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Washington Department of Financial Institutions extends guidance regarding remote work for mortgage loan originators
On May 7, the Washington Department of Financial Institutions issued interim regulatory guidance to licensed mortgage loan originators and companies that sponsor them relating to temporary remote work. The guidance extends earlier interim guidance permitting mortgage loan originators to work from home, previously covered here, until July 10, 2020.
7th Circuit: Bank avoids breach of contract claims in HAMP loan modification offer
On April 30, in a split opinion, the U.S. Court of Appeals for the Seventh Circuit issued a decision affirming a district court order holding that a consumer’s claims against a bank failed because the bank never counter-signed the Trial Period Plan (TPP) it offered the consumer in connection with the Home Affordable Mortgage Program (HAMP). According to the opinion, the consumer signed his name to the TPP and returned the TPP to the bank along with what the consumer believed to be the other required documents and the first of this three payments. However, the bank never returned a fully executed copy of the TPP to the consumer. Instead, it sent the consumer multiple notices stating that necessary documentation was still missing. Ultimately, the consumer made all three payments required by the TPP, but never received a permanent modification of his loan. On that basis, the consumer filed suit, alleging breach of contract, fraud, and intentional infliction of emotional distress due to the bank’s alleged failure to honor its loan-modification offer. The district court granted judgment on the pleadings for the bank and denied the plaintiff’s request to amend the complaint, concluding, among other things, that the consumer failed to state a plausible claim for relief.
On appeal, the majority agreed with the district court, holding, among other things, that the bank never actually agreed to modify the consumer’s mortgage under HAMP. Specifically, the majority stated that “[i]f an offer contains a conditional precedent, a contract does not form until the condition is satisfied,” referencing language in which the bank reserved the right not to send the consumer a counter-signed copy of the Trial Period Plan (TPP) if the borrower did not qualify for HAMP relief. Because the TPP never went into effect, it imposed no contractual obligations on the bank.
Michigan regulator issues guidance for financial services sector to comply with stay at home orders
On May 6, the director of Michigan’s Department of Insurance and Financial Services issued Bulletin 2020-23-BT/CF/CU to provide guidance to the financial services industry on compliance with the governor’s stay at home orders. The bulletin reiterates that work by the financial services sector should be done remotely to the fullest extent possible and businesses should take other mitigating measures for non-remote workers. It also clarifies that workers in the real estate industry, as opposed to mortgage companies, are not critical infrastructure workers, and should refer to guidance by the Michigan Department of Licensing and Regulatory Affairs.
Federal Reserve issues guidance regarding flood insurance compliance
On May 6, the Federal Reserve issued guidance to state member banks regarding flood insurance compliance in response to Covid-19. The guidance responds to a question regarding the extension of maturities/payments or balloon payments due to Covid-19 as well as a question about the impact of FEMA Bulletin W-20002 on force placement requirements under the Flood Disaster Protection Act and the implementing regulation.
11th Circuit will not rehear en banc city’s Fair Housing Act suit
On April 27, a majority panel for the U.S. Court of Appeals for the Eleventh Circuit denied the City of Miami Gardens’s petition for rehearing en banc after determining that the City “faced an uphill battle” to establish standing to bring a Fair Housing Act lawsuit against a national bank because it mainly relied on “an attenuated theory of injury.” As previously covered by InfoBytes, last July the 11th Circuit dismissed the City’s lawsuit against the bank for lack of standing after concluding, among other things, that the City’s evidence that certain loans may go into foreclosure at some point in the future “does not satisfy the requirement that a threatened injury be ‘imminent, not conjectural or hypothetical,’” and that the City failed to provide evidence that certain foreclosed loans had an effect on property-tax revenues or municipal spending or were issued on discriminatory terms. In explaining their decision to not rehear its 2019 ruling en banc, the majority stated that its decision—that the City failed to satisfy its burden of establishing standing—respects “the concerns and fairness and notice demanded by” both U.S. Supreme Court and 11th Circuit precedent. Two dissenting judges countered, however, that the rehearing should have been granted because, among other things, the 11th Circuit’s dismissal for lack of standing was done sua sponte “even though the City received neither proper notice that it failed to prove standing nor a legitimate opportunity to discover or produce the requisite evidence.”
CFPB issues 2019 fair lending report to Congress
On April 30, the CFPB issued its annual fair lending report to Congress, which outlines the Bureau’s efforts in 2019 to fulfill its fair lending mandate. According to the report, in 2019 the Bureau continued to focus on promoting fair, equitable, and nondiscriminatory access to credit, highlighting several fair lending priorities that continued from years past such as mortgage lending, student loans, and small business lending. The Bureau also highlighted three policies released over the last year to promote innovation and to facilitate compliance: the No-Action Letter Policy, the Trial Disclosure Program Policy, and the Compliance Assistance Sandbox Policy (covered by InfoBytes here). Additionally, the report discussed the Bureau’s efforts in encouraging consumer-friendly innovation to expand access to unbanked and underbanked consumers and communities. These include: (i) using alternative data in credit underwriting to expand credit access responsibly; (ii) issuing a request for information on the use of “Tech Sprints” (covered by InfoBytes here) to encourage regulatory innovation and stakeholder collaboration; (iii) continuing to enforce fair lending laws such as ECOA and HMDA, including reaching a settlement with one of the largest HDMA reporters nationwide to resolve HMDA reporting allegations; and (iv) engaging with stakeholders to discuss fair lending compliance, issues related to credit access, and policy decisions. The report also provides information related to supervision, enforcement, rulemaking, and education efforts.
Freddie Mac issues bulletin regarding selling requirements and guidance related to Covid-19
On May 5, Freddie Mac issued Bulletin 2020-14 to Freddie Mac sellers to provide guidance relating to selling requirements in light of Covid-19. The bulletin sets out temporary requirements related to mortgage purchase eligibility and self-reporting requirements for mortgages in Covid-19 related forbearance. It also extends certain previously announced temporary requirements for credit underwriting, and appraisal, condominium project, and power of attorney flexibilities until June 30. Further, Freddie Mac provided guidance and reminders relating to, among other things, furloughs and layoffs, unemployment compensation, and automated income assessment with Loan Product Advisor using tax return data.
Fannie Mae updates Single-Family Lender Letter 2020-03 regarding impact of Covid-19 on originations
On May 5, Fannie Mae issued updates to Lender Letter 2020-03. The letter is addressed to all Fannie Mae single-family sellers, and addresses the impact of Covid-19 on originations. Among other things, Fannie Mae extended temporary origination-related policies to June 30, 2020, reminded lenders of policies regarding the use of unemployment benefits as qualifying income, and clarified policies surrounding furloughed borrowers. Fannie Mae also updated guidance regarding age of documentation, verification of self-employment, market-based assets, powers of attorney, remote online notarization, and verbal verification of employment.
Fannie Mae updates Lender Letter 2020-04 to extend relief relating to appraisals
On May 5, Fannie Mae updated Lender Letter 2020-04, extending certain previously issued flexibilities until June 30, 2020. The extended flexibilities relate to, among other things, condominium project reviews, new construction loans, HomeStyle Renovation loans, and appraisal requirements.
FHFA extends loan processing flexibilities offered by Fannie Mae and Freddie Mac
On May 5, FHFA announced that it extended several loan processing flexibilities offered by Fannie Mae and Freddie Mac to assist borrowers during the Covid-19 emergency. The flexibilities include permitting alternative appraisals for certain loans, alternative methods for verifying employment before loan closing, flexibilities for providing documentation related to renovation draws, and expanding the use of power of attorney and remote online notarization. The flexibilities are extended until at least June 30.