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Financial Services Law Insights and Observations


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  • FSOC releases report on nonbank mortgage servicing

    Federal Issues

    On May 10, the Financial Stability Oversight Council (FSOC) released a report analyzing the growing nonbank mortgage servicing sector. The report discussed the sector’s significant market share, strengths and vulnerabilities particularly in financial stress scenarios. The FSOC emphasized the potential for these vulnerabilities to affect financial stability including income, balance sheets, and access to credit simultaneously, and the need for enhanced resilience measures. To combat these issues, the FSOC suggested a series of recommendations to promote safe and sound operations, address liquidity pressures in the event of stress, and ensure continuity of servicing operations.

    The FSOC’s recommendations included urging state regulators to improve oversight and prudential standards, suggesting Congress grant FHFA and Ginnie Mae greater authority to enforce safety and soundness standards. Furthermore, the report suggested that Congress would authorize Ginnie Mae and encourage state regulators to share information with each other and with Council member agencies. The Council also recommended that Congress would consider legislation to provide Ginnie Mae with the authority to expand the Pass-Through Assistance Program into a more effective liquidity backstop for mortgage servicers participating in the program during periods of severe market stress. The report further proposed the creation of a fund to support servicing continuity in times of servicer failure, including loss-mitigation activities for borrowers and the advancement of monthly payments to investors.

    The Director of the CFPB, Rohit Chopra, released a statement in response to the FSOC’s report. Chopra emphasized the importance of the mortgage market to the economy, and the significant role played by nonbank mortgage companies. He expressed concern about the lack of oversight of nonbanks in comparison to banks and said that the Bureau will soon propose a rule “to strengthen certain homeowner protections.” He also mentioned that regulators were concerned about nonbanks’ lack of supervision and sensitivity to market volatility given their often-limited cash reserves and heavy dependence on bank borrowing.

    If a large nonbank mortgage company were to fail, Chopra said that borrowers could face chaos: payment issues, no customer service, and foreclosure risks, as well as generally limited access to credit, especially for low- and moderate-income households. Chopra also mentioned that the report does not discuss specific measures for addressing these risks within the FSOC and suggested appropriate tools for managing such risks will be a future effort. Chopra expressed concern that current rules do not sufficiently protect borrowers exposed to foreclosure and “junk fees” and stated that the CFPB will conduct a thorough evaluation to determine if any significant nonbank mortgage firms would meet the criteria for heightened supervision and regulation by the Fed as well as work on a proposed rule to mitigate losses by including foreclosure protections from the earliest stage of mortgage servicing, even if the servicer does not yet have all the documents.

    Federal Issues Nonbank Supervision Mortgages Mortgage Servicing

  • Oklahoma amends SAFE Act licensing provisions

    State Issues

    On April 29, Oklahoma enacted SB 1492 (the “Act”) which amends the Oklahoma Secure and Fair Enforcement for Mortgage Licensing Act by, among other things, expanding the definition of “mortgage broker” to include servicing a residential mortgage, defining “servicing” to include holding servicing rights, as well as significantly adjusting fees and annual assessments for licensees. With respect to mortgage servicing, the law defines servicing as “the administration of a resident mortgage loan following the closing of such loan” and further states that an entity will be serviced if it “either holds the servicing rights, or engages in any activities determined to be servicing, including: (a) the collection of monthly mortgage payments; (b) the administration of escrow accounts; (c) the processing of borrower inquiries and requests; and (d) default management.” The definition of “mortgage lender” already includes an entity that “makes a residential mortgage loan or services a residential mortgage loan” and will be approved by HUD, Fannie Mae, Freddie Mac, or Ginnie Mae. The Act adds a new section allowing licensees to permit their employees and independent contractors to work at remote locations, subject to certain conditions regarding policies and procedures for customer contact information and data, maintenance of physical records, and prohibitions on in-person customer interactions, among other things. Finally, the Act will add or amend certain fees and their annual assessment determinations, including assessments based on loan volumes for originated loans and others for serviced loans during the assessment period. The Act will go into effect on November 1.

    State Issues Licensing Oklahoma State Legislation Mortgage Servicing

  • CFPB publishes the mortgage servicer edition of its Supervisory Highlights

    Federal Issues

    On April 24, the CFPB published its 33rd edition of its Supervisory Highlights which covers select examinations and violations regarding mortgage servicing from April 1, 2023, through December 31, 2023. This edition of Supervisory Highlights focused on alleged violations of law identified in CFPB examinations including (i) charging illegal junk fees including impermissible property inspection and late fees; (ii) UDAAP violations; and (iii) violations of Regulation X loss mitigation requirements. The Bureau made clear in its press release that it plans to continue its focus on combatting junk fees within and beyond the mortgage servicing space.

