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CFPB Director Discusses Mortgage Rule Implementation And Enforcement Against Individuals
On October 23, CFPB Director Richard Cordray briefly spoke with the Reuters Washington Summit about the Bureau’s rulemaking and enforcement work.
Upcoming Effective Dates for Mortgage Rules
According to the report, Cordray stated that he was confident most mortgage lenders would be able to comply with the new mortgage rules by the January 2014 effective dates. "Everybody's had plenty of time to see this coming," Cordray said. However, he added that the Bureau would take into consideration that some smaller firms would need more time to fully comply. "What we're looking for come January 10 is that they've made good-faith efforts to come into substantial compliance with the rules," he said.
Enforcement Actions Against Individuals
Corday also stated that the Bureau would continue to take enforcement action against individual officers and employees, as well as banks and other entities. "I've always felt strongly that you can't only go after companies. Companies run through individuals, and individuals need to know that they're at risk when they do bad things under the umbrella of a company," Cordray said.
The CFPB already has pursued individuals in several civil litigation matters. For example, the CFPB has named individuals in actions to enforce Section 8 of RESPA, including a lawsuit announced just this week against principals of a law firm. In July, the CFPB announced an enforcement action against a Utah-based mortgage company and two of its officers for giving bonuses to loan officers who allegedly steered consumers into mortgages with higher interest rates.
Fannie Mae, Freddie Mac Issue Guidance Regarding CFPB Mortgage Servicing Rules
On October 11, Fannie Mae issued Servicing Guide Announcement SVC-2013-20 and Freddie Mac issued Bulletin 2013-21 to update their delinquency management and default prevention servicing requirements in response to the CFPB’s new mortgage servicing rules. These updated servicing requirements, which are effective for servicing activities completed on or after January 10, 2014, align with the CFPB’s final rules implementing the mortgage servicing provisions of RESPA and TILA. The policy changes announced by Fannie Mae and Freddie Mac include updates specific to mortgages secured by primary residences, as well as updates that apply to all mortgages. The servicing requirements affected by these policy changes, include, but are not limited to, (i) borrower inquiries and error resolution, (ii) written acknowledgement of a Borrower Response Package, (iii) early intervention and communication with delinquent borrowers, (iv) the evaluation of mortgage loan modification plans and the appeal process for the denial of such, (v) foreclosure referral and postponement, and (vi) pre-foreclosure reviews.
Fannie Mae Updates Standard Deed-In-Lieu of Foreclosure Requirements
On October 17, Fannie Mae issued Servicing Guide Announcement SVC-2013-21, which revises servicers’ responsibilities in finalizing standard deed-in-lieu of foreclosures (DILs). Servicers now must (i) complete a final interior property inspection no more than two business days following the receipt of the executed deed and all related documents, (ii) not complete final acceptance of the executed DIL until after they have received the results of the final property inspection, (iii) submit the case into HomeSaver Solutions Network (HSSN), regardless of the transition option chosen, to complete final acceptance of the DIL, and (iv) submit the REOgram within 24 hours of the date the servicer completes final acceptance of the executed DIL. The announcement also excludes from the three-month transition option program eligibility criteria the following requirements: (i) that at least three payments have been made since origination or since the last modification, (ii) that the loan is not 12 or more months delinquent when referred to Fannie Mae for transition option consideration, and (iii) that the borrower is not involved in an active bankruptcy proceeding. Finally, the announcement informs servicers that they are no longer required to ensure that a borrower will assign and transfer any rents to Fannie Mae and will collect rental income.
Massachusetts Finalizes Debt Collection and Loan Servicing Rule
On October 17, the Massachusetts Division of Banks released final regulations intended to parallel and supplement new mortgage servicing requirements promulgated by the CFPB and included in National Mortgage Servicing Settlement. The new regulations generally (i) prohibit third-party mortgage servicers from initiating a foreclosure when an application for a loan modification is in process, (ii) require that third-party mortgage servicers ensure that a creditor has the right to foreclose and that any foreclosure-related documents are properly prepared and executed based on personal knowledge, and (iii) mandate that third-party servicers provide a single point of contact for a borrower, follow detailed loan modification procedures, communicate with borrowers in a timely manner, and establish policies and procedures that ensure effective monitoring and oversight of certain third party providers (e.g., law firms, foreclosure firms, etc.). The new regulations also, among other things, (i) amend the definition of “debt collector” to include active debt buyers, (ii) clarify the definition of net worth for debt collectors, (iii) expand the limitations on contact with a consumer by a debt collector to include cellular telephone and text messaging, and (iv) add significant events of a debt collector and third party loan servicer that must be reported. The new requirements are effective immediately.
Special Alert: CFPB ISSUES MORTGAGE SERVICING RULE AMENDMENTS AND GUIDANCE ADDRESSING CONFLICTS WITH BANKRUPTCY AND DEBT COLLECTION RULES
On October 15, the CFPB issued an interim final rule amending certain provisions of its mortgage servicing rules and making technical changes to other January 2013 mortgage rules (the Interim Amendments). As explained in our Special Alert, the amendments address issues raised by bankruptcy trustees and industry about the incompatibility of the servicing rules with protections afforded to consumers by bankruptcy law and the FDCPA. The CFPB also issued a bulletin providing guidance on other aspects of the servicing rules and an advisory opinion on the interaction between the rules and the FDCPA. In addition, on October 16, CFPB staff provided unofficial oral guidance on specific questions about the mortgage servicing rules in a webinar hosted by the Mortgage Bankers Association. BuckleySandler attorneys attended the webinar and can address any questions you may have.
