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  • CFPB proposes rule for mortgage servicing and loss mitigation

    Agency Rule-Making & Guidance

    On July 10, the CFPB proposed a rule to amend RESPA regulations originally issued in 2013 regarding the responsibilities of mortgage servicers.

    The rule removes the definition of “loss mitigation application” and replaces it with “loss mitigation review cycle” and “request for loss mitigation assistance.” The CFPB proposes defining the “loss mitigation review cycle” as the period between a borrower’s loss mitigation assistance request and when the loan is brought current or the procedural safeguards in § 1024.41(f)(2)(i) or (ii) are met, so long as the request is made more than 37 days before a foreclosure sale. A “request for loss mitigation assistance” is defined as any oral or written communication where a borrower asks a servicer for mortgage relief. This can include a request for loss mitigation, an interested response to a servicer’s unsolicited offer of loss mitigation, or if the borrower “indicates” an experienced hardship and asks the servicer for assistance making payments, retaining their home, or avoiding foreclosure. The CFPB is also proposing that loss mitigation determinations be subjected to notice of error procedures, and to require servicers to retain records that document actions regarding a borrower’s mortgage loan account until one year after the date of the mortgage loan is discharged or transferred to another servicer.

    The Bureau further proposes to require servicers to make a “good faith effort[]” to  make live contact with a delinquent borrower to present loss mitigations options, if appropriate. Good faith efforts may include attempting to reach the borrower by phone more than once or sending written communication encouraging the borrower to establish live contact with the servicer. Servicers would be exempt from the live contact requirement if a borrower is in a forbearance but must resume good faith efforts if a forbearance ends. The proposal would also limit the fees a servicer can charge a borrower while the servicer is reviewing possible options to help the borrower. 

    Under the proposed rule, borrowers who received marketing materials in another language may request mortgage assistance communications in that same language, and servicers must provide the notices in English and Spanish to all borrowers, as well as make available oral interpretation services in telephone calls with borrowers.

    The proposed rule includes loss mitigation guidelines and would set forth procedures regarding (i) enforcement; (ii) loss mitigation determination notices; (iii) application denial due to missing documents or information not in the borrower’s control; (iv) unsolicited loss mitigation offers; and (v) appeal processes. “Under the proposal, servicers would have more flexibility to review borrowers for each option individually, potentially enabling quicker assistance,” the CFPB said in its press release. Finally, the proposed rule would set forth certain circumstances under which a servicer cannot make the first notice or filing required by law for any foreclosure process. Servicers would generally only be allowed to pursue foreclosure after all possibilities for assistance are exhausted or the borrower has stopped communicating with the servicer.

    The proposed rule would not apply to small servicers.

    Comments must be received by September 9, 2024

    Agency Rule-Making & Guidance Federal Issues CFPB Consumer Finance Mortgage Servicing Loss Mitigation RESPA Regulation X

  • FDIC issues May 2024 enforcement actions

    Recently, the FDIC released a list of administrative enforcement actions taken against banks and individuals in May 2024. During that month, the FDIC made public 15 orders consisting of: a combined personal consent order and order to pay a civil money penalty (CMP); “one combined order of prohibition from further participation, and compromise and waiver of order to pay a CMP; seven consent orders; three CMP orders; two orders terminating consent orders; and one order terminating deposit insurance.”

    Included was a consent order with an Oklahoma-based bank alleging the bank engaged in “unsafe or unsound banking practices and violations of law or regulation.” Under the order, the bank must allow its board to participate more in the bank’s affairs, notify the FDIC if any directors or executives resign, and create a business plan and a capital plan, among others. Also included was a consent order with an Arkansas-based bank, alleging the bank engaged in “violations of law or regulation” relating to RESPA, as implemented by Regulation X; HMDA, as implemented by Regulation C; Section 5 of the FTC Act; and the FCRA and Section 1022.54 of Regulation V. The FDIC ordered the bank to pay a civil money penalty of $1.5 million. The banks neither admitted nor denied the allegations.

