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On May 25, the Maryland governor signed HB 0425, which amends the state’s statute of limitations applicable to certain civil actions relating to unfair, abusive, or deceptive trade practices (UDAP) filed against a mortgage servicer. Specifically, the bill requires that an action filed by a homeowner alleging damages arising out of a UDAP violation shall be filed within the earlier of: (i) 5 years after a foreclosure sale of the residential property; or (ii) 3 years after the mortgage servicer discloses its UDAP violation to the homeowner. The bill is effective October 1.
On May 8, the U.S. Court of Appeals for the 11th Circuit affirmed in part and reversed in part the dismissal of a consumer’s putative class action against her reverse mortgage servicer for the alleged improper placement of flood insurance on her home. The consumer claimed violations of the FDCPA and multiple Florida laws, including the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), based on allegations that the mortgage servicer improperly executed lender-placed flood insurance on her property, even though the condo association had flood insurance covering the property. The lender-placed flood insurance resulted in $5,200 in premiums added to the balance of the loan, and an increase in financing costs on the mortgage. The district court dismissed the action, concluding the mortgage servicer was required by federal law to purchase the flood insurance and the monthly account statements were not collection letters under the FDCPA or state law.
On appeal, the 11th Circuit agreed with the district court that the monthly account statements of the reverse mortgage, which prominently stated “this is not a bill” in bold, uppercase letters, and did not request or demand payment, were not an attempt to collect a debt under the FDCPA. Additionally, the appellate court concluded that the consumer failed to allege the mortgage servicer was a debt collector within the meaning of the FDCPA because the complaint does not allege that the debt was in default. The appellate court also affirmed the district court’s dismissal of the state debt collection claims for similar reasons. However, the appellate court reversed the district court’s dismissal of the consumer’s FDUTPA claims, noting that the mortgage servicer failed to cite to a state or federal law requiring it to purchase flood insurance “when it has reason to know that the borrower is maintaining adequate coverage” in the form a condo association insurance.
On April 15, the Texas Court of Appeals affirmed a grant of summary judgment in favor of appellees, a loan servicer and a national bank acting as a trustee, concluding, among other things, that the appellant homeowner failed to provide sufficient evidence to support her claims that the appellees violated the Texas Debt Collection Act (TDCA) and Texas Deceptive Trade Practices and Consumer Protection Act (DTPA). According to the opinion, the homeowner—who defaulted on a loan that was referred to foreclosure—filed a lawsuit to stop the foreclosure sale, alleging that the defendants made “fraudulent, deceptive, or misleading representations” under the TDCA by allegedly failing to (i) provide an accurate accounting of received payments and credits; (ii) apply received payments; (iii) clearly disclose “the name of the person to whom the debt had been assigned or was owed when making a demand for money”; (iv) provide requested documentation regarding the assignment of the promissory note; and (v) provide proper prior notice to the appellant concerning the foreclosure proceedings. Additionally, the appellant further alleged that the appellees violated the DTPA by using fraudulent, deceptive, or misleading representations in the collection of appellant’s debt. The trial court granted summary judgment in favor of the defendants, and the appellate court affirmed the trial court’s decision. With respect to the appellant’s TDCA claims, the appellate court held, among other things, that first, the homeowner failed to show that the appellees made affirmative misrepresentations concerning the loan’s character or amount; second, failure to apply payments is not specifically a “‘prohibited misleading practice’” under the TDCA; and third, the appellees provided evidence showing the homeowner was “appropriately notified” of her default, and that under the TDCA, “service is completed upon deposit in the mail, not actual receipt.” With respect to the appellant’s DTPA claim, the appellate court held that the DTPA only applies to the acquisition of goods and services by lease or purchase and that loan servicing, foreclosure, and loan modification activities are not goods or services under the DTPA.
On March 11, the U.S. Court of Appeals for the 11th Circuit affirmed a lower court’s dismissal of a consumer’s FDCPA action. The consumer alleged that his mortgage servicer violated the FDCPA by attempting to collect overdue payments beyond Florida’s five-year statute of limitations for foreclosure actions. According to the opinion, the consumer “stopped paying his mortgage in 2008 and has not made payments since then.” In 2009, the servicer invoked an acceleration clause and attempted to foreclose on the property, but the foreclosure action was dismissed in 2011. In 2015, the servicer sent another notice of default, accelerated the debt once again, and filed a second foreclosure action seeking the entire debt, including all delinquent payments since 2008. The consumer filed suit, arguing that the servicer, by seeking pre-2010 debt in 2015, violated the FDCPA’s prohibition on the collection of time-barred debts. The lower court dismissed the action.
On appeal, the 11th Circuit held that the pre-2010 debt sought in the 2015 foreclosure action “was not time-barred as a matter of law” and therefore did not violate the FDCPA. The 11th Circuit found that Florida’s five-year statute of limitations does not necessarily bar the recovery of payments that were originally due more than five years prior to the filing of the foreclosure action. Instead, any time a consumer defaults and the servicer invokes an acceleration clause, the entire debt “comes due” and the five-year clock starts to run.
