The Bureau of Consumer Financial Protection now has the third Director in its history. On December 6, the Senate confirmed Kathleen (“Kathy”) Kraninger on a 50-49 party-line vote to a five-year term as Director, ending Mick Mulvaney’s year-long tenure as Acting Director. Mulvaney’s tenure was marked by elements of both change and continuity from the agency’s first Director, Richard Cordray, as we discuss here. The most marked departures from the Cordray era relate to the number of enforcement actions brought by the agency and the retreat from the payday lending rule that the agency had finalized at the end of Cordray’s tenure.

The independence of the Director, which Democrats have tenaciously fought for, may now come back to haunt them, as Kraninger’s term runs to December 2023—nearly three years into the next presidential administration. As then-Judge Kavanaugh pointed out at the oral argument in the PHH case before the D.C. Circuit (in a line that drew laughter from the audience for its not-so-veiled reference to Elizabeth Warren), “the new President, might be a different party, might have run on a platform of consumer protection, might be the person who created the Consumer Protection Agency, and will not have the authority to do anything about that for three years.” Of course, there are still pending challenges to the constitutionality of the agency, and maybe the result of those challenges—or other political realities—will lead to the creation of a Commission to run the agency. But for now, Director Kraninger is in charge. As has been the case throughout the Bureau’s history, the political spotlight will continue to shine on it.

Mayer Brown’s Lauren Pryor will speak at the Mortgage Bankers Association Whole Loan Trading Workshop in Houston, Texas on Thursday, November 8. Lauren will participate on a panel entitled “Getting Deals Done,” and will address legal considerations arising in connection with the purchase and sale of residential mortgage loan portfolios.

Good news from the Government for a change. Yesterday, October 22, 2018, the Department of Housing and Urban Development (HUD) revised its requirements for lenders submitting Home Equity Conversion Mortgage (HECM) loans that have reached 98% of their maximum claim amounts. FHA-approved HECM servicers can now use more easily accessible supporting documentation to get their claims paid faster.

The new requirements were announced in FHA Mortgagee Letter 2018-08. The requirements became effective yesterday, but HUD will accept public comments for a period of 30 calendar days, if you have further suggestions for this beleaguered insurance program.

So what’s all the shouting about? To begin with, HUD will now accept alternative documentation to establish evidence of current hazard insurance. No more hazard insurance declaration pages. Servicers may now provide documentation from the hazard insurance provider so long as it includes pertinent information spelled out in ML 2018-08. In addition, it just got easier to provide evidence of the borrower’s death . While HUD will still accept a copy of the borrower’s death certificate, effective immediately, servicers may now submit an obituary or documentation from a health care institution (if unable to obtain a death certificate). That should speed up the filing process considerably.

The new mortgagee letter also adds a few new requirements. Continue Reading It Just Got Easier to File an FHA HECM Claim

On October 17, the Bureau of Consumer Financial Protection (“BCFP” or “Bureau”) issued its Fall  2018 regulatory agenda.  Notable highlights include:

