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Last week, the CFPB’s final rule amending the mortgage servicing provisions of Regulations X and Z was published in the Federal Register. The amendments were previously covered in BuckleySandler’s August 9 Special Alert. The majority of the final rule will take effect on October 19, 2017, exactly one year after its Federal Register publication date. Certain provisions related to successors in interest and bankruptcy periodic statements will become effective on April 19, 2018. The CFPB’s interpretive rule under the FDCPA addressing industry concerns and conflicts with the servicing rules in Regulations X and Z was simultaneously published in the Federal Register on October 19, 2016.
On October 26, the FHA released Mortgagee Letter 2016-15 announcing its decision to lower the owner-occupancy requirement on condominiums to as low as 35 percent. The letter follows a September announcement in which the FHA stated that, pursuant to the Housing Opportunity through Modernization Act of 2016, or H.R. 3700, it was required to “issue guidance regarding the percentage of units within an approved condominium development that must be owner occupied.” The guidance outlined in Mortgagee Letter 2016-15 is “effective immediately for all condominium project approval applications, recertification applications, annexation applications or reconsideration applications submitted for review.”
On October 14, the HUD Office of Inspector General (HUD-OIG) published a report on HUD’s monitoring and payment of conveyance claims upon termination of FHA-insured mortgages. According to the report, mortgage servicers’ failure to foreclose on properties or meet conveyance deadlines may have cost the FHA an estimated $2.23 billion in unreasonable and unnecessary holding costs. HUD-OIG concluded that deficiencies in 24 CFR Part 203 did not “enable HUD to provide effective oversight and HUD monitored only a small percentage of servicers after the claim had been paid.” As a result of its findings, HUD-OIG recommended that HUD (i) amend 24 CFR Part 203 to include “a maximum period for filing insurance claims and disallowance of expenses incurred beyond established timelines”; (ii) develop an IT plan that that ensures significant operational changes to how HUD monitors single-family conveyance claims; and (iii) establish and implement controls to identify noncompliance with 24 CFR 203.402.
On October 18, the American Banking Association (ABA) and Consumer Bankers Association (CBA) submitted a joint comment letter responding to a recent proposal by the CFPB seeking to codify informal guidance and clarifications to the Know Before Your Owe TILA-RESPA Integrated Disclosure (TRID) rule. Of particular concern among lenders and investors was the lack of clarity about liability for unintentional mistakes and technical noncompliance with TRID. To help address these concerns, the Associations urged the CFPB to, among other things, (i) publish the specific statutory provisions it relied upon for each disclosure item or requirement identified in the recent proposal; (ii) grant a “safe harbor” for model forms issued by the bureau; (iii) grant an extension of the “good faith” compliance examination policy pending the CFPB’s proscribed deadlines for the proposed rules; and (iv) develop a formal process to address ongoing compliance and legal issues related to TRID.
The Associations also expressed appreciation for “the numerous amendments offered in th[e] proposal,” including those allowing corrected closing disclosures to reset applicable good faith tolerances for creditors. The Associations further explained that their “preliminary analysis reflects that this proposed rule will resolve multiple ambiguities that banks deem significant” and “urged that the bureau . . . allow for the correction of previous non-compliance caused by the interpretive ambiguity that the bureau is now fixing” (emphasis added).
On October 12, the CFPB issued an updated version of its small entity compliance guide on the Know Before You Owe TILA-RESPA Integrated Disclosure (TRID) Rule. The updated TRID compliance guide incorporates guidance from CFPB webinars on various topics, including (i) record retention; (ii) Loan Estimate and Closing Disclosure requirements, including format and delivery; (iii) good faith standards and determinations; (iv) disclosures related to seller-paid costs; and (v) construction loans. The newly released TRID compliance guide replaces the CFPB’s July 2015 guide. The CFPB also issued a separate revised guide for completing the Loan Estimate and Disclosure forms.
Special Alert: D.C. Circuit Panel Rejects CFPB's RESPA Interpretation and Alters its Structure in PHH Corp. v. CFPB
On October 11, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion vacating a $109 million penalty imposed on PHH Corporation under the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA), concluding that the CFPB misinterpreted the statute and violated due process by reversing the interpretation of the prior regulator and applying its own interpretation retroactively. Furthermore, the panel rejected the CFPB’s contention that no statute of limitations applied to its administrative actions and concluded that RESPA’s three-year statute of limitations applied to any actions brought under RESPA.
In addition, a majority of the panel held that the CFPB’s status as an independent agency headed by a single Director violates the separation of powers under Article II of the U.S. Constitution. However, rather than shutting down the CFPB and voiding all of its regulations and prior actions, the majority chose to remedy the defect by making the CFPB’s Director subject to removal at will by the President. In effect, this makes the CFPB an executive agency (like the Department of the Treasury) rather than, as envisioned by the Dodd-Frank Act, an independent agency (like the Federal Trade Commission). (One member of the panel, Judge Henderson, dissented from this portion of the opinion on the grounds that it was not necessary to reach the constitutional issue because the panel was already reversing the CFPB’s interpretation of RESPA.)
The panel remanded the case to the CFPB to determine whether, within the three-year statute of limitations, the payments to PHH’s affiliate exceeded the fair market value of the services provided in violation of RESPA. The CFPB is expected to petition for en banc reconsideration by the full D.C. Circuit or to seek direct review by the United States Supreme Court. Therefore, final resolution of this matter may be delayed by a year or more.
