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House Members Urge CFPB To Adopt QM Rule With Safe Harbor
This week, 90 members of the House of Representatives reportedly sent a letter to CFPB Director Richard Cordray urging the CFPB to include a clear and strong safe harbor in its final “ability to repay” or “qualified mortgage” (QM) rule. The rule would require creditors to verify a consumer’s ability to repay prior to making a residential mortgage loan and would define a QM that has a presumption of compliance with the ability to repay requirement. The letter, which was initiated by Representatives Capito (R-WV) and Sherman (D-CA), adds to a record that some Members of Congress have been building with regard to the QM rule. The Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee chaired by Representative Capito held a hearing this week to receive testimony on the rule from stakeholders. While the witnesses generally agreed that the QM rule should be broad and provide clearly defined standards, differences of opinion remain with regard to the safe harbor issue. This week the extended comment period for the rule closed; the CFPB has indicated that it expects to issue its final rule before the end of 2012.
CFPB Proposes Two Major Mortgage Rules
On July 9, the CFPB issued two proposed rules related to mortgages. The first proposed rule would amend Regulations X and Z to establish new disclosure requirements and forms for most residential mortgage transactions. The proposal would combine existing disclosure requirements in new loan estimate and closing forms and would incorporate new Dodd-Frank Act requirements. This proposed rule also provides extensive guidance regarding compliance with the new disclosure requirements. Comments on most aspects of the proposal are due by November 6, 2012, but the CFPB has requested comments by September 7, 2012 on two portions of the proposal. The second proposed rule would implement the Dodd-Frank Act’s amendments to HOEPA that (i) expand HOEPA’s coverage to more types of mortgage transactions, (ii) amend existing high-cost triggers, (iii) add a prepayment penalty trigger, and (iv) expand protections associated with high-cost mortgages. The proposal also would amend Regulation X to implement other homeownership counseling-related requirements in Dodd-Frank requiring lenders to (i) distribute a list of homeownership counselors or counseling organizations to consumers within a few days after applying for any mortgage loan and (ii) provide first-time borrowers with counseling before taking out a negatively amortizing loan. Comments on this second proposed rule are due by September 7, 2012.
CFPB Finalizes Rule Governing Treatment of Privileged Information
On June 28, the CFPB released a final rule that will govern how it handles privileged information submitted by supervised financial institutions. In the final rule, the CFPB adopted the proposed rule without modification. The rule allows parties to submit information to the CFPB in the supervisory or regulatory process without waiving any applicable privileges; it further permits the CFPB to share that information with federal and state agencies without affecting federal or state privileges. The rule takes effect 30 days following its publication in the Federal Register.
CFPB Releases Report on Reverse Mortgages
On June 28, the CFPB released a report to Congress detailing the characteristics and evolving uses of reverse mortgages in today’s marketplace. The report presents findings from a CFPB study on reverse mortgages required by the Dodd-Frank Act. Among the findings, the CFPB report states that reverse mortgages are often difficult for consumers to understand. The report further observes that reverse mortgages are being used by younger borrowers to obtain all available equity upfront, a use that contravenes the original and intended use of reverse mortgage products and may pose substantial risks to consumers. Concurrent with the release of the report, the CFPB issued a Notice and Request for Information on topics related to reverse mortgages and will accept comments for 60 days following publication of the Notice in the Federal Register. The CFPB intends to use the information and comments received from the public, as well as the findings from its study, to determine whether further consumer education or regulatory action related to reverse mortgages is necessary.
Federal Agencies Announce New Mortgage-Related Policies to Support Military Homeowners
On June 21, the CFPB, the federal prudential banking regulators, and the FHFA announced new policies to support servicemember homeowners. The CFPB, the Federal Reserve Board, the FDIC, the NCUA, and the OCC issued joint guidance that identifies specific servicing practices deemed by regulators to present risks to servicemembers. For servicemember homeowners who have received Permanent Change of Station Orders, the guidance instructs servicers to maintain adequate policies and procedures disallowing the identified practices. The guidance also informs servicers that if an agency determines that a servicer has engaged in any acts or practices that are unfair, deceptive, or abusive, or that otherwise violate federal consumer financial laws, the agency will take appropriate supervisory and enforcement actions. Concurrent with the regulators’ announcement, the FHFA announced that military homeowners with Permanent Change of Station Orders and with Fannie Mae or Freddie Mac loans will be eligible to sell their homes in a short sale even if they are current on their mortgage. Under the new policy, Fannie Mae and Freddie Mac will not pursue a deficiency judgment or any cash contribution or promissory note from covered servicemembers for any property purchased on or before June 30, 2012.
