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CFPB Publishes Mortgage Rules Readiness Guide
On July 8, the CFPB published a guide intended to help financial institutions prepare to comply with the various mortgage-related rules the CFPB promulgated in January 2013, some of which it continues to revise. The guide briefly describes each of the rules and provides (i) a readiness questionnaire, (ii) frequently asked questions, and (iii) a list of other resources available to companies seeking to come into compliance with the new rules. The readiness questionnaire covers (i) implementation plans, (ii) policies and procedures, (iii) training, (iv) audit/quality control, (v) consumer complaints, and (vi) vendor management.
OCC Names Head of Large Bank Supervision
On July 10, the OCC named Martin Pfinsgraff as Senior Deputy Comptroller for Large Bank Supervision. Mr. Pfinsgraff has been filling that role on an acting basis since Michael Brosnan left the position to become Examiner-in-Charge of an OCC-supervised institution. Mr. Pfinsgraff previously served as Deputy Comptroller for Credit and Market Risk and prior to joining the OCC held senior positions with iJet International, Prudential Insurance Company, and Prudential Investment Corporation.
Fannie Mae, Freddie Mac Provide Additional Information Regarding QM Requirements
On July 2, Fannie Mae and Freddie Mac provided lenders additional information about eligibility criteria for mortgages with application dates on or after January 10, 2014. Recently, the FHFA directed Fannie Mae and Freddie Mac to limit future mortgage acquisitions to loans that meet the requirements for qualified mortgages under the CFPB’s ability-to-repay/qualified mortgage rule. The letters state that, effective January 10, 2014, mortgages will be eligible for sale to either entity only if they (i) are fully amortizing, (ii) have terms no longer than 30 years, and (iii) have points and fees of 3% or less of the total loan amount. In addition, both entities will continue to purchase mortgage loans that are exempt from the ability-to-repay rule. Fannie Mae and Freddie Mac anticipate updating policies regarding representations and warranties, as well as certain policies related to loan eligibility in August 2013, and plan to provide information about how they will test for compliance with the new eligibility criteria in September 2013.
Tenth Circuit Affirms Dismissal of Securities Act Claims Against Banks That Underwrote Stock of Failed Mortgage Lender
On July 9, the U.S. Court of Appeals for the Tenth Circuit affirmed a district court’s order dismissing claims brought by investors against banks that had underwritten a mortgage lender’s stock offerings. Slater v. A.G. Edwards & Sons, Inc., No. 11-2170, 2013 WL 3390038 (10th Cir. Jul. 9, 2013). The lender, which focused on the adjustable-rate mortgage market, attempted to raise new capital through a series of stock offerings in 2007 and 2008 before filing for bankruptcy in 2009. Investors in those offerings filed suit after the stock price dropped following the lender’s disclosure that it had been subject to margin calls triggered by a decline in the value of certain Alt-A mortgages that backed securities the lender had purchased. The investors alleged that documents related to the offerings violated Section 11 of the Securities Act because they did not disclose, among other things, the existence of the Alt-A MBS. In affirming dismissal of the claims against the underwriters, the Tenth Circuit concluded that plaintiffs had not alleged “an actionable misrepresentation or omission at the time of [the] stock offerings.” The court explained that the lender was not under any obligation to disclose the MBS to make its statements true and accurate, and that the picture it provided was materially accurate, in part because the prospectus warned that the lender’s liquidity conditions could worsen.
CFPB Publishes 2014 List of Rural Counties
On July 2, the CFPB published a final list of rural and underserved counties for use in 2014. Several of the CFPB’s new mortgage rules include provisions and exceptions related to creditors who operate in predominantly rural or underserved counties, including the ability-to-repay/qualified mortgage rule and the TILA escrows rule. The CFPB notes that the list has changed based on 2010 census data such that some small creditors will lose eligibility for certain mortgage rule exemptions. Based on those changes and extensive feedback the CFPB has received about the definition of rural and underserved counties, the CFPB reminded institutions that it (i) recently revised its ability-to-repay rule to extend the ability to originate balloon QMs to certain small creditors that do not operate predominantly in rural or underserved areas during the period from January 10, 2014, to January 10, 2016, (ii) recently proposed to extend the same treatment to these small creditors for purposes of the high-cost mortgage balloon exemption, and (iii) proposed to extend eligibility for the rural or underserved exemption from the escrow requirement to creditors that operated predominantly in rural or underserved counties in any of the previous three years.
