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  • CFPB Mortgage Disclosure Rule Now Expected on November 20, 2013

    Lending

    On November 1, the CFPB announced a field hearing on “Know Before You Owe: Mortgages,” to be held on Wednesday, November 20 at 11 a.m. EST in Boston. In conjunction with the hearing, the Bureau is expected to release its long-awaited final rule combining the Good Faith Estimate and HUD-1 with the mortgage disclosures under the Truth in Lending Act.

    The CFPB has stated that the event will feature remarks from CFPB Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public. The final rule, which was originally expected in October, will not only replace the forms that consumers receive during the mortgage origination process but will also fundamentally alter the regulations governing the preparation and provision of – and liability for – those disclosures. As a result, lenders, settlement agents, and service providers will be required to make extensive changes to their systems, compliance programs, and contractual relationships.

    In September, BuckleySandler hosted a webinar covering the key issues in this rulemaking and discussing what industry can do to start preparing now. The webinar featured a discussion with Jeff Naimon, who has spent years assisting the industry with the existing forms. Please contact Jeff for a copy of the webinar materials or with any questions about the expected rule.

    CFPB TILA Mortgage Origination RESPA Compliance Agency Rule-Making & Guidance

  • CFPB Sues Law Firm Over Alleged RESPA Violations

    Lending

    On October 24, the CFPB announced the filing of a lawsuit against a Kentucky law firm and its principals for allegedly violating Section 8 of RESPA by operating a network of affiliated companies in order to pay “kickbacks” for referrals of mortgage settlement business. The CFPB claims, among other things, that from 2006 until 2011 the law firm established nine joint ventures (JVs) with owners and managers of real estate and mortgage brokerage companies. According to the CFPB, when a JV partner or an agent or employee of the JV made an initial referral of closing or other settlement services to the law firm, the law firm arranged for the title insurance for the underlying transaction to be issued through the co-owned JV in exchange for the settlement business. The parties subsequently split profits generated by the JVs as a result of the title insurance referrals, the CFPB alleges. The CFPB is seeking to enjoin the defendants from the alleged activity, and disgorgement of all income, revenue, proceeds, or profits received in connection with settlement services provided as a result of or in connection with a referral made in violation of RESPA.

    The CFPB supports its claims in part by referencing certain factors first established in a HUD policy statement for use in determining whether a controlled business arrangement is a “sham.” For example, the CFPB alleges that (i) in most instances, the initial capitalization for the JV was provided by the law firm and comprised of only enough funds to cover the JV’s Errors and Omissions insurance, (ii) each JV had only one staffer—a single independent contractor simultaneously shared by all nine JVs and concurrently employed by the law firm, (iii) the law firm principals and employees or agents of the law firm managed the business affairs of the JVs, (iv) the JVs did not have their own office spaces, email addresses, or phone numbers and could not function independently from the law firm, (v) the JVs did not advertise themselves to the public, and (vi) all of the JV’s business was referred by the law firm.  However, the CFPB never characterizes the business arrangements in this case as a “sham” and does not explicitly cite HUD’s policy statement.

    This is at least the sixth RESPA action publicly announced by the CFPB and the second involving allegedly improper affiliated business arrangements. As with the other RESPA actions it has announced to date, the investigation that led to the current lawsuit originated with HUD and transferred to the CFPB when authority for RESPA transferred in July 2011. The CFPB appears to be exercising for the first time in a RESPA case its independent civil litigating authority to pursue the allegations, whereas HUD lacked such litigating authority and typically would have resolved the investigation through a negotiated settlement or a referral to the DOJ for litigation. The announcements, combined with the prior actions, suggests that the Bureau remains focused on enforcing Section 8 of RESPA—including through litigation—even as it focuses substantial attention on implementing extensive revisions to RESPA and other mortgage rules.

