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  • Freddie allows digital paystubs in underwriting

    Agency Rule-Making & Guidance

    On May 22, Freddie Mac announced new capabilities allowing lenders to use a borrower’s digital paystub data when assessing income paid through direct deposit. Lenders will be able to access the enhancements to Freddie’s automated income assessment tool through the Loan Product Advisor (LPA) asset and income modeler (AIM). Freddie noted that in addition to providing access to direct deposit data, AIM is also able to “assess income from tax return data for self-employed borrowers as well as bank account data to identify a history of positive monthly cash flow activity” to help first-time homebuyers and borrowers in underserved communities who may not qualify through traditional methods of underwriting. AIM is also designed to notify lenders when submitting this type of account data may benefit a borrower. The new AIM capability will be available beginning June 7 to Freddie-approved sellers that use LPA.

    Agency Rule-Making & Guidance Federal Issues Freddie Mac Mortgages GSEs Consumer Finance Underwriting

  • FHA expedites claims process for HECMs

    Agency Rule-Making & Guidance

    On May 17, HUD announced new policies to expedite claims processing for home equity conversion mortgages (HECM). Specifically, FHA’s policies will allow for faster payment of funds to mortgagees upon assignment of an HECM to HUD by allowing borrowers with FHA mortgages to submit a request for a preliminary title approval earlier in the process and with fewer documents. Mortgagees will now be able to assign an HECM to HUD once the HECM reaches 98 percent of the maximum claim amount (MCA) and may begin submitting required information to HUD when the HECM reaches 97 percent of the MCA (based on the value of the property at the time the HECM loan is originated). The previous percentage was set at 97.5 percent. Additionally, mortgagees will be able to submit original notes and mortgages after assignment claim payment rather than before. HUD explained that allowing for earlier claim submission and improving document submission measures will hopefully shorten the time between the HECM reaching 98 percent of MCA and FHA paying the mortgagee for the claim.

    Agency Rule-Making & Guidance Federal Issues FHA Mortgages HECM HUD Consumer Finance

  • FHFA requests feedback on single-family pricing framework

    Agency Rule-Making & Guidance

    Recently, the FHFA issued a request for input (RFI) on a single-family pricing framework for Fannie Mae and Freddie Mac (GSEs), including feedback on policy priorities and goals that FHFA should pursue in its oversight of the framework. “Through this RFI, FHFA seeks input on how to ensure the pricing framework adequately protects the [GSEs] and taxpayers against potential future losses, supports affordable, sustainable housing and first-time homebuyers, and fosters liquidity in the secondary mortgage market,” FHFA Director Sandra L. Thompson said in the announcement. The RFI also seeks input on the GSEs’ single-family upfront guarantee fees and whether it is appropriate to continue linking those fees to the Enterprise Regulatory Capital Framework. FHFA explained that guarantee fees are intended to cover the GSEs’ administrative costs, expected credit losses, and cost of capital associated with guaranteeing securities backed by single-family mortgage loans. Comments on the RFI are due August 14.

    Agency Rule-Making & Guidance Federal Issues FHFA Fannie Mae Freddie Mac GSEs Mortgages

  • Chopra highlights APOR in call for resilient and durable rules

    Federal Issues

    On May 17, CFPB Director Rohit Chopra announced that the agency is currently reviewing several of its rules and guidance documents in an effort to eliminate unnecessary complexities and create “more durable rules that don’t over-rely on single entities.” Chopra flagged issues related to the federal mortgage rules as an example of unnecessarily complex policies with a penchant for accommodating “dominant industry incumbents.” Last month, the Bureau announced a revised version of its methodology for calculating the average prime offer rates (APORs), which highlighted broader weaknesses resulting from single points of failure and a reliance on overly complicated benchmarks. As previously covered by InfoBytes, the methodology statement was revised to address the imminent unavailability of certain data that the Bureau previously relied on to calculate APORs, including changes made by Freddie Mac to its Primary Mortgage Market Survey used to calculate APORs for three types of loans. Noting that the Bureau has had other challenges relying on a single entity for calculating the APOR benchmark over the last decade, Chopra commented that “[n]o consumer protection rule should be designed so that its important protections are threatened by single points of failure or single sources.” He added that the revised APOR methodology further “highlighted the risks of relying on complicated reference rates that must be manually constructed rather than potentially more robust market-based measures that stand on their own.”