HUD Updates Pre-Foreclosure and Deed-in-Lieu of Foreclosure Requirements, Extends Unemployment Forbearance
On July 9, HUD issued Mortgagee Letter 2013-23, which updates pre-foreclosure sale (PFS) and deed-in-lieu (DIL) foreclosure requirements for FHA-approved mortgagees. For a standard PFS, the letter details (i) the deficit income test that mortgagees must use to determine hardship, (ii) the supporting documentation required for such tests, (iii) the method for calculating cash reserve contributions, and (iv) the requirements for approving a PFS based on imminent default. The letter also explains the eligibility requirements for streamlined PFS and DIL, including with regard to military servicemembers. Among numerous other policy changes, HUD also updated the disclosure requirements for all PFS and DIL transactions and outlined certain arms-length requirements for PFS transactions. Mortgagees must implement the new policies by October 1, 2013. Recently, HUD also issued Mortgagee Letter 2013-22 to extend indefinitely its policy to provide special forbearance for unemployed borrowers. That policy, detailed in Mortgagee Letter 2011-23, was set to expire on August 1, 2013.
Ninth Circuit Holds Repeated Erroneous Default Notices Can Be ECOA Adverse Action
On July 3, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit held that a mortgage servicer’s alleged repeated delivery of notices of default and acceleration to borrowers who were current on their obligation could be “adverse action,” triggering the ECOA notification requirements. Schlegel v. Wells Fargo Bank, No. 11-6816, 2013 WL 3336727 (9th Cir. July 3, 2013). According to the borrowers, although they received a discharge in bankruptcy, they reaffirmed their mortgage loan, subject to a modification that apparently reduced their monthly payment obligation. The borrowers claimed that the servicer did not correct its records to reflect the loan modification and sent several notices of default and acceleration. The Ninth Circuit held that, while sending a mistaken default notice would not necessarily constitute an adverse action, the conduct alleged in the complaint, in which the creditor repeatedly stated that the obligation was immediately due and payable, fell within the definition of an “adverse action” as, among other things, a “revocation of credit.” Therefore, the court reversed the district court’s dismissal of the borrowers’ claim that the mortgage servicer had failed to provide a notification within 30 days after taking adverse action, as required under ECOA. The appellate court, however, upheld the district court’s dismissal of the borrowers’ claim under the FDCPA, holding that the complaint failed to adequately allege that the servicer was a “debt collector” under the FDCPA — i.e., either that its principal business was the collection of debts or that it was collecting the subject debt “for another.”
CFPB Releases Spring Rulemaking Agenda
On July 3, the CFPB released its spring 2013 regulatory agenda. Among the agenda items are three rulemaking activities listed for the first time: (i) “prerule activities” related to payday loans and deposit advance products anticipated for January 2014, (ii) “further action” on debt collection regulations expected in October 2013, and (iii) “prerule activities” related to Gramm-Leach-Bliley Act privacy notices planned for November 2013. The agenda also indicates that the CFPB expects, among other things, to (i) finalize its integrated mortgage disclosures rule in October 2013, (ii) issue a final student loan servicer “larger participant” rule in September 2013, and (iii) propose a rule regarding general purpose reloadable prepaid cards in December 2013. The agenda does not mention any planned activities related to small business lending data collection or auto finance issues.
Fannie Mae Updates Hardest Hit Fund Requirements
On July 1, Fannie Mae issued Servicing Guide Announcement SVC-2013-14 to notify servicers that they must accept modification assistance received from a state housing finance agency for a mortgage loan in connection with any Fannie Mae modification, without regard to whether principal forbearance is required. In doing so, servicers must also comply with certain delinquency management and default prevention requirements outlined in Announcement SVC-2011-18. Servicers are required to implement the policy changes no later than October 1, 2013, and are encouraged to do so immediately.
NIST Releases Draft Outline of Cybersecurity Framework
On July 2, the National Institute of Standards and Technology (NIST) released a draft outline of a framework to improve the cybersecurity of certain critical infrastructure. It proposes a core structure for the framework and includes a user's guide and an executive overview that describes the purpose, need, and application of the framework in business. Under an Executive Order issued earlier this year, NIST is tasked with developing standards, methodologies, procedures, and processes that will form a voluntary best practices framework to address cyber risks. It solicited and recently analyzed public comments about the voluntary framework. Based on certain comments that emphasized the importance of executive involvement in managing cyber risks, the framework is designed to help business leaders evaluate how prepared their organizations are to deal with cyber threats and their impacts. NIST also released a draft compendium of existing standards, practices, and guidelines to reduce cyber risks to critical infrastructure industries. It plans to publish the official draft Cybersecurity Framework for public comment in October 2013.