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CFPB Announces RESPA Action against Homebuilder
On May 17, the CFPB announced an enforcement action against a homebuilder the CFPB alleges violated Section 8(a) of RESPA through joint venture arrangements. According to the CFPB, the homebuilder created two joint ventures, one with a state bank and the other with a nonbank mortgage company. The CFPB consent order alleges the homebuilder referred mortgage customers to the joint ventures in exchange for payments from those ventures, and that such payments violate RESPA’s prohibition on the acceptance of any fee, kickback, or thing of value in exchange for referral of customers for real estate settlement services. The homebuilder did not admit to the allegations, but agreed to disgorge over $100,000 and cease from performing any real estate settlement services, including mortgage origination. The CFPB investigation resulted from an FDIC referral. That agency issued an enforcement action in June 2012 against the state bank for related alleged activities.
CFPB Clarifies 2013 Escrow Rule, Publishes Final List of Rural and Underserved Counties
On May 16, the CFPB issued a final rule clarifying its January 2013 final rule on escrow account requirements for first-lien higher-priced mortgage loans (HPMLs). The January 2013 rule expands existing escrow requirements for such loans and creates a new exemption for small creditors that operate predominantly in rural or underserved areas. The clarifying rule adopts the rule clarifications as proposed. The clarifying rule explains how a county’s rural and underserved status may be determined based on currently applicable Urban Influence Codes established by the Department of Agriculture, or based on HMDA data, and provides illustrations to facilitate compliance. With the clarifying rule, the CFPB posted on its website a final list of rural and underserved counties, for use with mortgages closed from June 1, 2013 through December 31, 2013. The list is identical to the preliminary list posted in March. Finally, the clarifying rule (i) notes that the final escrow rule inadvertently removed existing language that provided certain protections related to a consumer’s ability to repay and prepayment penalties for HPMLs, and (ii) establishes a temporary provision to ensure the removed protections remain in effect until the expanded HPML protections take effect on January 10, 2014.
CFPB Debuts Mortgage Rule Videos, Spanish Language Website
On May 15, the CFPB announced a YouTube playlist, which includes seven videos that provide information about the mortgage rules the CFPB published earlier this year. The CFPB stated that the purpose of the videos is to provide an overview of the rules in a plain language format for use by a broad array of industry constituents, but cautioned that the videos are not a substitute for the rules themselves. Also on May 15, the CFPB announced a Spanish language website, with mobile capability, that provides access to CFPB resources, including information about how to submit a consumer complaint and answers to consumers’ frequently asked questions.
Indiana Revises Numerous Licensing, Consumer Credit, and Banking Provisions
On May 9, Indiana enacted HB 1081, which makes numerous changes to the state’s consumer lending, licensing, and banking laws. Among those changes, the bill increases the threshold loan amounts under various definitions in the Uniform Consumer Credit Code, including “consumer credit sale,” “consumer loan,” and “consumer related loan.” With regard to mortgage originator licensing, the bill (i) revises the surety bond requirements for creditors and entities exempt from licensing that employ a licensed mortgage loan originator, (ii) prohibits an unlicensed individual or an unlicensed organization to act as a closing agent in a first lien mortgage transaction, and (iii) empowers the Department of Financial Institutions (DFI) to investigate any licensee or person that the DFI suspects is operating without a license or in violation of the First Lien Mortgage Lending Act. The bill provides additional guidelines for filing an article of dissolution of a bank, trust company, or a building and loan association. It also makes changes to the certain powers of banks and trust companies. In addition, the bill make numerous amendments related to debt management companies, lead generators, and other consumer financial service providers, and revises requirements for money transmitter licensing by, for example, authorizing the DFI to designate the NMLS for licensing purposes.
Freddie Mac Introduces Low Activity Fee, Updates Numerous Seller/Servicer Requirements
On May 15, Freddie Mac issued Bulletin Number 2013-8, which includes numerous revisions to requirements for sellers and servicers. According to the Bulletin, beginning January 1, 2014, a seller/servicer will be charged a $7,500 low activity fee if the seller/servicer does not either (i) sell mortgages to Freddie Mac with an aggregate unpaid principal balance greater than $5 million during the immediately preceding calendar year, or (ii) service, or act as a servicing agent for, mortgages for Freddie Mac with an aggregate unpaid principal balance of at least $25 million as of December 31 of the immediately preceding calendar year. In addition, the Bulletin, among other things: (i) requires seller/servicers to comply with the deadlines specified by Freddie Mac when it requests cooperation in a fraud investigation; (ii) notifies sellers and reminds servicers that seller/servicers must direct mortgage insurers providing coverage on mortgages sold to and/or serviced for Freddie Mac to release data to Freddie Mac at Freddie Mac’s request; (iii) updates and revises requirements for Living Trusts and announces that mortgages secured by properties in which the legal and equitable title is held by a land trust will no longer be eligible for purchase under the Guide, unless certain conditions are met; and (iv) prohibits sellers that have guarantor master commitments from taking out fixed-rate cash contracts for the sale of super conforming mortgages.
