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Hawaii Expands Authority to Investigate Mortgage Servicers, Increases Servicer Licensing Fees
On June 3, Hawaii enacted SB 1070, a bill related to the supervision and licensing of mortgage servicers. The bill grants the Commissioner of Financial Institutions additional authority to conduct investigations and examinations of mortgage servicers. The bill allows the Commissioner to (i) subpoena or otherwise obtain access to servicer accounts, records, documents and other information; (ii) hire investigations staff and retain outside consultants, and (iii) charge examination or investigation fees and expenses. The bill also increases initial servicer application fees from $500 to $675 and renewal fees from $250 to $425. The bill took effect immediately.
FHA Commissioner Issues Statement on Insurance Premiums and HPMLs
On June 3, FHA Commissioner Carol Galante issued a statement in response to lenders’ concern that new monthly mortgage insurance premium requirements will increase the APR on FHA mortgages resulting in more mortgages exceeding Regulation Z’s high priced mortgage loan (HPML) threshold. Mortgagee Letter 2013-04 requires most borrowers to continue paying annual premiums for the life of their mortgage loan, reversing a policy adopted in 2001 under which the FHA cancelled premium requirements on loans when the outstanding principal balance reached 78 percent of the original principal balance. Commissioner Galante’s statement acknowledges the concern, but states that all lenders are expected to comply with existing Regulation Z requirement for HPMLs. Her statement provides guidance, based on consultation with the CFPB, as to how HPML requirements differ from FHA requirements related to escrow accounts, appraisals, ability to repay, and prepayment penalties. Commissioner Galante also stated that the FHA continues to work on defining an FHA qualified mortgage standard to address these issues.
HUD Issues Mortgagee Letters on Title Approval at Conveyance, Partial Claim Documentation
On May 31, HUD issued two mortgagee letters to update and clarify certain mortgagee requirements. In Mortgagee Letter 2013-18, HUD replaced prior, delayed guidance related to title approval at conveyance, and explained that, effective August 29, 2013 for single-family REO properties, mortgagees must pay in full prior to conveyance to HUD all taxes, homeowners’ association fees, and water, sewer or other assessments. The letter also details documentation requirements for such payments. With Mortgagee Letter 2013-19, HUD reminded mortgagees about procedures for preparing partial claim documents, calculating claim amounts, and submitting partial claims to HUD. The letter explains that, if a mortgagee does not provide HUD with the original promissory note and security instruments related to the partial claim within prescribed deadlines, the mortgagee will be required to reimburse the full claim amount, including the incentive fee. After the letter takes effect on July 30, 2013, HUD will begin issuing demand letters for the full reimbursement of all amounts associated with overdue partial claim documents.
FDIC Approves Final Rule Related to Resolution of Nonbanks
On June 4, during a board meeting, the FDIC approved a final rule to establish criteria for determining if a nonbank is predominantly engaged in “activities that are financial in nature or incidental thereto” and, as such, can be subject to the Orderly Liquidation Authority granted to the FDIC under Dodd-Frank Act Title II. Under the rule, a company is predominantly engaged in financial activities if at least 85 percent of a company’s revenues are derived from financial activities under either of two revenue tests (i.e., the two-year test or the facts and circumstances analysis). The rule adopts for Title II the same definitions of activities that are financial in nature that the Federal Reserve Board adopted for purposes of Title I, except that the FDIC’s rule also includes finder activities that the Federal Reserve Board determined in its rulemaking are incidental to financial activities. The rule will take effect 30 days after its publication in the Federal Register.
FFIEC Creates Cyber Security Working Group
On June 6, the Federal Financial Institutions Examination Council (FFIEC) announced the formation of a working group to further promote coordination across the federal and state banking regulatory agencies on critical infrastructure and cybersecurity issues.
Obama Administration Targets Iranian Currency
On June 3, the Obama Administration announced a new Executive Order authorizing sanctions that directly target trade in Iran’s currency, the rial. The order authorizes the Treasury Secretary to take action against foreign financial institutions that knowingly conduct or facilitate significant transactions for the purchase or sale of the rial, or that maintain significant accounts outside of Iran denominated in the rial. Specifically, the Treasury Secretary can (i) prohibit opening, and prohibit or impose strict conditions on maintaining, in the United States, a correspondent account or a payable-through account by such foreign financial institution; or (ii) block all property and interests in property that are in the United States, that come within the United States, or that are or come within the possession or control of any United States person (including any foreign branch) of such foreign financial institution, and provide that such property and interests in property may not be transferred, paid, exported, withdrawn, or otherwise dealt in. The order also (i) subjects to new sanctions persons and financial institutions that knowingly engage in transactions for the supply of significant goods or services used in connection with the automotive sector of Iran, and (ii) expands sanctions against those who materially assist, sponsor, or provide financial, material, or technological support to persons designated by Treasury as the “Government of Iran.”