    Bank Regulatory FDIC Enforcement Bank Compliance RESPA FCRA

  • CFPB bans two companies for reverse mortgage servicing violations

    Federal Issues

    On June 18, the CFPB issued an order against two reverse mortgage servicing companies (along with certain affiliates and subsidiaries), after determining that the companies misrepresented loan defaults and failed to respond appropriately to borrower communications to effectively service their reverse mortgages, leading to unnecessary costs and foreclosure fears for borrowers. Specifically, the CFPB alleged the companies failed to respond to borrower communications – including requests for information and payoff statements – in violation of RESPA. The companies also sent false repayment letters to older adult homeowners stating that their reverse mortgage loans were due and must be paid within 30 days due to a default, when no such trigger event had occurred. Further, the companies allegedly had inadequate resources and staffing to handle as many as 150,000 borrowers, leading to systematic regulatory failures.

    Both companies were ordered to permanently cease reverse mortgage servicing activities and pay a civil money penalty (although for one company, the civil money penalty was $1 due to an inability to pay). The other company was ordered to pay over $11 million in consumer redress and $5 million in civil money penalties.

    Federal Issues CFPB Reverse Mortgages Mortgage Servicing Enforcement Consumer Finance Consumer Protection RESPA CFPA Regulation X

  • District Court clarifies law related to post-foreclosure RESPA communications

    Courts

    Recently, the U.S. District Court for the District of New Jersey ruled that obligations under RESPA extended beyond the issuance of a foreclosure judgment, but dismissed the plaintiff’s other claim under RESPA. The Court rejected the argument by the servicer-defendant that a loan’s “merger” with a foreclosure judgment under state law exempted them from RESPA’s loss mitigation rules. The Court pointed to the servicer’s active engagement with the borrower’s loan modification application post-judgment as a basis for maintaining the servicer’s liability under RESPA.

    Elaborating on the scope of RESPA, the Court addressed the nature of correspondence that can be classified as “qualified written requests” (QWRs). The Court held that the plaintiff’s letters regarding her loss mitigation efforts did not qualify as QWRs because a request for modification of loan terms did not align with the statutory purpose of a QWR, which was intended to facilitate information exchange or dispute resolutions specifically related to the servicing of the loan, such as payment history or charges on the account, rather than the negotiation of new loan terms. Therefore, the Court dismissed the plaintiff’s claim alleging a violation of RESPA due to a failure to respond to a QWR.

    The Court also allowed a claim under the New Jersey Consumer Fraud Act (NJCFA) to move forward, signaling that foreclosure judgments do not render the NJCFA inoperative. Finally, the Court dismissed the plaintiff’s breach of good faith and fair dealing claims against the lender’s law firm and the servicer/lender due to the absence of a direct contractual relationship with the borrower and no evidence of denied mortgage agreement benefits.

    Courts RESPA New Jersey Qualified Written Request

  • Borrower’s RESPA claim stays afloat in District Court

    Courts

    The U.S. District Court for the Southern District of Ohio, Eastern Division, granted in part and denied in part defendant mortgage servicer’s motion to dismiss claims for RESPA Qualified Written Requests violations. Defendant approved plaintiffs for a trial payment plan for their mortgage loan. After plaintiffs completed that plan, defendants sent an initial modification agreement with a misspelled plaintiff name. Plaintiffs notified defendant of the error but continued making payments pursuant to the initial modification agreement. Defendant then sent a corrected version which plaintiffs signed, and defendants recorded with the Delaware County Recorder’s office. However, defendants did not update the new terms in its billing system and, after realizing the agreement contained terms different from what it intended, sent a third version of the modification agreement to plaintiffs with an adjusted principal balance and interest rate. Plaintiffs refused to sign the third modified agreement, and defendants refused to honor the recorded version or accept payments, stating that plaintiffs were in default on their mortgage.

