibition on discouraging prospective applicants from applying in the first place is reasonable because it furthers Congress’ efforts to prohibit discrimination and ensure equal access to credit.
Additionally, the FTC filed a separate amicus brief in support of the Bureau. In its brief, the FTC argued that Regulation B prohibits creditors from discouraging applicants on a prohibited basis, and that by outlawing this type of behavior, it furthers ECOA’s purpose and prevents its evasion. In disagreeing with the district court’s position that ECOA only applies to “applicants” and that the Bureau cannot proscribe any misconduct occurring before an application is filed, the FTC argued that the ruling violates “the most basic principles of statutory construction.” If affirmed, the FTC warned, the ruling would enable creditor misconduct and “greenlight egregious forms of discrimination so long as they occurred ‘prior to the filing of an application.’”
Several consumer advocacy groups, including the National Fair Housing Alliance and the American Civil Liberties Union, also filed an amicus brief in support of the Bureau. The consumer advocates warned that “[i]nvalidating ECOA’s longstanding prohibitions against pre-application discouragement would severely limit the Act’s effectiveness, with significant consequences for communities affected by redlining and other forms of credit discrimination that have fueled a racial wealth gap and disproportionately low rates of homeownership among Black and Latino households.” The district court’s position would also affect non-housing credit markets, such as small business, auto, and personal loans, as well as credit cards, the consumer advocates said, arguing that such limitations “come at a moment when targeted digital marketing technologies increasingly allow lenders to screen and discourage consumers on the basis of their protected characteristics, before they can apply.”
7th Circuit: No causation in FCA claims against mortgage servicer
On June 14, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s grant of summary judgment in favor of a defendant mortgage servicer, holding that while the plaintiff had sufficient proof of materiality with respect to alleged violations of the False Claims Act (FCA), plaintiff failed to meet her burden of proof on the element of causation. Plaintiff (formerly employed by the defendant as an underwriter) alleged the defendant made false representations to HUD in the course of certifying residential mortgage loans for federal insurance coverage. She maintained that HUD would not have endorsed the loans for federal insurance if it had known defendant was not satisfying the agency’s minimum underwriting guidelines. Defendant moved for summary judgment after the district court excluded the bulk of plaintiff’s “expert opinion,” arguing that plaintiff could not meet her evidentiary burden on the available record. The district court sided with defendant, ruling that as a matter of law, plaintiff could not prove either materiality (due to the lack of evidence that would allow “a reasonable factfinder to conclude that HUD viewed the alleged underwriting deficiencies as important”) or causation (the false statement caused the government’s loss).
On appeal, the 7th Circuit explained that to show proximate causation, plaintiff was required to identify evidence indicating that the alleged false certifications in reviewed loans were the foreseeable cause of later defaults, as defaults trigger HUD’s payment obligations. The appellate court noted that “it is not clear how a factfinder would even spot the alleged false statement in each loan file, let alone evaluate its seriousness and scope.” Without further evidence indicating how defendant’s alleged misrepresentations caused subsequent defaults, the plaintiff’s claims could not survive summary judgment.
However, the 7th Circuit disagreed with the district court’s reasoning with respect to materiality under the FCA. Although the district court held that plaintiff had failed to establish materiality, the appellate court determined that because HUD’s regulations “provide some guidance, in HUD’s own voice, about the false certifications that improperly induce the issuance of federal insurance, and those are precisely the false certifications present here” there was enough evidence to “clear the summary judgment hurdle” on this issue.
District Court: Servicer’s QWR responses did not violate RESPA
The U.S. District Court for the Western District of Washington recently granted summary judgment in favor of a defendant mortgage servicer related to alleged RESPA violations concerning qualified written requests and notices of error. Plaintiff entered into a permanent loan modification for which she made timely payments until she applied for new financing. One year later, plaintiff noticed a deferred principal balance that she claimed was not listed on her 2019 loan modification agreement. Plaintiff asserted that she called seeking to have the deferred principal balance removed and sent a notice of error (NOE) letter to the defendant, claiming, among other things, that the loan documentation did not mention the deferred amount. Defendant acknowledged the NOE and timely responded that the modification agreement included the deferred principal balance.
In granting defendant’s motion for summary judgment, the court held that while plaintiff’s allegations “are framed as a RESPA violation … [p]laintiff’s true concern is that [defendant] misrepresented the terms of the 2019 loan modification.” The defendant, however, complied with RESPA by providing “a statement of the reasons for which the servicer believes the account of the borrower is correct as determined by the servicer,” and plaintiff’s “disagreement with the servicer’s determination does not create a claim under RESPA.” Further, the court found that the deferred principal balance was in fact included on the executed loan modification agreement, and that the plaintiff did not suffer any actual harm under RESPA or otherwise.