Supreme Court Asked to Hear New Case Involving Disparate Impact Claims Under the Fair Housing Act
On June 11, the New Jersey Township of Mount Holly petitioned the U.S. Supreme Court to hear a case involving the use of disparate impact claims under the Fair Housing Act. Specifically, Mount Holly asks the Court to determine whether disparate impact claims are cognizable under the Fair Housing Act, and, if so, how such claims should be analyzed. The issues presented in this case are substantially similar to those the Supreme Court agreed to hear in Magner v. Gallagher, but was unable to hear because the petitioner in Magner withdrew its petition prior to oral argument. As detailed in a recent BuckleySandler article about Magner and the history of the Fair Housing Act, the Supreme Court has never decided whether the FHA permits plaintiffs to bring claims under a disparate impact theory. The U.S. Department of Justice and HUD, relying on lower court rulings permitting disparate impact claims, have increasingly employed the theory to further their policy goals. More recently, the CFPB repeatedly has stated its intention to apply disparate impact in enforcing ECOA. The instant petition could present an opportunity for the Court to alter the landscape within which federal authorities enforce the Fair Housing Act and other antidiscrimination laws.
CFPB Launches Consumer Complaint Database
On June 19, the CFPB released a beta version of its consumer complaint database. The database includes credit card complaints received on or after June 1, 2012. The CFPB plans to add credit card complaint data received prior to June 1, 2012 by the end of 2012. The database provides summary information related to (i) the issue identified in each complaint, (ii) the date of the complaint, (iii) the company named in the complaint, and (iv) the status and timeliness of the resolution. The credit card complaint database is governed by a CFPB Final Policy Statement, which addresses comments received in response to a 2011 version of the statement. Concurrent with the database launch, the CFPB released for public comment a Notice of Proposed Policy Statement that would extend the scope of the database to include all other financial services and products within the CFPB’s jurisdiction. The CFPB is accepting comments on the proposed expanded policy through July 19, 2012.
CFPB Announces Senior Staff Changes
On June 19, the CFPB announced a series of senior leadership changes and additions. Meredith Fuchs will now serve as General Counsel. She replaces Leonard Kennedy, who will now serve as Senior Advisor and Counselor to Director Richard Cordray. Ms. Fuchs had been serving as CFPB Chief of Staff and, prior to that, served as Principal Deputy General Counsel. Garry Reeder, who had been Senior Advisor to the Deputy Director, will now serve as Acting Chief of Staff. Steven Antonakes has been promoted to Associate Director for Supervision, Enforcement, and Fair Lending. The Assistant Director of Large Bank Supervision position that he leaves behind will be filled on an “acting” basis by Paul Sanford, who has been serving as Chief of Staff for Large Bank Supervision. In addition, Wendy Kamenshine has transitioned from Acting Ombudsman to Ombudsman, Clifford Rosenthal joined the CFPB as Assistant Director of Financial Empowerment, and Camille Busette was hired as Assistant Director of the Office of Financial Education.
CFPB Seeks Information on Compliance Costs
On June 14, the CFPB published a Notice and Request for Comment on its proposal to collect qualitative information from industry participants regarding the compliance costs and other effects of CFPB rules on providers and consumers. The CFPB plans to use structured interviews, focus groups, conference calls, and written questionnaires to obtain supplemental information about industry compliance burdens. The CFPB frames the proposal as part of its ongoing effort to streamline inherited regulations, and has asked that comments on the proposed information collection be submitted by August 13, 2012.
CFPB Seeks Additional Private Student Loan Complaints
On June 13, the CFPB issued a Notice of Request for Information seeking information on existing private student loan complaints collected by state agencies, institutions of higher education, consumer and legal advocates, and lenders. In addition to its general solicitation, the CFPB specifically invited the participation of state attorneys general, schools, and advocacy groups. The responses received by the CFPB will be incorporated into the student loan ombudsman’s report it provides to Congress pursuant to the Dodd-Frank Act. In conjunction with its general solicitation, the CFPB also published the nearly 2,000 comments it received in response to a Notice and Request for Information on private student loans that it issued on November 17, 2011. The CFPB identified the following common themes from the data collected to date in connection with its earlier solicitation: (i) many borrowers report relying on school financial aid offices for information and guidance on which loan products to use, (ii) many borrowers struggling in today’s economy are finding their private student loan debt to be unmanageable, and (iii) many borrowers report finding it difficult to navigate the repayment process.