    CFPB HUD RESPA Title Insurance Enforcement

  • CFPB Deputy Enforcement Director Discusses Enforcement Priorities

    Consumer Finance

    On August 22, C. Hunter Wiggins, the CFPB’s Deputy Enforcement Director for Policy and Strategy, spoke to the D.C. Bar Antitrust and Consumer Law Section at a session titled “The Consumer Financial Protection Bureau’s Enforcement Priorities.” A summary of his remarks and responses to certain questions follows.

    Mr. Wiggins began his presentation by noting that the Bureau did not want to be a “reactive” agency that devotes its limited resources to “cleaning up” after past crises. Instead, his team, which reports to the CFPB’s Director of Enforcement, Kent Markus, is responsible for evaluating and setting strategic priorities that will allow the Bureau to be a proactive organization.

    The Bureau has 150 employees in its Office of Enforcement, seven of whom are on the Policy and Strategy Team. In addition, the Enforcement Office has several “Issue Teams,” which include members of the Policy and Strategy team and other Enforcement staff. Each of the “Issue Teams” is focused on one particular market, such as mortgage servicing or credit cards, and is responsible for identifying problems in those markets that should be prioritized for enforcement action. The criteria used include: (1) the number of consumers potentially impacted by a practice; (2) the period of time that practice has been in place (including whether the practice is ongoing); (3) the amount of harm to consumers; (4) whether the practice targets a vulnerable population; (5) whether consumers have the ability to avoid the practice through shopping; (6) whether the practice results in market distortions (such as a “race to the bottom” or competitive harm to legitimate businesses that do not engage in the practice); and (7) barriers to other solutions (such as the lack of a private right of action).

    The Bureau allocates its enforcement resources as follows:

     

     

     

     

     

     

     

     

     

     

     

    • Core Work (50%): This consists of the priority areas in which the Bureau carries out what were described as its “cop on the beat” responsibilities. Each area generally receives a pro rata amount of resources, but this can vary over time. The areas include: (1) auto finance; (2) consumer loans; (3) credit cards; (4) credit reporting; (5) debt collection; (6) debt relief; (7) deposit accounts; (8) fair lending; (9) money services / prepaid cards; (10) mortgage origination; (11) mortgage servicing; (12) payday loans; and (13) student lending.
    • Emphasized Priorities (25-35%): Two to four specific, systemic market problems are chosen. As an example, Mr. Wiggins pointed to the Bureau’s actions regarding credit card add-on products over the past year, which he said were prioritized due to the scope of their impact.
    • Emerging and Cross-Cutting Priorities (15%): These are new products, services, or markets, or in some cases new aspects of older products and services that may have an impact on a particular population. As an example, Mr. Wiggins referred to the Bureau’s recent action regarding the use of military allotments to collect payments on auto loans made to servicemembers.
    • Tactical Priorities (0-10%): These are activities that are useful to the Bureau’s own long-term institutional development. For example, Mr. Wiggins noted areas where the Bureau has sought out partnerships with other agencies to establish or strengthen enforcement relationships with other regulators or law enforcement agencies. Other possible tactical priorities mentioned included pursuing enforcement matters with a regional focus and increasing the Bureau’s ability to use temporary restraining orders as an enforcement tool.

     

    Question and Answer Session

    Mr. Wiggins noted that his responses to questions, which are discussed below, represented his own views and not those of the Bureau.

     

     

     

     

     

     

     

     

     

     

     

     

     