    Federal Issues CFPB Mortgages Consumer Finance Consumer Lending Interest Rate

  • District Court denies servicer’s claims that it never received QWR

    Courts

    The U.S. District Court for the Eastern District of Missouri recently considered whether a mortgage servicer received a borrower’s qualified written request (QWR) relating to a missed mortgage payment. The borrower sent a money order to cover two monthly mortgage payments, but the payments were not properly credited to her account. The borrower made several attempts to contact the mortgage servicer about the improperly credited payment. After receiving a formal notice of default, the borrower sent a “Request for Information and Notice of Error” (NOE) to the servicer explaining the situation and asking that her account be updated to reflect that all payments had been made and requesting the removal of late fees and charges. She also asked that her loan be removed from default status and sent letters to the credit reporting agencies formally disputing the delinquent payment reports. According to the court’s opinion, the borrower claimed that the servicer violated RESPA by failing to respond and violated the FCRA by failing to conduct a reasonable investigation into her credit disputes and verifying inaccurately furnished information.

    In considering both parties’ motions for summary judgment, the court granted the borrower’s motion on liability with respect to her RESPA claim and denied the servicer’s motion for summary judgment on the FCRA claims on the basis that the borrower provided evidence of actual damages resulting from the servicer’s alleged FCRA violation. The court explained that RESPA requires mortgage servicers to respond to a QWR within five days to acknowledge receipt, and again within 30 days by either correcting the account, providing a written explanation as to why it believes the account is correct, or providing the information requested by the borrower or an explanation of why the information requested is unavailable. Failure to do so entitles a borrower to any actual damages suffered as result of the failure. Claiming the NOE was a QWR, the borrower presented evidence, including a certified mail receipt allegedly showing the NOE was signed for by one of the servicer’s representatives. The servicer countered that because it had no record of the correspondence, its RESPA duties were not triggered. The servicer further argued that the NOE did not qualify as a QWR because it failed to provide sufficient information for it to investigate or respond to the request, and that even if it was a QWR, the borrower had failed to show actual damages.

    The court disagreed, determining (i) that the servicer failed to prove it did not receive the NOE, and (ii) that the NOE constituted a QWR. “The information in the letter alone is sufficient to qualify as a QWR,” the court wrote. “The letter quite specifically states the error [the borrower] believed to have occurred…. This is not an ‘overbroad’ and generalized statement of ‘bad servicing.’ It identifies an error specifically contemplated by RESPA’s regulations.” The court further added that “RESPA does not require that a lender’s violations be the sole cause of a borrower’s emotional distress. It merely requires that damages be causally related to a violation of the statute.” However, the court noted that the borrower still needs to prove at trial the extent of damages caused by the servicer's alleged violation.

    Courts RESPA Qualified Written Request Consumer Finance Credit Reporting Agency Mortgages

  • FHFA rescinds GSE fee based on DTI ratios

    Agency Rule-Making & Guidance

    On May 10, FHFA announced it is rescinding a debt-to-income-based loan-level pricing adjustment announced in January. As previously covered by InfoBytes, FHFA made several changes relating to upfront fees for certain borrowers with debt-to-income (DTI) ratios above 40 percent. The updated and recalibrated pricing grids also included the upfront fee eliminations announced last October to increase pricing support for purchase borrowers limited by income or by wealth, FHFA said at the time. The implementation of the DTI pricing adjustment, which would have affected loans acquired by Fannie Mae and Freddie Mac, was delayed to August 1, but after the mortgage industry and other market participants expressed concerns about implementation challenges, FHFA made the decision to rescind the DTI-ratio based fee to provide additional transparency. The agency will issue a request for public input on the single-family guarantee fee pricing framework shortly.