  • Payday Lending Rule Amendments. In January 2018, the Bureau announced that it would engage in rulemaking to reconsider its Payday Lending Rule released in October 2017.  According to the Bureau’s Fall 2018 agenda, the Bureau expects to issue a notice of proposed rulemaking by January 2019 that will address both the merits and the compliance date (currently August 2019) of the rule.
  • Debt Collection Rule Coming. The Bureau expects to issue a notice of proposed rulemaking addressing debt collection-related communication practices and consumer disclosures by March 2019.  The Bureau explained that debt collection remains a top source of the complaints it receives and both industry and consumer groups have encouraged the Bureau to modernize Fair Debt Collection Practices Act (“FDCPA”) requirements through rulemaking.  The Bureau did not specify whether its proposed rulemaking would be limited to third-party collectors subject to the FDCPA, but its reference to FDCPA-requirements suggests that is likely to be the case.
  • Small Business Lending Data Collection Rule Delayed. The Dodd-Frank Act amended the Equal Credit Opportunity Act (“ECOA”) to require financial institutions to submit certain information relating to credit applications made by women-owned, minority-owned, and small businesses to the Bureau and gave the Bureau the authority to require financial institutions to submit additional data.  In May 2017, the Bureau issued a Request for Information seeking comment on small business lending data collection.  While the BCFP’s Spring 2018 agenda listed this item as in the pre-rule stage, the Bureau has now delayed its work on the rule and reclassified it as a long-term action.  The Bureau noted that it “intends to continue certain market monitoring and research activities to facilitate resumption of the rulemaking.”
  • HMDA Data Disclosure Rule. The Bureau expects to issue guidance later this year to govern public disclosure of Home Mortgage Disclosure Act (“HMDA”) data for 2018.  The Bureau also announced that it has decided to engage in notice-and-comment rulemaking to govern public disclosure of HMDA data in future years.
  • Assessment of Prior Rules – Remittances, Mortgage Servicing, QM; TRID up next. The Dodd-Frank Act requires the Bureau to conduct an assessment of each significant rule adopted by the Bureau under Federal consumer financial law within five years after the effective date of the rule.  In accordance with this requirement, the Bureau announced that it expects to complete its assessments of the Remittance Rule, the 2013 RESPA Mortgage Servicing Rule, and the Ability-to-Repay/Qualified Mortgage Rule by January 2019.  At that time, it will begin its assessment of the TILA-RESPA Integrated Disclosure Rule (TRID).
  • Abusiveness Rule? Consistent with recent statements by Acting Director Mick Mulvaney that while unfairness and deception are well-established in the law, abusiveness is not, the Bureau stated that it is considering whether to clarify the meaning of abusiveness through rulemaking.  The Bureau under former Director Richard Cordray rejected defining abusiveness through rulemaking (although the payday rule relied, in part, on the Bureau’s abusiveness authority), preferring instead to bring abusiveness claims in enforcement proceedings to establish the contours of the prohibition.  Time will tell if the Bureau will follow through on this.

Continue Reading BCFP’s Fall 2018 Regulatory Agenda

The American Financial Services Association (AFSA) gathers for its 2018 Annual Meeting in Marina del Rey, California on October  21 – 24. Mayer Brown partner Jon Jaffe, of the firm’s Financial Services Regulatory Enforcement Group, will present for the AFSA Law Committee on Mortgage Lending – Hot Topics. He also will help coordinate a roundtable discussion on Privacy and Security.

Federal redlining enforcement has waned in recent years, but redlining risk has not disappeared.  On October 4, two consumer advocacy groups, the National Fair Housing Alliance and the Connecticut Fair Housing Center, filed a law suit accusing a Connecticut-based bank of unlawful discrimination against minority homebuyers. The suit alleges that Liberty Bank, a state-chartered bank headquartered in Connecticut, violated the Fair Housing Act by engaging in “redlining,” a term that refers to the practice of declining to lend to residents of predominantly minority neighborhoods.

According to the complaint, Liberty Bank avoided making loans in minority communities, denied minority loan applicants at higher rates than white applicants, and discouraged minority applicants from applying for credit. The complaint also accuses the bank of gerrymandering its Community Reinvestment Act assessment areas by carving out minority and low-income communities in order to avoid lending in those areas and to manipulate its lending statistics. Further, the complaint alleges that among top state lenders, “Liberty Bank has the widest racial lending disparities in refinance denials for African-American and Latinx applicants compared with white applicants, and it fails to provide refinance loans to communities of color at a rate that outstrips its peers at a statistically significant level.”

In addition to a lengthy list of statistical allegations, the complaint includes the results of in-person investigations conducted by plaintiffs at several bank branches. Specifically, the complaint alleges that plaintiffs sent six sets of testers to bank branches to inquire about obtaining mortgage loans.  In each test, a minority loan applicant and a white control applicant with similar credit and income characteristics visited a branch to inquire about the possibility of obtaining a loan.  According to the complaint, bank loan officers discouraged the minority testers from seeking loans, provided minority testers with significantly less information than the white control testers, and offered the minority testers less favorable terms than the white testers. The complaint seeks declaratory relief, injunctive relief, and money damages.