On March 19, the Montana governor signed HB 107, which amends the Montana Mortgage Act to, among other things, add capital requirements for mortgage servicers and net worth requirements for mortgage originators licensed in the state. The bill provides that a failure to meet or maintain the outlined standards could result in a license application denial or the suspension or revocation of a current license. Additionally, the bill adds a definition for mortgage “servicer providers” and authorizes the banking division of the Montana Department of Administration to adopt rules to (i) define false, deceptive, or misleading advertising; and (ii) establish requirements for licensee advertising using the internet. The bill is effective October 1.
On March 12, the CFPB released its winter 2019 Supervisory Highlights, which outlines its supervisory and enforcement actions in the areas of auto loan servicing, deposits, mortgage servicing, and remittances. The findings of the report cover examinations that generally were completed between June 2018 and November 2018. Highlights of the examination findings include:
- Auto Loan Servicing. The Bureau determined that attempts to collect miscalculated deficiency balances from extended warranty products were unfair. The Bureau also found that deficiency notices were deceptive where eligible rebates were not sought or applied, although the notice purported to be calculated to include such rebates.
- Deposits. The Bureau found that companies engaged in a deceptive act or practice by failing to adequately disclose that when a payee accepts only a paper check through the institutions online bill-pay service, a debit may occur earlier than the date selected by the consumer.
- Mortgage Servicing. The Bureau noted several issues related to mortgage servicing, including servicers (i) charging consumers late fees greater than the amount permitted by mortgage notes; (ii) misrepresenting the reasons PMI could not be cancelled; and (iii) failing to complete loss mitigation applications with “reasonable diligence.”
- Remittances. The Bureau determined that remittance transfer providers erred when they failed to refund fees and taxes when funds were not made available to recipients by the date listed in the disclosure and the mistake did not result from one of the exceptions listed in the Remittance Rule.
The report notes that in response to most examination findings, the companies have already remediated or have plans to remediate affected consumers, and implement corrective actions, such as new policies and procedures.
Lastly, the report also highlights recent public enforcement actions and guidance documents issued by the Bureau.
On January 16, NYDFS announced a $100,000 settlement with a New York state-registered mortgage loan servicer for allegedly failing to register and maintain two properties as required by the state’s Abandoned Property Relief Act. Under the Act, NYDFS can hold banks and mortgage servicers accountable should they fail to fulfill certain maintenance obligations at vacant and abandoned residential properties (“zombie” properties) securing mortgage loans in their portfolios. NYDFS rejected claims that the servicer was unable to maintain the “zombie” properties due to not receiving authorization from the mortgagee and that the properties were not subject to the requirements of the Act because backdated lien releases extinguished its maintenance obligation. Under the terms of the consent order, the servicer has also agreed to provide confirmation within 30 days to NYDFS that all properties subject to New York’s Vacant and Abandoned Property Law have been sufficiently registered with NYDFS’ registry of vacant and abandoned properties, are maintained properly, and that all quarterly filings for each property have been submitted.
On January 11, the U.S. District Court for the Northern District of Mississippi granted a mortgage servicer’s motion to dismiss a lawsuit with prejudice brought by a homeowner’s widow alleging violations of, among other claims, TILA, RESPA, and FDCPA, for failing to include a credit-life-insurance provision in the loan note. According to the opinion, the plaintiff sued the mortgage servicer and mortgage originator after her husband passed and the servicer initiated foreclosure proceedings. The plaintiff argued that her husband, who was the sole borrower, and the mortgage originator had an oral agreement to include a credit-life-provision in the mortgage loan note but the originator failed to include it. The mortgage servicer moved to dismiss the action arguing, among other things, that the plaintiff lacked standing to bring the action. Upon review, the court agreed with the mortgage servicer, determining that the plaintiff lacks standing under TILA, RESPA, and the FDCPA because she was neither an “obligor” nor “borrower” on the loan even though she was identified as a “borrower” on the Deed of Trust. Moreover, the court rejected the plaintiff’s alternative claim that she is a third-party beneficiary with standing to sue under the laws, finding that no valid contract existed as to the credit-life-insurance policy and therefore, the plaintiff could not claim to be a beneficiary of a non-existent contract. The court also dismissed the plaintiff’s other state law and fraud claims, finding she failed to provide sufficient facts to make the claims plausible.
On January 11, Freddie Mac and Fannie Mae issued guidance regarding credit reporting during the government shutdown (see Bulletin 2019-2 and Lender Letter 2019-01). The guidance clarifies that servicers have flexibility when reporting the status of a mortgage loan to credit reporting agencies for a borrower affected by the shutdown, and are permitting, but not requiring, servicers to suppress credit reporting in these instances entirely.