HUD Issues Series of Mortgagee Letters
Over the past week, HUD issued numerous mortgagee letters applicable to single-family mortgagees. Mortgagee Letter 2013-14, dated May 9, 2013, establishes documentation requirements for mortgagees to demonstrate eligibility for FHA mortgage insurance of loans when a governmental entity, or its agency or instrumentality, directly provides the borrower’s required minimum cash investment. The letter also provides guidance on resolving concerns with extending secondary financing by a governmental entity when such an entity provides the minimum cash investment through secondary financing. The letter becomes effective July 1, 2013. Also on May 9, HUD issued Mortgagee Letter 2013-15, which introduces new status codes for reporting delinquent mortgages in the Single Family Default Monitoring System and announces a new requirement to report each non-incentivized loan modification. The reporting and status code requirements become effective November 9, 2013. On May 14, HUD issued Mortgagee Letters 2013-16 and 2013-17. The former permits the subordination of partial claim liens for FHA streamlined refinances and eliminates consideration of partial claim notes from the 125% combined loan-to-value ratio calculation for streamlined refinances. Mortgagees have until July 13, 2013 to implement the changes. The latter provides guidance for determining interest rates to use when implementing loss mitigation home retention options for trial payment plans offered on or after July 1, 2013.
Kansas Repeals Recently Updated Mortgage Interest Rate Cap
Recently, Kansas enacted SB 129, which repealed a provision in the mortgage interest rate law that set a floating cap on the interest rate charged for first real estate mortgage loans and contracts for deeds. The repeal also renders irrelevant another recent change to the same provisions. Specifically, on April 4, the state enacted a bill that increased the maximum annual interest rate for certain mortgages from 1.5 percentage points to no more than 3.5 percentage points above a Freddie Mac floating rate. While that change was pending approval by the governor, the legislature passed the repeal, as explained in the legislature’s conference report. With the elimination of the specified interest rate cap, parties now are subject to provisions in current law, which provide the rate cannot exceed 15% per year.
CFPB Proposes to Delay Part of Mortgage Loan Originator Rule
On May 7, the CFPB proposed to temporarily delay the effective date of one aspect of its loan originator compensation rule. Under the final rule, effective June 1, 2013, creditors would be prohibited from financing premiums or fees for certain credit insurance products offered in connection with certain mortgage loan transactions. The CFPB proposes to temporarily delay the relevant provision so that the Bureau can clarify its application to transactions other than those in which a lump-sum premium is added to the loan amount at closing. The CFPB plans to publish a new proposal to seek further notice and comment about whether, and under what circumstances, premiums for certain credit insurance products can be charged on a periodic basis in connection with a covered consumer credit transaction
CFPB Publishes Additional Mortgage Rule Compliance Guides
On May 2, the CFPB published three additional guides to assist companies seeking to comply with its HOEPA rule, ECOA valuations rule, and TILA high-priced mortgage appraisal rule. As with other prior guides it has released, the CFPB cautions that the guides are not a substitute for the rules and the Official Interpretations, and that the guides do not consider other federal or state laws that may apply to the origination of mortgage loans. BuckleySandler also has prepared detailed analyses of these and other CFPB mortgage rules.
President Obama Nominates New FHFA Director
On May 1, President Obama announced the nomination of Representative Mel Watt (D-NC) to serve as Director of the FHFA. Mr. Watt has represented portions of Charlotte and other North Carolina communities since 1993 and currently is a member of the House Committees on Financial Services and Judiciary. He would replace FHFA Acting Director Edward DeMarco, who federal and state Democratic policymakers and housing groups have called on to be replaced, in part based on his decision to not direct Fannie Mae and Freddie Mac to engage in broad principal reduction programs. On the same day as the President’s announcement, the Congressional Budget Office released a report that examined three options for Fannie Mae and Freddie Mac to use principal forgiveness, which the CBO finds would be likely to (i) result in small savings to the government, (ii) slightly reduce mortgage foreclosure and delinquency rates, and (iii) slightly boost overall economic growth.