    • RESPA enforcement: Mr. Wiggins was asked if the Bureau was looking at title agents for RESPA compliance. He responded that, in setting priorities, the Bureau focuses on identifying problems, not industries.
    • Add-on products: Mr. Wiggins was asked why the Bureau identified credit card add-on products as an “Emphasized Priority” when those products were already receiving significant attention from other regulators. Mr. Wiggins acknowledged the actions of other regulators but said that the Bureau’s review led them to view this as an area where they needed to step in.
    • Regulating attorneys: A concern was raised regarding the extent to which the Bureau could regulate the activities of attorneys. Mr. Wiggins responded that, as general matter, the Bureau has no interest in intervening in circumstances where attorneys are merely providing legal advice to clients. However, he noted two Bureau enforcement actions involving potentially problematic attorney conduct: first, a 2012 action against a California law firm allegedly engaged in unfair and deceptive practices related to loan modifications; and second, this week’s suit against a debt-settlement firm that allegedly partnered with attorneys to collect prohibited upfront fees for debt relief services.
    • Criminal activity: In response to a question, Mr. Wiggins stated that the Bureau was legally obligated to turn over information regarding suspected criminal activity uncovered during its examinations and investigations to the Department of Justice (DOJ) and that the Bureau has a memorandum of understanding with DOJ for that purpose. However, he emphasized that the CFPB’s examiners and investigators do not look for criminal conduct, such as tax evasion, in the regular course of their duties.
    • Employee incentive programs: Mr. Wiggins was asked about the use of employee incentive programs in the area of debt collection. He responded that incentive programs can be problematic to the extent they encourage employees to engage in improper conduct and that the Bureau takes this into account.

     

    CFPB RESPA Enforcement Ancillary Products Mortgage Origination

  • CFPB Releases Second Update of Examination Procedures for Mortgage Rules

    Lending

    On August 15, the CFPB released new TILA and RESPA examination procedures, updated to cover all mortgage origination rules issued through May 29, 2013 and all mortgage servicing rules issued through July 10, 2013. The CFPB intends the updated procedures to help prepare financial institutions and mortgage companies for examinations regarding the new mortgage rules covering ability-to-repay requirements, qualified mortgages, high-cost mortgages, servicing, appraisals for higher-priced mortgage loans, and loan originator compensation.  Please see our summaries of the key rules here and here.

    Notably, the new examination procedures do not reflect the amendments proposed by the CFPB in June, which are expected to be finalized shortly.  It is unclear whether the CFPB intends to update the procedures to reflect these and any other amendments.

    CFPB TILA RESPA Mortgage Origination

  • CFPB Announces RESPA Action against Homebuilder

    Lending

    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 RESPA Enforcement Mortgage Origination

  • CFPB Announces First RESPA Enforcement Actions

    Lending

    On April 4, the CFPB announced enforcement actions against four mortgage insurers against which it filed complaints alleging that their captive reinsurance arrangements with mortgage lenders violated Section 8 of the Real Estate Settlement Procedures Act (RESPA). The actions are the first public actions the CFPB has taken to enforce RESPA, and follow investigations started by HUD and transferred to the CFPB in July 2011. The insurers did not admit the allegations but agreed to pay a combined $15.4 million to end the investigations. The consent orders also (i) prohibit the insurers from entering into any new captive mortgage reinsurance arrangements with mortgage lenders or their affiliates, and from obtaining captive reinsurance on any new mortgages, for a period of ten years, (ii) require the insurers to forfeit any right to the funds not directly related to collecting on reinsurance claims in connection with pre-existing reinsurance arrangements, and (iii) subject the insurers to compliance monitoring and reporting. The orders must be approved by the U.S. District Court for the Southern District of Florida before taking effect.

    CFPB RESPA Mortgage Insurance Enforcement

  • Special Alert: Detailed Analysis of CFPB's Mortgage Servicing Rules

    Lending

    On January 17, the CFPB issued final rules amending Regulation Z (TILA) and Regulation X (RESPA) to implement certain mortgage servicing standards set forth by the Dodd-Frank Act and to address other issues identified by the CFPB.  The rule amending Regulation Z includes changes to (i) periodic billing statement requirements, (ii) notices about adjustable rate mortgage interest rate adjustments, and (iii) rules on payment crediting and payoff statements. The rule amending Regulation X addresses (i) force-placed insurance requirements, (ii) error resolution and information request procedures, (iii) information management policies and procedures, (iv) standards for early intervention with delinquent borrowers, (v) rules for contact with delinquent borrowers, and (vi) enhanced loss mitigation procedures.  This Alert includes a detailed analysis of these nine topics and also provides links to each of the model forms amended or added by the rule.  For ease of reference, this Alert contains a detailed, hyper-linked table of contents.   Click here to download our detailed analysis of CFPB's Mortgage Servicing Rules.