HUD says company offering homeowner aid violated FHA
On June 13, HUD announced a Charge of Discrimination against several entities and individuals accused of allegedly violating the Fair Housing Act by discriminating against New York City homeowners on the basis of race, color, or national origin. According to HUD, the seven complainants alleged that the respondents targeted them with offers of mortgage and foreclosure prevention assistance. Respondents allegedly filed illegitimate liens and instructed telemarketers to use “affinity marketing” to build relationships with elderly, vulnerable, and distressed homeowners by bringing up shared national origin and cultural practice. Homeowners who accepted respondents’ purported loan modification services were convinced to sign documents that unknowingly sold their homes to two entities named as respondents, HUD said, explaining that respondents would then attempt to force homeowners to vacate their homes. These efforts were disproportionately concentrated in neighborhoods with a high majority of persons of color (specifically persons of Black and Caribbean descent), HUD noted, adding that in order to persuade lenders to approve the short sale, some of the respondents would allegedly create private real estate listings for homeowners’ properties and present them to the bank as public listings, while falsely claiming no offers had been received in order to secure minimal sales prices. Homeowners were also allegedly promised that the short sales were part of the loan modification services and that the property would be transferred back into their names or that of a family member after a certain period, and that they would be able to remain in their homes until the title was returned. In fact, however, respondents intended to flip the properties for profit.
The charge will be heard by a U.S. administrative law judge unless a party elects to have the case heard in federal district court. HUD requested that the respondents be enjoined from continuing to discriminate against any person because of race, color, or national origin, and asked for damages to fully compensate the complainants, as well as the maximum civil penalty for each respondent.
CFPB says it wants to simplify rules on mortgage servicing
On June 15, CFPB Director Rohit Chopra said the Bureau is considering whether to streamline mortgage servicing rules. Last September, the Bureau requested input from the public on mortgage refinance and forbearance standards and sought feedback on ways to reduce risks for borrowers who experience disruptions in their ability to make mortgage payments. (Covered by InfoBytes here.) Specifically, the Bureau sought ways to: (i) “facilitate mortgage refinances for consumers who would benefit from refinancing, especially consumers with smaller loan balances”; and (ii) “reduce risks for consumers who experience disruptions in their financial situation that could interfere with their ability to remain current on their mortgage payments.”
Chopra flagged several issues raised by commenters, including that borrowers seeking loss mitigation options can face a “paperwork treadmill” that disadvantages both homeowners and mortgage servicers. Commenters also reported that borrowers often incur servicing fees and experience negative credit reporting when waiting for servicers to review their options, Chopra said, explaining that even after a loss mitigation option has been implemented, these penalties can continue to negatively impact borrowers (such as preventing loan modifications and other interventions designed to allow borrowers to keep their homes).
Chopra said the Bureau intends to use the feedback to propose ways to streamline servicing standards but noted that the agency “will propose streamlining only if it would promote greater agility on the part of mortgage servicers in responding to future economic shocks while also continuing to ensure they meet their obligations for assisting borrowers promptly and fairly.”
District Court: Plaintiff failed to prove damages in RESPA suit
The U.S. District Court for the Northern District of Texas recently granted summary judgment in favor of a defendant mortgage servicer related to alleged RESPA violations. Plaintiff obtained a refinanced loan that was serviced by the defendant. Plaintiff later sued the defendant after becoming frustrated by receiving repeated calls suggesting he refinance the loan. Once litigation commenced, the defendant began sending the monthly mortgage statements to plaintiff’s counsel. In 2021, plaintiff sent a request for information to the defendant seeking a range of monthly billing statements, which the defendant allegedly only partially provided. Plaintiff’s attorney further claimed to have received an escrow review statement from the defendant referencing an escrow surplus check that the plaintiff also claimed not to have received. The plaintiff claimed violation of RESPA by pointing to the defendant’s alleged failure to adequately respond to his requests for statements or to provide the surplus check. The defendant moved for summary judgment, arguing that neither the facts nor the law supported the plaintiff’s claims.
The plaintiff eventually conceded that there is no private right of action under RESPA’s escrow payment regulation and withdrew the claim. The court also took issue with his claim that the defendant failed to adequately respond to his request for information. Even if the defendant failed to adequately respond, the plaintiff could not plead or prove actual damages, the court said. “Neither party disputes that RESPA requires plaintiffs to plead and prove actual damages from an alleged violation,” the court wrote. “Instead, they focus their arguments on the sufficiency of the alleged damages. [Defendant] alleges that [plaintiff] provides no evidence to demonstrate how he suffered damages from the fact that it provided only three of the fourteen requested monthly statements.” Plaintiff tried to argue he was owed monetary damages due to being deprived of the escrow surplus funds and by being unfairly assessed convenience fees when making payments through the defendant’s online portal. He further claimed he suffered medical and mental anguish. However, the court concluded that evidence presented by the defendant refuted these claims (the convenience fee claim, the court said, could not be connected to the RESPA claim) and said plaintiff also failed to support his claims of medical and mental anguish. Further, plaintiff failed to present evidence supporting his claim for statutory damages, the court said, finding no genuine dispute of material fact in the record.