    In making its judgement, the court considered how defendant handled plaintiffs’ qualified written requests (QWR). Regarding defendant’s response to plaintiffs’ notice of error, plaintiffs claimed defendant did not conduct a reasonable investigation, inadequately explained the discrepancy between the modification agreements’ interest rates and fee charges to their account, and entirely ignored the change in principal balances between the initial and the recorded modification agreements. Defendant argued that its conclusion, that no enforceable loan modification existed, would not change had it conducted the investigation. The court found that defendant could not bypass its responsibility to conduct a reasonable investigation, and that defendant did not address the difference in principal balance between the initial and recorded modification agreements.

    On the issue of defendant’s response to plaintiffs’ request for information (RFI), plaintiffs claimed defendant’s response did not address their claims of missing records, nor did it mention that such records were unavailable. Plaintiffs also claimed defendant failed to produce requested documents. Refuting defendant’s argument that plaintiffs did not “even hint” that they suffered damages from the RFI portion of the QWR, the court found that plaintiffs’ damages were legally cognizable. However, the court dismissed plaintiffs’ claim as to the RFI because it did not satisfy the necessary standing requirements. 

    Courts RESPA Ohio Qualified Written Request RFI Mortgages Consumer Finance

  • District Court decides in favor of bank despite alleged FDCPA and RESPA violations

    Courts

    On February 15, the U.S. District Court for the Central District of California granted a bank defendant’s motion to dismiss certain claims presented in the plaintiff’s complaint alleging violations of the Fair Debt Collection Practices Act (FDCPA) and Real Estate Settlement Practices Act (RESPA).

    With respect to the FDCPA claim, the court found that the defendant did not qualify as a “debt collector” within the meaning of the statute because the defendant acquired the loan through its merger with the original creditor of the plaintiff’s mortgage. The court noted that several other district courts have held that an entity that acquires a debt through its merger with another creditor is not a “debt collector” under the FDCPA even if the merger occurred following the borrower’s default on the debt.

    With respect to the plaintiff’s RESPA claim, the court found that the plaintiff failed to allege a violation of the statute because the plaintiff’s letter to the defendant, which requested a copy of the original promissory note underlying the deed of trust as well as a loan payoff amount, did not constitute a “qualified written request” triggering the defendant’s obligations under RESPA to respond.  

    Courts RESPA FDCPA California Mortgages

  • District Court addresses plain meaning of “pattern or practice of noncompliance” under RESPA.

    Courts

    On February 7, the U.S. District Court for the District of Maryland granted in part and denied in part a defendant mortgage company’s motion to dismiss a class action lawsuit alleging RESPA violations related to escrow account management for borrowers. Class action plaintiffs claim that the defendant’s failure to pay their property taxes in a timely manner, resulting in their homes being potentially subject to local tax sale procedures for unpaid taxes, created a “pattern or practice of noncompliance” within the meaning of RESPA.

    In moving to dismiss, defendant argued that alleged violations of servicing obligations that fall under separate subsections of RESPA cannot create a “pattern or practice of noncompliance” for obligations of the section setting for the escrow-handling obligations.  While noting that “case law interpreting RESPA statutory damages claims is still developing,” the court found that the statute does not require identical violations from the same subsection of RESPA to state a “pattern or practice” claim.  The court reasoned that the absence of the word “subsection” from the statute is noteworthy, and it indicates that Congress did not intend to confine “pattern or practice” to a single subsection, and held that the plain meaning of the provision only requires plaintiffs to allege repeated violations of the “[s]ervicing of mortgage loans and administration of escrow accounts” section of RESPA (i.e., all of the obligations set forth in 12 U.S.C. § 2605). The court also rejected defendant’s argument that plaintiffs failed to state a claim because they “cannot rely upon their own allegations or the existence of public complaints and lawsuits which have not resulted in a judgment against it for violations of RESPA,” finding that allegations of servicing violations from multiple named plaintiffs in separate jurisdictions was sufficient to survive a motion to dismiss.