    CFPB TILA Dodd-Frank RESPA Loss Mitigation

  • CFPB Issues Mortgage Servicing Standards

    Lending

    On January 17, the CFPB issued final rules amending Regulation Z (TILA) and Regulation X (RESPA) to implement certain mortgage servicing standards set forth by the Dodd-Frank Act and to address other issues identified by the CFPB. The rule amending Regulation Z includes changes to (i) periodic billing statement requirements, (ii) notices about adjustable rate mortgage interest rate adjustments, and (iii) rules on payment crediting and payoff statements. The rule amending Regulation X addresses (i) force-placed insurance requirements, (ii) error resolution and information request procedures, (iii) information management policies and procedures, (iv) standards for early intervention with delinquent borrowers, (v) rules for contact with delinquent borrowers, and (vi) enhanced loss mitigation procedures. While many of the rules implement changes required by the Dodd-Frank Act, other proposed requirements incorporate requirements similar to those placed on servicers as part of the national mortgage servicing settlement earlier this year, or corrective actions taken in 2011 by the prudential regulators. The new standards go into effect on January 10, 2014. The rule provides certain exemptions for servicers that service 5,000 or fewer mortgage loans and service only mortgage loans that they or an affiliate originated or own. BuckleySandler will provide additional analysis of key issues in the rules once we complete our review of them.

    CFPB TILA Mortgage Servicing RESPA Loss Mitigation

  • Ninth Circuit Holds Mortgage Servicers Have No RESPA Duty To Respond to Request for Loan Terms

    Lending

    On December 11, the U.S. Court of Appeals for the Ninth Circuit held that letters sent by two borrowers challenging the monthly payment due on their mortgage loan were not “qualified written requests” and therefore did not trigger the servicer’s duty under RESPA to respond. Medrano v. Flagstar Bank, FSB, No. 11-55412, 2012 WL 6183549 (9th Cir. Dec. 11, 2012). The borrowers alleged that their mortgage servicer failed to respond adequately to three letters in which the borrowers challenged the monthly payment due on their loan. RESPA grants borrowers a private right of action against servicers who fail to respond to a “qualified written request.” Following the Seventh Circuit’s decision in Catalan v. GMAC Mortgage Corp., 629 F.3d 676 (7th Cir. 2011), the court held that RESPA provides that such requests must (i) reasonably identify the borrower’s name and account, (ii) either state the borrower’s reasons for the belief that the account is in error or provide sufficient detail to the servicer regarding other information sought, and (iii) seek information relating to the servicing of the loan. The court held that because the letters did not seek information relating to the servicing of the loan, but rather challenged the loan’s terms, the letters were not qualified written requests and the servicer had no duty to respond. The court affirmed the district court’s dismissal of the borrowers’ RESPA claims and remand of the borrowers’ remaining state law claims.

    Mortgage Servicing RESPA

  • CFPB Delays Implementation of Certain Mortgage Disclosure Requirements

    Lending

    On November 16, the CFPB announced that it is providing a temporary exemption from the  mortgage disclosure requirements in title XIV of the Dodd-Frank Act, including new disclosures regarding (i) cancellation of escrow accounts, (ii) a consumer’s liability for debt payment after foreclosure, and (iii) the creditor’s policy for accepting partial payment. The Federal Reserve Board proposed a rule in March 2011 to implement these requirements, but did not finalize the rule prior to July 21, 2011, when authority transferred to the CFPB.  Subsequently, the CFPB issued a proposal to integrate the TILA and RESPA disclosures and create new disclosure forms, which, as proposed, include many of the additional disclosures required by title XIV. In light of the overlap in the two rulemakings, and given that the title XIV requirements are required by statute to take effect on January 21, 2013, the CFPB effectively agreed to delay the compliance date pending completion of the TILA/RESPA disclosures proposal.

    CFPB TILA RESPA

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