    The CFPB highlighted several violations of law resulting from mortgage servicers’ payment processing practices including the charging of property inspection fees in connection with certain Fannie Mae loans in violation of investor guidelines. To rectify this, servicers addressed system errors causing the fees in question, enhanced oversight, and were instructed to compensate affected borrowers. Other payment processing-related violations identified by the Bureau included failure to adequately describe fees in periodic statements by using the term “service fee” to describe 18 different fee types and failure to make timely disbursements from escrow accounts in violation of Regulation X.

    The Bureau also identified unfair practices relating to the charging of late fees in excess of the amount authorized in the loan agreement or after consumers had entered into loss mitigation agreements, which should have prevented late fees. Servicers identified as having engaged in such violations were required to refund the fees to consumers and improve internal processes in response to the findings.

    The CFPB also identified violations of law relating to loss mitigation and loan modifications. Examiners noted that some servicers failed to provide a written notice confirming the receipt of loss mitigation applications and informing consumers of whether the application was complete or incomplete. Further, some servicers failed to provide timely and complete notices of loss mitigation options.  Additionally, some servicers, in violation of Regulation X, failed to waive existing fees after borrowers had accepted Covid-19 hardship loan modifications.

    Examiners also found that certain servicers committed deceptive practices by sending out delinquency notices incorrectly stating that consumers had missed payments and needed to apply for loss mitigation when those consumers were actually up to date on their payments, enrolled in trial modification plans, or had inactive loans (such as those already paid off or in the process of a short sale).

    Finally, the Bureau identified violations of law relating to (i) live contact and early intervention requirements in connection with delinquency and (ii) failure to retain adequate records.

    Federal Issues CFPB Consumer Finance Consumer Protection Mortgages Mortgage Servicing Supervision UDAAP CFPA Unfair Deceptive

  • West Virginia enacts act to prevent unfair real estate service agreements

    State Issues

    Recently, West Virginia passed a new law, HB 5346, titled the Unfair Real Estate Services Agreements Act (the “Act”). This new Act will amend the Code of West Virginia with respect to real estate service agreements. The Act would make the entering into of an “Unfair Real Estate Services Agreement” a deceptive act, including any real estate services agreement between a licensed real estate service provider and a consumer that included terms that would purport to run with the land or be binding to future owners of interest, purport to create a property lien, allow for assignment of the contract without timely notification to the owner of the property, or create a listing agreement for a property that has been listed for over a year past its listing date. Under the law, any unfair real estate service agreement created after the bill’s effective date would be void, and parties may bring a civil action against a real estate service provider. The Act will go into effect on June 6. 

    State Issues West Virginia Mortgage Servicing Real Estate Servicer Unfair

  • FHA proposes updates to HECM program

    Federal Issues

    On November 1, the Federal Housing Administration (FHA) proposed updates to FHA’s Home Equity Conversion Mortgage Program that are intended to address a number of servicing issues where existing program requirements have conflicted with HUD’s policy objectives.  FHA is requesting public feedback. Key changes include the following:

    • Allowing mortgage servicers to contact borrowers by phone to verify occupancy for the program’s required annual occupancy certification;
    • Allowing outstanding homeowner’s association dues to be included in the calculation of a repayment plan for borrowers who are behind on their HECM financial obligations;
    • Expanding the ability of mortgage servicers to work with borrowers who are behind on their property tax or hazard insurance by an amount up to $5,000 without calling the mortgage due and payable;
    • Allowing mortgage servicers to assign a HECM to HUD after the servicer has funded a cure for a borrower’s delinquent financial obligations so long as the borrower has made all property charge payments for one year and all other assignment eligibility criteria are met;
    • Streamlining requirements for executing alternatives to foreclosure and updating existing incentive payments for successful completion of loss mitigation options; and
    • Providing a new incentive payment to mortgage servicers for completing these alternatives.

    Federal Issues FHA Consumer Finance Home Equity Loans Mortgage Servicing HECM HUD

  • California AG announces settlement with mortgage servicer

    State Issues

    On September 1, California Attorney General (AG) Rob Bonta announced a settlement with a mortgage servicer for its alleged failure to properly process and grant mortgage deferment requests from California military reservists called to active duty. California’s Military and Veterans Code, which includes the California Military Families Financial Relief Act, allows reservists to delay paying mortgages, credit cards, property taxes, car loans, utility bills, and student loans. To defer payment, they must submit a written request and their military orders to the entity to which their payments are due. The AG noted that the California Department of Justice investigated the mortgage servicer’s processes for handling mortgage deferment requests and found that the servicer delayed granting the deferment requests, requested information for eligibility review outside of the 30-day timeframe to do so, and improperly denied deferment requests, on at least 10 occasions. Furthermore, the servicer allegedly attempted to collect payment from some borrowers during the requested deferral period by making calls and sending notices that warned that the servicer would foreclose on the borrowers’ properties if they failed to pay. The servicer also allegedly incorrectly charged some borrowers late fees and other charges for nonpayment of payments that should have been deferred. Finally, the servicer allegedly provided incorrect negative credit information to credit reporting agencies.