Like the mortgage servicing rules, the Interim Amendments will take effect on January 10, 2014. The CFPB issued the Interim Amendments without advance notice and public comment because of the impending effective date. The public will have 30 days to provide comments after publication of the amendments in the Federal Register (which has not yet occurred). After the comment period, the CFPB may make adjustments to the Interim Amendments before adopting them in final form.
Questions regarding the matters discussed in this Special 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.
- Jeffrey P. Naimon, (202) 349-8030
- Clinton R. Rockwell, (310) 424-3901
- John P. Kromer, (202) 349-8040
- Joseph M. Kolar, (202) 349-8020
- Jeremiah S. Buckley, (202) 349-8010
Bank Holding Company Resolves Federal Mortgage Claims
On October 10, a bank holding company announced that it has agreed in principle, on behalf of itself and certain affiliates, to resolve mortgage-related allegations by the federal government. The company reached agreements in principle with HUD and the DOJ to settle (i) certain civil and administrative claims arising from FHA-insured mortgage loans originated over a six-and-a-half year period and (ii) certain alleged civil claims regarding the company’s mortgage servicing and origination practices as part of the National Mortgage Servicing Settlement. Pursuant to the agreements in principle, the company committed to $500 million of consumer relief, a $468 million cash payment, and the implementation of certain mortgage servicing standards. The company also reached an agreement in principle with the Federal Reserve Board to impose a $160 million civil monetary penalty, in conjunction with an April 2011 Consent Order.
Freddie Mac, Fannie Mae Offer Guidance Regarding Government Shutdown
On October 8, Freddie Mac issued Bulletin 2013-19 to provide guidance related to the federal government shutdown that began on October 1. Fannie Mae recently issued similar guidance in Lender Letter LL-2013-08. The guidance addresses income verification for new loans to government employees and reminds servicers of forbearance options for borrowers impacted by the shutdown.
First Circuit Holds Lender Can Require Increased Flood Insurance Coverage
Recently, the U.S. Court of Appeals for the First Circuit affirmed a district court’s dismissal of a putative class action alleging that a lender improperly required borrowers of FHA-insured mortgages to buy and maintain higher flood insurance coverage than that indicated in their mortgage contracts. Kolbe v. BAC Home Loans Servicing, LP, No. 11-2030, 2013 WL 5394192 (1st Cir. Sept. 27, 2013). The ruling, from an equally divided en banc court, allows mortgage lenders to require borrowers to maintain flood insurance equal to the replacement value of their homes. The named borrower claimed that he was forced to increase his flood insurance coverage in breach of his mortgage contract with his original lender that set the required flood amount coverage. In an amicus brief filed by DOJ on behalf of HUD, the government argued that the FHA’s model mortgage form gives lenders discretion to require coverage for the replacement cost of the property in the event of a flood. The Court of Appeals agreed with the government’s interpretation of the language in the model mortgage contract and reasoned that to interpret the form otherwise would hinder federal housing policy by discouraging banks from offering FHA-insured mortgages or forcing banks to charge higher rates. Dissenting judges argued that the ruling allowed a federal agency to intervene and rewrite a contract to serve its own purposes, and that the ruling’s prediction that banks would not offer FHA mortgages or charge higher rates was speculative.
New York AG Announces Mortgage Servicing Enforcement Actions
On October 2, New York Attorney General Eric Schneiderman (NY AG) announced actions to address alleged failures by two servicers to comply with certain of the 304 servicing standards established by the National Mortgage Servicing Settlement. In May, the NY AG threatened to sue both servicers based on borrower complaints that the servicers were not fulfilling their settlement obligations. The NY AG now has initiated proceedings to enforce the terms of the settlement against one of the banks, alleging numerous servicing deficiencies. In exchange for the NY AG suspending planned legal action against the second servicer, that servicer entered an agreement pursuant to which it is required to, among other things, (i) designate staff with decision-making authority to every housing counseling and legal services agency within the NY AG’s Homeowner Protection Program, (ii) revise the letters it uses to request from borrowers missing documents or information needed to complete a loan modification, (iii) halt the sale of mortgage servicing rights to third parties on New York mortgages when borrowers are already in negotiations for a loan modification or are making trial payments on a loan modification, and (iv) allow borrowers' attorneys permission to negotiate loan modifications directly with bank staff, as opposed to the bank's outside foreclosure lawyers.
Pennsylvania Supreme Court Holds State Foreclosure Notice Requirements Do Not Impose Jurisdictional Prerequisites on Foreclosure Actions
On September 25, the Pennsylvania Supreme Court held that Pennsylvania state courts have jurisdiction over foreclosure actions where the foreclosing party may have failed to fully comply with the Pennsylvania Emergency Mortgage Act (Act 91) in providing notice of foreclosure. Beneficial Consumer Discount Co. v. Vukman, No. 29-WAP-2012, 2013 WL 5354330 (Pa. Sept. 25, 2013). A state trial court and intermediate appellate court set aside a judgment in a foreclosure action and subsequent sheriff’s sale, holding that the foreclosing party’s failure to comply with the Act 91’s foreclosure notice requirement stripped the state courts’ of subject matter jurisdiction. The Supreme Court disagreed and held that the pre-foreclosure requirements do not implicate the jurisdiction of the court—the borrower’s failure to pay the mortgage provided sufficient cause to pursue foreclosure. The court remanded the case to the trial court without addressing the foreclosing party’s arguments that its notice was sufficient because it was drafted by the state housing authority.