Federal District Court Holds Phone Number Provided in Online Account Information Is Consent to Receive Text Messages
On May 30, the U.S. District Court for the Northern District of California held that a user of an online service consented to receiving text messages from that service by including his mobile number in his online account information. Roberts v. PayPal, Inc., No. 12-622, 2013 WL 2384242 (N.D. Cal. May 30, 2013). In this case, a PayPal user filed a putative class action claiming that the company sent unsolicited advertisements via text messages to users’ mobile phones in violation of the Telephone Consumer Protection Act, which generally prohibits unsolicited calls and messages using automatic dialing or prerecorded voices absent express written consent. The court granted summary judgment to PayPal, holding that, by providing his mobile phone number to PayPal when he added the number to his online account, the user provided express consent for PayPal to send text messages. The court did not resolve PayPal’s alternative argument that the user consented to receiving messages by accepting the terms of PayPal’s user agreement, which included an express consent to receive autodialed calls. That provision was not included in the agreement at the time the user created his PayPal account and accepted the user agreement, but was added several years later without notice to the user. The court expressed skepticism concerning the binding nature of an agreement amendment that is merely posted to a website without other notice to the customer, even if the customer has previously agreed to the terms and that procedure.
Texas Reorganizes Mortgage Licensing Laws
On May 24, Texas enacted SB 1004, which reorganizes and simplifies the state’s mortgage licensing regime. Under current law, mortgage loan originators who are employed by mortgage bankers are licensed under separate sections of the code, which together contain six individual types of licenses. Each of these licenses require the same set of qualifications, however, an originator licensed under one chapter must get a separate license to be qualified under the other chapter, and vice versa. SB 1004 creates a single license type for mortgage origination, which will enable a qualified individual to originate for a mortgage company or a mortgage banker, so long as the individual meets the statutory licensure requirements. The bill makes numerous other revisions relating to the regulation of residential mortgage loan originators, residential mortgage loan companies, mortgage bankers, and residential mortgage loan servicers and raises the fee cap for license applications and renewals. The changes become effective on September 1, 2013.
CFPB Releases Consumer Reporting and Money Transfer Complaints, Expands Complaint Database Functionality
On May 31, the CFPB published for the first time consumer complaints about credit reporting, which the CFPB began accepting in October 2012, and money transfer complaints, which it began accepting in April 2013. The CFPB also announced that all complaints in its consumer complaint database now include a field for the state from which the complaint was filed. That field allows the CFPB to report, for example, that the top states for per capita mortgage complaints are (i) New Hampshire, (ii) Maryland, (iii) the District of Columbia, (iv) Georgia, and (v) Florida.
CFPB Seeks Injunction Against Debt Relief Firm's "Abusive" Practices
On May 30, the CFPB filed a complaint in federal district court against a Florida debt-relief company the CFPB alleges violated the FTC’s Telemarketing Sales Rule and the Dodd-Frank Act by promising certain debt relief services in exchange for upfront payment and then failing to provide the promised services. The complaint alleges publicly for the first time violations of the “abusive” standard established in the Dodd-Frank Act. The CFPB claims the company and its owner (i) misled consumers by falsely promising them it would begin to settle their debts within three to six months and then failed to provide the services within the promised time frame, if at all; (ii) enrolled consumers despite knowing that their income level made it highly unlikely that they could complete the debt-relief programs; and (iii) collected upfront “enrollment” fees from consumers even though the company knew that the consumers could not afford the monthly payments required by these debt-relief programs. Because these practices took “unreasonable advantage” of consumers, the CFPB charges they are abusive. The CFPB announced that it plans to file a proposed order that, if approved, would (i) require the company to pay a $15,000 penalty; (ii) permanently enjoin the company from advertising, marketing, promoting, offering for sale, or selling any debt-relief product or service; and (iii) establish a two-year compliance monitoring and reporting period for the company.