    Under the terms of the settlement, the servicer agreed to, among other things, (i) pay $58,000 in civil money penalties; (ii) “remediate consumer harm”; (iii) disclose deferment request status to borrowers; and (iv) provide annual reports to the AG documenting compliance with the injunctive terms.

    State Issues Settlement State Attorney General California Consumer Finance Mortgage Servicing Military Lending

  • CFPB issues Summer ’23 supervisory highlights

    Federal Issues

    On July 26, the CFPB released its Summer 2023 issue of Supervisory Highlights, which covers enforcement actions in areas such as auto origination, auto servicing, consumer reporting, debt collection, deposits, fair lending, information technology, mortgage origination, mortgage servicing, payday lending and remittances from June 2022 through March 2023. The Bureau noted significant findings regarding unfair, deceptive, and abusive acts or practices and findings across many consumer financial products, as well as new examinations on nonbanks.

    • Auto Origination: The CFPB examined auto finance origination practices of several institutions and found deceptive marketing of auto loans. For example, loan advertisements showcased cars larger and newer than the products for which actual loan offers were available, which misled consumers.
    • Auto Servicing: The Bureau’s examiners identified unfair and abusive practices at auto servicers related to charging interest on inflated loan balances resulting from fraudulent inclusion of non-existent options. It also found that servicers collected interest on the artificially inflated amounts without refunding consumers for the excess interest paid. Examiners further reported that auto servicers engaged in unfair and abusive practices by canceling automatic payments without sufficient notice, leading to missed payments and late fee assessments. Additionally, some servicers allegedly engaged in cross-collateralization, requiring consumers to pay other unrelated debts to redeem their repossessed vehicles.
    • Consumer Reporting: The Bureau’s examiners found that consumer reporting companies failed to maintain proper procedures to limit furnishing reports to individuals with permissible purposes. They also found that furnishers violated regulations by not reviewing and updating policies, neglecting reasonable investigations of direct disputes, and failing to notify consumers of frivolous disputes or provide accurate address disclosures for consumer notices.
    • Debt Collection: The CFPB's examinations of debt collectors (large depository institutions, nonbanks that are larger participants in the consumer debt collection market, and nonbanks that are service providers to certain covered persons) uncovered violations of the FDCPA and CFPA, such as unlawful attempts to collect medical debt and deceptive representations about interest payments.
    • Deposits: The CFPB's examinations of financial institutions revealed unfair acts or practices related to the assessment of both nonsufficient funds and line of credit transfer fees on the same transaction. The Bureau reported that this practice resulted in double fees being charged for denied transactions.
    • Fair Lending: Recent examinations through the CFPB's fair lending supervision program found violations of ECOA and Regulation B, including pricing discrimination in granting pricing exceptions based on competitive offers and discriminatory lending restrictions related to criminal history and public assistance income.
    • Information Technology: Bureau examiners found that certain institutions engaged in unfair acts by lacking adequate information technology security controls, leading to cyberattacks and fraudulent withdrawals from thousands of consumer accounts, causing substantial harm to consumers.
    • Mortgage Origination: Examiners found that certain institutions violated Regulation Z by differentiating loan originator compensation based on product types and failing to accurately reflect the terms of the legal obligation on loan disclosures.
    • Mortgage Servicing: Examiners identified UDAAP and regulatory violations at mortgage servicers, including violations related to loss mitigation timing, misrepresenting loss mitigation application response times, continuity of contact procedures, Spanish-language acknowledgment notices, and failure to provide critical loss mitigation information. Additionally, some servicers reportedly failed to credit payments sent to prior servicers after a transfer and did not maintain policies to identify missing information after a transfer.
    • Payday Lending: The CFPB identified unfair, deceptive, and abusive acts or practices, including unreasonable limitations on collection communications, false collection threats, unauthorized wage deductions, misrepresentations regarding debt payment impact, and failure to comply with the Military Lending Act. The report also highlighted that lenders reportedly failed to retain evidence of compliance with disclosure requirements under Regulation Z. In response, the Bureau directed lenders to cease deceptive practices, revise contract language, and update compliance procedures to ensure regulatory compliance.
    • Remittances: The CFPB evaluated both depository and non-depository institutions for compliance with the EFTA and its Regulation E, including the Remittance Rule. Examiners found that some institutions failed to develop written policies and procedures to ensure compliance with the Remittance Rule's error resolution requirements, using inadequate substitutes or policies without proper implementation.