    Separately, the court dismissed allegations that defendant violated RESPA by failing to respond to plaintiffs’ qualified written requests, finding that plaintiffs’ claims of “emotional distress, without more, do[] not establish the causal link necessary to show actual damages,” and that  plaintiffs did not support claims that voluntary postage costs for sending correspondence to defendants could be recognized as economic damages.

    Courts Mortgages RESPA Maryland

  • CFPB posts guidance on RESPA

    Federal Issues

    On September 1, the CFPB posted guidance to its website that affirms guidance on the Real Estate Settlement Procedures Act (RESPA) that the Department of Housing and Urban Development previously issued. In 2011, the Dodd-Frank Act transferred responsibility for RESPA from HUD to the CFPB. At the time, the Bureau stated that it would apply “the official commentary, guidance, and policy statements” that HUD had issued on RESPA “pending further CFPB action” and would give “due consideration” to other (i.e., informal) guidance and interpretations. Although the Bureau has issued certain consent orders and other statements that may cast doubt on whether it interprets RESPA in the same manner that HUD did, in the most recent posting, the Bureau confirms that the list of documents posted by the Bureau generally “continue to be applied today by the CFPB.”

    Federal Issues Dodd-Frank CFPB RESPA HUD

  • Key Takeaways from the CFPB’s First Public Enforcement Action Alleging Violations of RESPA Section 8 Since 2017

    Federal Issues

    The Consumer Financial Protection Bureau (CFPB) has issued a consent order to a residential mortgage loan originator to resolve allegations that it provided illegal incentives to real estate brokers and agents in exchange for mortgage loan referrals.  This is the CFPB’s first public enforcement action alleging violations of RESPA Section 8 since 2017.

    The CFPB issued a parallel consent order against a real estate brokerage firm for accepting the incentives in exchange for referrals.

    Allegations Against the Lender

    The consent order against the lender alleges that the lender paid for several subscription services – for example, to a service that provided information concerning property reports, comparable sales and foreclosure data – and then provided free access to such services to real estate agents and brokers, which the CFPB determined to be a thing of value. According to the consent order, the agents and brokers who received access to the subscription services also referred mortgage business to the lender, which the CFPB alleges was in exchange for the free services and therefore violated RESPA Section 8(a).

    The consent order also alleges that the lender hosted and subsidized events, including paying for food, beverages and entertainment, for the benefit of real estate agents and brokers. The consent order further alleges that the lender gave real estate agents and brokers free tickets to sporting events, charity galas and other events where the real estate agents and brokers would have otherwise needed to pay for their own admission, food, and alcohol.  The CFPB alleges that these events frequently cost the lender several thousand dollars or more. The CFPB asserts that the lender’s contributions to these events constituted a thing of value to the real estate agents and brokers and were given to create, maintain and strengthen mortgage referral relationships, in violation of RESPA Section 8(a).

    Finally, the CFPB alleges that the lender had marketing services agreements (“MSAs”) with numerous real estate brokerages, and that many of the compensable services were either performed by the lender itself rather than the brokerages or, based on the Bureau’s allegations against the broker, were not performed by the brokerages.

    Also, the consent order noted that the MSAs required the real estate brokers to promote the lender to the broker’s own agents rather than to consumers. The lender also encouraged its MSA partners to use a third-party smartphone app. The real estate agents shared the app with their clients. The app featured a photo of the lender’s loan officer and the lender’s logo and included buttons where consumers could contact the lender’s loan officer for assistance. As a result, the CFPB alleges that the payments the lender made to the brokerages were structured and implemented to generate referrals, rather than to compensate the brokerages for any marketing services they actually performed.

    Allegations Against the Real Estate Broker

    The consent order against the broker alleges that the broker’s real estate agents and brokers accepted the subscription services and subsidized events. It also alleges that the broker received payments in connection with an MSA that was primarily focused on the lender getting referrals from the broker’s brokers and agents rather than the broker marketing the lender to the public, and that the broker failed to perform many of the marketing tasks required by the MSA but received payments anyway. For example, the consent order alleges that the MSA required the broker to send 15,000 marketing emails a month while allocating 50% of the content to the lender, display video advertisements for the lender at its physical locations and create a number of property websites displaying the lender’s content.  However, the broker allegedly failed to perform any of these marketing services.