    Agency Rule-Making & Guidance Federal Issues FHFA Mortgages Consumer Finance Fannie Mae Freddie Mac GSEs

  • 6th Circuit: Tennessee judicial foreclosure time-barred

    Courts

    On May 4, the U.S. Court of Appeals for the Sixth Circuit affirmed a lower court’s decision in a judicial foreclosure action, holding that a bank’s lawsuit was barred by Tennessee’s 10-year statute of limitations for actions to enforce liens on real property. The appellate court also refused to establish an equitable lien on the property in favor of the bank. According to the opinion, the home equity line of credit at issue in the case matured in 2007, requiring a final balloon payment, but the bank did not demand this payment, refinance the loan, or foreclose on the property. Instead, the bank continued to accept monthly interest payments totaling around $100,000 until 2017. The opinion reflected that the bank did not contend there to be a written instrument showing an extension of the loan or that such an extension was recorded. Rather, the bank raised several arguments, including that there was an oral modification to the loan and that it had the unilateral right to extend the loan based on “a future advances provision that could extend the maturity date for up to twenty years.” The bank further argued that the defendants’ monthly interest payments excused any writing requirement and evidenced an agreement to extend the loan’s maturity date. The appellate court disagreed, concluding that because the bank could not show, as a matter of law, that the loan’s maturity date was extended, its suit is untimely. The appellate court stated  that the bank was aware that the loan “was in default as early as 2011 (well within the statute of limitations period) but took no action to foreclose or refinance.” The 6th Circuit further noted that if the bank had “simply memorialized an extension to the [l]oan’s maturity date in writing as required by Tenn. Code Ann. § 28-2-111(c), it would not be in this situation.”

    Courts Appellate Sixth Circuit Foreclosure Mortgages Consumer Finance

  • Indiana amends mortgage loan originator licensing requirements

    On May 4, the Indiana governor signed SB 452 to amend Indiana code governing financial institutions. Among other things, the Act amends a provision to require the Department of Financial Institutions to adopt emergency rules no later than June 30, 2024, to authorize certain licensees (or certain exempt persons aside from a person that has voluntarily registered with the Department) “to sponsor one (1) or more mortgage loan originators, who are not employees of the sponsoring person, to perform mortgage loan originator activities” provided certain criteria is met. Requirements include that (i) each sponsored person performs mortgage loan originator activities exclusively for the sponsoring person (as provided in a written agreement); (ii) the sponsoring person assumes responsibility for and reasonably supervises the activities of each sponsored mortgage loan originator; (iii) the sponsoring person maintains a bond that covers all sponsored mortgage loan originators; and (iv) each sponsored mortgage loan originator possesses a current, valid insurance producer license as required under state law. The emergency rules must meet the requirements of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, HUD and CFPB interpretations of that Act, as well as a subsequent amendment provided by the Economic Growth, Regulatory Relief, and Consumer Protection Act.

    Licensing State Issues State Legislation Indiana Mortgages Mortgage Origination

  • FHA implements provisions for transitioning LIBOR-based ARMs

    Agency Rule-Making & Guidance

    On May 2, FHA published Mortgagee Letter (ML) 2023-09 to implement provisions of the Adjustable Rate Mortgages (ARM): Transitioning from LIBOR to Alternative Indices final rule that was published in the Federal Register at the beginning of March. (Covered by InfoBytes here.) The final rule replaces LIBOR with the Secured Overnight Financing Rate (SOFR) as the approved index for newly-originated forward ARMs, codifies HUD’s approval of SOFR as an index for newly-originated home equity conversion mortgages (HECM) ARMs, and establishes “a spread-adjusted SOFR index as the Secretary-approved replacement index to transition existing forward and HECM ARMs off LIBOR.” The ML provides interest rate transition directions for mortgagees and announces the availability of updated HECM model loan documents, which have been revised to be consistent with the final rule and the ML. The provisions in the ML have various effective dates.

    Agency Rule-Making & Guidance Federal Issues FHA LIBOR Mortgages SOFR HECM

  • FDIC releases March enforcement actions

    On April 28, the FDIC released a list of administrative enforcement actions taken against banks and individuals in March. The FDIC made public 11 orders including “four prohibition orders, three orders terminating deposit insurance, two consent orders, one order to pay civil money penalty (CMP), and one order terminating consent order.” Included is a civil money order issued against a Missouri-based bank related to alleged violations of the Flood Disaster Protection Act (FDPA). The FDIC determined that the bank had engaged in a pattern or practice of violating the FDPA by increasing, extending, or renewing a loan secured by property located or to be located in a special flood hazard area without timely notifying the borrower and/or the servicer as to whether flood insurance was available for the collateral. 

    Bank Regulatory Federal Issues FDIC Enforcement Flood Disaster Protection Act Consumer Finance Mortgages

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