    Federal Issues CFPB Consumer Finance Consumer Protection Auto Lending Examination Mortgages Mortgage Servicing Mortgage Origination Supervision Nonbank UDAAP FDCPA CFPA ECOA Regulation Z Payday Lending EFTA Unfair Deceptive Abusive

  • Missouri will regulate lender-placed insurance

    State Issues

    On July 7, the Missouri governor signed SB 101 (the “Act”) into law, amending several provisions relating to property and casualty insurance, including requirements for lender-placed insurance. The Act defines “lender-placed insurance” as insurance secured by the lender/servicer when the mortgagor does not have valid or sufficient insurance on a mortgaged real property, and will include “insurance purchased unilaterally by the lender or servicer, who is the named insured, subsequent to the date of the credit transaction, providing coverage against loss, expense, or damage to collateralized property as a result of fire, theft, collision, or other risks of loss” that impairs such lender/servicer’s interest or adversely impacts the collateral, where such purchase is a result of a mortgagor’s failure to obtain required insurance under a mortgage agreement. Among other things, the Act stipulates that lender-placed insurance is not effective until the date a mortgaged real property is not insured, and that individual lender-placed insurance terminates on the earliest date out of listed periods. Also specified is that mortgagors cannot be charged for the policies outside of the scheduled term of the lender-placed insurance. The Act further states that the calculation of the lender-placed insurance premium “should be based upon the replacement cost value of the property,” and outlines how the premium should be determined. All insurers shall have separate rates for lender-placed insurance and voluntary insurance obtained by a mortgage servicer on real estate owned property, as defined in the Act.

    Further regarding lender-placed insurance, the Act prohibits: (i) “insurers and insurance producers from issuing lender-placed insurance if they or one of their affiliates owns, performs servicing for, or owns the servicing right to, the mortgaged property;” (ii) “insurers and insurance producers from compensating lenders, insurers, investors, or servicers for lender-placed insurance policies issued by the insurer, and from sharing premiums or risk with the lender, investor, or servicer;” (iii) “payments dependent on profitability or loss ratios from being made in connection with lender-placed insurance;” (iv) [insurers from] provid[ing] free or below-cost services or outsourc[ing] its own functions at an above-cost basis”; and (v) [insurers from] mak[ing] any payments for the purpose of securing lender-placed insurance business or related services.

    The Act requires lender-placed insurance policy forms and certificates to be mailed and filed with the Missouri Department of Commerce and Insurance and stipulates the requirements for insurers who must report information to the department as well. Lastly, the Act specifies potential penalties for violations of the Act, including monetary penalties and suspension or revocation of an insurer’s license. The Act becomes effective on August 28.

    State Issues State Legislation Missouri Lender Placed Insurance Mortgages Mortgage Servicing Consumer Finance

  • CFPB says it wants to simplify rules on mortgage servicing

    Federal Issues

    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.”

    Federal Issues CFPB Consumer Finance Mortgages Mortgage Servicing Forbearance Loss Mitigation

  • North Dakota establishes requirements for residential mortgage servicers

    On April 12, the North Dakota governor signed HB 1068, which outlines provisions relating to residential mortgage loan servicers. The Act provides that a person may not engage in residential mortgage loan servicing in the state without being licensed by the commissioner. This applies to servicers, subservicers, or a mortgage servicing rights investor. “A person engages in residential mortgage loan servicing in the state if the borrower resides in North Dakota,” the Act explains. Exempt from licensure are financial institutions, state or federal housing finance agencies, institutions chartered by the farm credit administration, and not-for-profit mortgage servicers. The Act outlines application and fee requirements and specifies financial conditions for applicants and licensees. Large mortgage servicers must also abide by certain corporate governance conditions, including the establishment of a board of directors responsible for oversight and compliance monitoring. These licensees must also obtain external audits and establish risk management programs.

    The Act outlines prohibited acts and practices and grants authority to the Department of Financial Institutions to promulgate rules and regulations to enforce the law and power to carry out the provisions, including through orders and injunctions. The commissioner will also oversee the licensure process, including provisions concerning the expiration, renewal, revocation, suspension, and surrender of licenses, and may issue orders suspending and removing residential mortgage loan servicer officers and employees. The commissioner may also conduct investigations and examinations and impose civil money penalties of not more than $100,000 for each occurrence and $1,000 per day for each day that the violation continues after issuance of an order. Licensees may appeal by filing a written notice within 20 days after the assessment of a civil money penalty. The Act is effective August 1.

    Licensing State Issues State Legislation North Dakota Mortgages Mortgage Servicing


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