    Takeaways

    We note several key takeaways from these consent orders:

    • Taken at face value, none of the conduct alleged to violate RESPA Section 8(a) is novel or particularly notable. The crux of the alleged violations involved paying for obvious things of value in exchange for referrals and entering into MSAs where the contemplated marketing services were either not provided or directed to potential referral sources and not consumers. The consent orders, therefore, are largely consistent with prior RESPA enforcement actions involving lenders and real estate brokers.
    • This is the first public CFPB enforcement action alleging violations of RESPA Section 8 since 2017, which makes clear that although the CFPB’s focus on RESPA Section 8 may have waned somewhat from the Cordray era, it is still monitoring for RESPA Section 8 violations and will bring public enforcement actions when violations are discovered. Coupled with February’s Advisory Opinion on Digital Mortgage Comparison Shopping Platforms, the CFPB is clearly still engaged in RESPA compliance.
    • The reference to the mobile app with a loan officer’s photo and the lender’s logo, and the ability for the consumer to reach out to the lender directly, is in accord with longstanding CFPB and HUD guidance that exclusivity is indicative of a referral to the extent that it “affirmatively influences” a consumer to select a particular provider of settlement services. This viewpoint was recently espoused in the CFPB’s Advisory Opinion on Digital Mortgage Comparison Shopping Platforms, and it appears that the CFPB views this principle as generally applicable.

    Penalties

    In addition to agreeing to cease engaging in the conduct alleged, the lender was ordered to pay a civil monetary penalty of $1.75 million and also agreed to implement a compliance program designed to prevent any future violations should the lender resume retail mortgage operations. The lender also agreed to meet certain recordkeeping and reporting requirements. 

    In addition to agreeing to cease engaging in the conduct alleged, the broker was ordered to pay a civil monetary penalty of $200,000 and meet certain recordkeeping and reporting requirements.

    In agreeing to enter into the consent orders, the lender and broker did not admit or deny any findings of fact or conclusions of law related to the violations alleged by the CFPB.

    Read the lender’s consent order.

    Read the broker’s consent order.

    Read the CFPB’s press release.

    Want to learn more? Contact John Kromer or Steve vonBerg.

    Federal Issues CFPB Consumer Finance RESPA Enforcement Referrals Real Estate Mortgages Loan Origination

  • District Court: Servicer’s QWR responses did not violate RESPA

    Courts

    The U.S. District Court for the Western District of Washington recently granted summary judgment in favor of a defendant mortgage servicer related to alleged RESPA violations concerning qualified written requests and notices of error. Plaintiff entered into a permanent loan modification for which she made timely payments until she applied for new financing. One year later, plaintiff noticed a deferred principal balance that she claimed was not listed on her 2019 loan modification agreement. Plaintiff asserted that she called seeking to have the deferred principal balance removed and sent a notice of error (NOE) letter to the defendant, claiming, among other things, that the loan documentation did not mention the deferred amount. Defendant acknowledged the NOE and timely responded that the modification agreement included the deferred principal balance.

    In granting defendant’s motion for summary judgment, the court held that while plaintiff’s allegations “are framed as a RESPA violation … [p]laintiff’s true concern is that [defendant] misrepresented the terms of the 2019 loan modification.” The defendant, however, complied with RESPA by providing “a statement of the reasons for which the servicer believes the account of the borrower is correct as determined by the servicer,” and plaintiff’s “disagreement with the servicer’s determination does not create a claim under RESPA.” Further, the court found that the deferred principal balance was in fact included on the executed loan modification agreement, and that the plaintiff did not suffer any actual harm under RESPA or otherwise.

    Courts RESPA Consumer Finance Mortgages QWR

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