While the Trump administration has scaled back on fair lending and other enforcement actions against consumer credit providers, Democratic state attorneys general have promised to vigorously enforce state and federal laws to “ensure fairness and deter fraud.”  The lawsuit against Liberty Bank suggests that consumer advocacy groups may become more active on these issues as well.

 

*Daniel Pearson is not admitted in the District of Columbia and is practicing under the supervision of firm principals.

New California legislation will impose disclosure requirements, similar to those under the federal Truth in Lending Act, on commercial-purpose loans of $500,000 or less, including arrangements such as factoring, merchant cash advances, and certain assignments of accounts and receivables. The disclosures will generally include the total cost of the financing, expressed both as a dollar amount and an annualized rate, with variations applicable to different types of transactions. While the requirements will not apply to depository institutions, they will apply to certain bank partner arrangements, such as a non-depository institution that enters into a written agreement with a depository institution to arrange for commercial financing via an online lending platform. The requirements will not, however, apply to transactions secured by real property, among other exemptions. The law becomes effective January 1, 2019, but providers are not required to comply with the disclosure requirements until final regulations become effective.

Read about the new California requirements in Mayer Brown’s latest Legal Update.

Last week the Bureau of Consumer Financial Protection (“BCFP” or “Bureau”) issued guidance on the operations of financial institutions and other supervised entities in the wake of major disasters and emergencies. The guidance explains that supervised entities have flexibility under the existing regulatory framework to take action that could benefit affected consumers.

This is not the first time the Bureau has issued guidance on this topic. Last year, the Bureau released a statement on Hurricanes Harvey and Irma and another on Hurricane Maria. Unlike the prior guidance, the statement released last week does not address a particular emergency or disaster but applies to emergencies in general.

The new guidance echoes prior guidance by providing examples in which regulations allow flexibility. For instance:

  • Although RESPA’s Regulation X generally prohibits residential mortgage servicers from offering a loss mitigation option to borrowers based on an evaluation of an incomplete application, the guidance notes servicers may nonetheless offer short-term loss mitigation options. Because it could be difficult for consumers impacted by a disaster to obtain and submit the necessary documents to complete a timely application, this exception may allow servicers to better assist those borrowers.
  • Although ECOA’s Regulation B generally requires creditors to provide first-lien loan applicants with copies of appraisals or other written valuations promptly upon completion, or three business days prior to consummation or account opening, whichever is earlier, the guidance notes that the applicant generally may waive that timing requirement and agree to receive the copy at or before consummation or account opening (except where otherwise prohibited by law). That exception may allow supervised entities to give consumers impacted by a disaster quicker access to credit.

Unlike prior guidance that expressly “encouraged” supervised entities to take these steps, this latest guidance only states that supervised entities are permitted to use the flexibility. Continue Reading BCFP Releases New Guidance on Major Disasters and Emergencies

Kris Kully, of Mayer Brown’s Financial Services and Regulatory Enforcement group, will speak to credit union mortgage lenders at the 22nd Annual Conference of the American Credit Union Mortgage Association (ACUMA) in Las Vegas.

On September 24th, she will lead a discussion regarding Communication and Compliance, addressing many principles to keep in mind as your credit union reaches out to members, realtors, and others in offering mortgage loans. Later that day, she will lead a break-out session providing a 2019 Compliance Update, followed by a break-out discussion of mortgage loan originator compensation complexities. (The compensation break-out session also will be offered on September 25th.)

On September 27th, Mayer Brown’s Jon Jaffe, a partner in the firm’s Financial Services Regulatory Enforcement Group, will participate in a webinar sponsored by the California Mortgage Bankers Association. The webinar, an effort of the CMBA’s Mortgage Quality and Compliance Committee, will address the various compliance concerns for mortgage lenders and loan officers reaching out to potential borrowers through advertising, including through social media.