On January 8, the Department of Veterans Affairs (VA) issued Circular 26-19-1, which encourages holders of VA-guaranteed loans to extend forbearance to borrowers in distress as a result of the government shut down. It also encourages servicers to waive late charges on loans where borrowers suffered income loss due the shutdown or who may have been affected due to the ripple effect of the shutdown and suspend credit reporting on the affected accounts. The VA also issued Circular 26-19-2, which clarifies that loans for borrowers directly impacted by the government shutdown are still eligible for guarantee by the VA, so long as the lender has obtained all the required documentation and the loan is current. The VA emphasizes that the furlough period should not be considered a break in employment for underwriting purposes provided the borrower returned to work in the same status and provides their furlough letter. Additionally, the VA reminds originators that, even though the IRS Form 4506-T is mentioned in the VA Lender’s Handbook as a condition of the Automated Underwriting Cases feedback certificate, that condition is an investor or lender overlay and the form is not actually required by VA guidelines. Lastly, if the Federal Emergency Management Administration (FEMA) is unavailable for routine certifications or correspondence regarding flood insurance, the VA reminds lenders that non-federal flood insurance policies are acceptable.
On January 10, the CFPB released the assessment reports required by Section 1022(d) of the Dodd-Frank Act for two of its 2013 mortgage rules: the TILA Ability-to-Repay and Qualified Mortgage (ATR/QM) Rule and the RESPA Mortgage Servicing Rule. The assessment reports were conducted using the Bureau’s own research and external sources. The reports do not include a benefit-cost analysis of either rule, nor do they propose amendments to the rules or contain any other policy recommendations. However, the Bureau expects the reports to be used to “inform the Bureau’s future policy decisions.”
The ATR/QM Rule became effective in January 2014 and generally requires that lenders make a reasonable and good faith determination, based on documented information, that the borrower has the reasonable ability to repay the mortgage loan. Highlights of the report’s findings include:
- While it is difficult to distinguish the effects of the ATR/QM Rule and the marketwide tightening of underwriting standards following the housing crisis, the rule may have restricted the reintroduction of certain types of loans that were associated with high delinquency or foreclosure rates, such as loans based on limited or no documentation of income or assets, loans with low initial monthly payments that reset after a period of time, and loans with high debt-to-income ratios.
- The ATR/QM Rule was not generally associated with an improvement in loan performance, as measured by the percentage of loans becoming 60 or more days delinquent within two years of origination.
- The ATR/QM Rule did not impact access to credit for self-employed borrowers who were eligible for a GSE loan. For other self-employed borrowers, the Bureau acknowledged lenders may find it difficult to comply with the Appendix Q documentation and calculation requirements but found that approval rates for this population decreased only slightly.
- While the costs of originating a mortgage loan have increased substantially over time, the ATR/QM Rule does not appear to have materially increased the lenders’ costs or the prices the lenders charged to consumers, at an aggregate market level. However, based on data from nine lenders, the Bureau estimated the foregone profits from not originating certain types of non-QM loans at $20-$26 million per year.
- Contrary to the Bureau’s expectations when it issued the ATR/QM Rule, the GSEs have maintained a persistently high share of the market, and the market for non-QM loans remains relatively small.
The Mortgage Servicing Rule became effective in January 2014 and, among other things, imposes procedural requirements on servicers with respect to loss mitigation and foreclosure for delinquent borrowers. Highlights of the report’s findings include:
- Loans that became delinquent were less likely to proceed to a foreclosure during the months after the Mortgage Servicing Rule’s effective date compared to months prior to the effective date and were more likely to return to current status. For borrowers who became delinquent the year the rule took effect, the Bureau estimated that, absent the rule, at least 26,000 additional borrowers would have experienced foreclosure within three years, and at least 127,000 fewer borrowers would have recovered from delinquency within three years.
- The cost of servicing mortgage loans has increased substantially; the main increase in costs occurred before the Mortgage Servicing Rule took effect and is not attributable to the rule. However, some servicers reported significant ongoing costs of complying with the rule, which can be attributable with the need for “robust control functions” and higher personnel costs to support increased communication with delinquent borrowers.
- The time from borrower initiation of a loss mitigation application to short-sale offer increased in 2015 compared to 2012.
- A larger share of borrowers who completed loss mitigation applications in 2015 were able to avoid foreclosure than borrowers who completed loss mitigation applications in 2012.
- The rate of written error assertions per account fell by about one-half after the Mortgage Servicing Rule’s effective date compared to the prior three years.
- There was a moderate decrease in the share of borrowers receiving force-placed insurance and the Rule’s effective date, which can be attributable to the Rule but also to the changes in the insurance market.
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- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
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- Christopher M. Witeck and Moorari K. Shah to discuss "The latest in vendor management regulations" at a Mortgage Bankers Association webinar
- Buckley Webcast: Hot topics in debt collection — An analysis of recent federal FDCPA litigation
- Jonice Gray Tucker to discuss "How to succeed in law school" at the SEO Law DC Panel Discussions
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference