InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB issues order against veterans’ mortgage originator, fines it $2.25M
On August 29, the CFPB released a consent order and stipulation against a national mortgage originator for alleged deceptive acts under the CFPA. The CFPB found the respondent misrepresented certain payment terms on a specific worksheet in three states during closings. The worksheet, called the borrower “net benefit” worksheet, accompanied closings on VA cash-out refinance loans. It allegedly misstated how a consumer’s “previous” monthly mortgage payment would compare to a “new” monthly mortgage payment after refinancing with the respondent. Specifically, only principal and interest payments were included in the “new loan payment amount,” making the loans appear less expensive by omitting taxes and insurance from the “new loan payment” calculations. The misstatements were provided to borrowers in North Carolina and Maine through 2020 and in Minnesota through 2018, affecting at least 3,000 cash-out refinances.
As part of the consent order, the company agreed to pay a $2.25 million civil money penalty and to implement a comprehensive compliance plan within 30 days. The plan must ensure that the company’s mortgage lending activities comply with all applicable laws and the terms of the consent order. The company’s executive officers must oversee compliance and submit a written progress report to the Bureau one year after the order’s effective date. Specifically, the consent order will require the company to retain specific business records, sales scripts, training materials, consumer complaints, and to avail these documents to the Bureau upon request. The order will remain in effect for five years, during which the company must provide a copy of the consent order to any persons with responsibilities related to its subject matter. The Bureau may impose additional penalties if the company violates the terms of the consent order. The company neither admitted nor denied any of the CFPB’s findings.
CFPB blog post tackles mortgage closing costs, seeks consumer feedback
On March 8, the CFPB published a blog post seeking consumer input on experiences with the closing process of consumer mortgages, and in particular, closing costs. The blog post posited that closing costs significantly impact a borrower’s financial commitment and, potentially, monthly payments and identified a “noticeable increase” in closing costs, with median total loan expenses on home purchase loans increasing by 21.8 percent between 2021 and 2022. In particular, the Bureau singled out title insurance fees and credit reporting fees. It labeled title insurance as a fee that borrowers are charged and for which they have no control over the cost, alleging that “the amount that borrowers pay for lender’s title insurance is often much greater than the risk.” With respect to credit reports, the Bureau remarked that the highly concentrated industry dictates the price of credit reports, citing anecdotal evidence of cost increases of 25 to 400 percent.
The blog post also indicated that borrowers with smaller mortgages, including those with lower incomes, first-time homebuyers, and individuals residing in Black and Hispanic communities, are often disproportionately affected by closing costs, because they are typically fixed costs and do not change based on the size of the loan. The Bureau requested that consumers provide input on their experience with mortgage or closing costs, signaling that it will continue to analyze and if necessary “issue rules and guidance to improve competition, choice, and affordability.”
Illinois proposes rule to evaluate mortgage community reinvestment
Recently, the Illinois Department of Financial and Professional Regulation issued a proposed rule pursuant to the Illinois Community Reinvestment Act (ILCRA). The ILCRA is modeled off the Community Reinvestment Act but expands its scope of covered financial institutions to include credit unions and licensed entities. The proposed rule will help the Department administer and enforce the ILCRA in an equitable manner. The rule establishes a framework and criteria by which the Department will evaluate a covered mortgage licensee’s record of helping to meet the mortgage credit needs of Illinois, including low- and moderate-income neighborhoods and individuals, through different tests and performance standards depending on the number of loans made by a covered mortgage licensee. Tests and considerations for evaluating licensees’ record include a lending test, service test, performance record, data collection and reporting, and content and recordkeeping of information received from the public.
To mitigate the impact on small businesses, a licensee that has made less than 200 home mortgage loans in Illinois in the last calendar year will not be subject to the service test. Furthermore, licensees that made less than 100 home mortgage loans in Illinois in the previous calendar year will have less frequent examinations than those with more than 100. Based on the licensee’s performance under the lending and service tests, the proposed rule specifies that a licensee’s rating of “outstanding”; “satisfactory”; “needs to improve”; or “substantial noncompliance” will affect how frequent they are evaluated. Compliance with the proposed rule is required six months from its effective date, and comments are due by February 26.
District Court denies stay of CFPB case against lender
On January 12, the U.S. District Court for the Southern District of Florida denied a defendant-mortgage lender’s motion to stay a case filed by the CFPB. The defendant argued that judicial economy—the preservation of the court’s time and resources—favored the stay because the defendant’s pending motion to dismiss is premised on the same constitutional issue addressing the CFPB’s funding structure now before the Supreme Court (see continuing InfoBytes coverage here and here). In opposition, the CFPB argued that the Supreme Court may take months to issue a ruling, the public interest in enforcement of consumer protection laws, and the failure to show how an adverse ruling in the Supreme Court case would definitively result in dismissal of this case.
The District Court sided with the CFPB, stating that as of now, the CFPB “is a valid agency that is entitled to enforce the consumer financial laws.” With the stay denied, the court will now consider the defendant’s motion to dismiss.
CFPB issues Summer ’23 supervisory highlights
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.
FHA requires info on language preference, homeowner education in mortgage originations
On June 27, FHA announced lenders will have to submit information about borrowers’ language preferences and homeownership education or housing counseling history through the Supplemental Consumer Information Form when originating mortgages for FHA insurance. According to FHA, borrowers may choose to provide all, some, or none of the information requested on the form, and lenders must transmit any information the borrower disclosed. The information collected from the form will allow the administration to have a better aggregate view of language preferences, which FHA stated, “will influence its future actions to continue breaking down language and other barriers to homeownership.” On June 13, FHA also announced the availability of Chinese, Korean, Spanish, Tagalog, and Vietnamese versions of more than 30 single family mortgage documents and related resources associated with FHA programs.
Indiana amends mortgage loan originator licensing requirements
On May 4, the Indiana governor signed SB 452 to amend Indiana code governing financial institutions. Among other things, the Act amends a provision to require the Department of Financial Institutions to adopt emergency rules no later than June 30, 2024, to authorize certain licensees (or certain exempt persons aside from a person that has voluntarily registered with the Department) “to sponsor one (1) or more mortgage loan originators, who are not employees of the sponsoring person, to perform mortgage loan originator activities” provided certain criteria is met. Requirements include that (i) each sponsored person performs mortgage loan originator activities exclusively for the sponsoring person (as provided in a written agreement); (ii) the sponsoring person assumes responsibility for and reasonably supervises the activities of each sponsored mortgage loan originator; (iii) the sponsoring person maintains a bond that covers all sponsored mortgage loan originators; and (iv) each sponsored mortgage loan originator possesses a current, valid insurance producer license as required under state law. The emergency rules must meet the requirements of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, HUD and CFPB interpretations of that Act, as well as a subsequent amendment provided by the Economic Growth, Regulatory Relief, and Consumer Protection Act.
Virginia amends remote work requirements for mortgage companies
On March 26, the Virginia governor signed HB 2389, which permits mortgage lenders and mortgage brokers to allow employees and exclusive agents to work remotely provided certain conditions are met. Requirements to conduct business out of a remote location include: (i) the establishment of written policies and procedures for remote work supervision; (ii) ensuring access to platforms and customer information adheres to the licensee’s comprehensive written information security plan; (iii) the employment of appropriate risk-based monitoring and oversight processes, as well as the agreement from employees or exclusive agents who will work remotely to comply with these established practices; (iv) banning in-person customer interaction at an employee’s or exclusive agent’s residence unless the residence is an approved office; (v) the proper maintenance of physical records; (vi) compliance with federal and state security requirements when engaging in customer interactions and conversations; (vii) access to the licensee’s secure systems via a virtual private network or comparable system with password protection; (viii) the installation and maintenance of security updates, patches, or other alterations; (ix) “the ability to remotely lock or erase company-related contents of any device or otherwise remotely limit access to a licensee’s secure systems"; and (x) the designation of the principal place of business as the mortgage loan originator’s registered location for the purposes of the Nationwide Mortgage Licensing System and Registry record, “unless such mortgage loan originator elects an office as a registered location.” The amendments also add definitions for “office” and “remote location.” The Act is effective July 1.
Washington issues work from home regulations
Recently, the Washington Department of Financial Institutions adopted regulations implementing amendments to the Consumer Loan Act and the Mortgage Broker Practices Act. The amendments, among other things, allow licensed companies, subject to enumerated conditions, to permit licensed mortgage loan originators to work from their residence without licensing the residence as a branch. The amended regulations also clarify that a licensed loan originator may originate loans from any licensed location or their residence, whether located in Washington or not, so long as the mortgage loan originator’s sponsoring company is licensed to do business in Washington. The amendments are effective January 1, 2023.
CFPB and FHFA release updated loan-level mortgage data on borrowers’ pandemic experiences
On December 13, the CFPB and FHFA published updated loan-level data from the National Survey of Mortgage Originations. (See also FHFA announcement here.) The publicly available data highlights borrowers’ experiences when obtaining a mortgage during the Covid-19 pandemic. Key highlights from the updated data include: (i) in 2020 a higher percentage (48 percent) of borrowers reported that a paperless online mortgage process was important; (ii) 21 percent of borrowers reported that their mortgage closing did not occur as originally scheduled (up from 17 percent in 2019); (iii) an increased number of borrowers reported that they were very familiar with available interest rates, with 78 percent of borrowers (up from 67 percent in 2019) stating that they were very satisfied with the interest rate that they qualified for; and (iv) borrowers who refinanced in 2020 versus 2019 were better off financially, with 76 percent of borrowers who refinanced reporting that they were not concerned about qualifying for a mortgage in 2020.
“The data released today provide a clear view of borrower sentiment about the mortgage process during the COVID pandemic in 2020,” said Saty Patrabansh, FHFA Associate Director for the Office of Data and Statistics. “This data should be helpful to analysts and policymakers in understanding the complete experience of mortgage borrowers and identifying what challenges may still exist in mortgage lending.”