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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Jeremiah S. Buckley, (202) 349-8010
- Joseph M. Kolar, (202) 349-8020
- John P. Kromer, (202) 349-8040
- Jon David D. Langlois, (202) 349-8045
- Jeffrey P. Naimon, (202) 349-8030
- Matthew P. Previn, (212) 600-2310
- Clinton R. Rockwell, (310) 424-3901
- Michelle L. Rogers, (202) 349-8013
- Sasha Leonhardt, (202) 349-7971
- Sherry-Maria Safchuk, (310) 424-3917
- Steven vonBerg, (202) 524-7893
On September 29, the CFPB published an Approval Action in the Federal Register that provides a safe harbor under the Equal Credit Opportunity Act (ECOA) and Regulation B for lenders who use the revised Uniform Residential Loan Application (URLA) form issued by Fannie Mae and Freddie Mac in August 2016. The Bureau’s Approval Action states that it has “determined that the relevant language in the 2016 URLA is in compliance with” Regulation B’s requirements for whether, and how, a creditor may seek information about an applicant’s race, color, religion, national origin, sex, marital status, and income sources, and information about an applicant’s spouse or former spouse.
The Bureau’s Approval Action also offers flexibility for lenders who must collect and report information about mortgage applicants’ ethnicity and race under the Home Mortgage Disclosure Act (HMDA), implemented by Regulation C. On October 28, 2015, the Bureau amended Regulation C to require covered lenders to offer applicants the opportunity to self-identify using disaggregated categories of ethnicity and race, effective January 1, 2018. The CFPB notes in the Federal Register notice that before January 1, 2108, asking applicants to self-identify using the disaggregated categories would not have been allowed under Regulation B’s restrictions on seeking information about an applicant’s ethnicity, race and other characteristics. The Approval Action gives lenders the option of using the disaggregated categories of ethnicity and race for applications taken in 2017 without violating Regulation B. It states that if a lender opts to collect information using the disaggregated categories in 2017, for applications that see final action before January 1, 2018, the lender must report the data to the Bureau using only the current aggregate categories for ethnicity and race. If a lender takes final action in 2018 or later on an application received in 2017, it may choose to report the data using either the current aggregate or the new disaggregated categories.
The California legislature amended the California Finance Lenders Law (CFLL) allowing persons to make one commercial loan in a 12-month period without obtaining a license. This change effectively reenacts a de minimis exemption that was repealed in 2014, and is effective January 1, 2017 through January 1, 2022.
Effective September 28, 2016, the implementing regulations to the CFLL and California Residential Mortgage Lending Act (CRMLA) were amended such that subsidiaries and affiliates of exempt institutions are no longer exempt, by nature of this association, from the licensing requirements with respect to consumer and residential mortgage loans. The Department of Business Oversight filed the action to reverse through regulation previous Commissioner opinions that interpreted licensing exemptions under the CFLL and CRMLA to apply broadly to include subsidiaries of exempt financial institutions.
The definition of a lender under the CRMLA was also amended and now includes a person, other than a natural person, and a natural person who is also an independent contractor, who engages in the activities of a loan processor or underwriter for residential mortgage loans, but does not solicit loan applicants, originate mortgage loans, or fund mortgage loans. Further, the Commissioner may require a licensee who is engaged in the processing or underwriting of residential mortgage loans to continuously maintain a minimum tangible net worth in an amount that is greater than $250,000, but that does not exceed the net worth required of an approved lender under the Federal Housing Administration.
On October 3, Connecticut AG Jepsen, alongside Banking Commissioner Jorge Perez, resolved a four-year investigation into a Connecticut-based investment bank’s residential mortgage-back securities (RMBS) practices. According to the consent order, from January 2005 to December 2008, the investment bank was the lead securities underwriter of about 250 RMBS deals with a value of more than $250 billion. The state alleged, among other things, that the bank’s due diligence process on the 250 RMBS deals was “inadequate and resulted in omissions and misstatements in the representations made to the public and investors about the securities.” The $120 million settlement is Connecticut’s largest single settlement in history.
On September 29, the DOJ announced a settlement with a large regional bank, whereby the bank agreed to pay $83 million to resolve allegations that it violated the False Claims Act by originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable FHA requirements. In addition to underwriting defects, the DOJ alleged deficiencies in the bank’s quality control function, especially during periods of increased loan volume, as well as failures to adequately self-report loans with material defects. The settlement is not an admission of liability by the bank. BuckleySandler represented the bank in this matter.
- Jonice Gray Tucker to moderate “Pandemic relief response and lasting impacts on access, credit, banking, and equality” at the American Bar Association Business Law Section Spring Meeting
- Jeffrey P. Naimon to discuss "Post-pandemic CFPB exam preparation" at the Mortgage Bankers Association Spring Conference & Expo
- Jonice Gray Tucker to discuss "Making fair lending work for you" at the Mortgage Bankers Association Spring Conference & Expo
- Jonice Gray Tucker to discuss "Reading the tea leaves of President Biden’s initial financial appointees" at LendIt Fintech
- APPROVED Webcast: Staying in the know with Buckley regtech solutions
- Moorari K. Shah to discuss “CA, NY, federal licensing and disclosure” at the Equipment Leasing & Finance Association Legal Forum
- Jonice Gray Tucker to discuss "Compliance under Biden" at the WSJ Risk & Compliance Forum
- Sherry-Maria Safchuk to discuss UDAAP at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable