On June 30, California Governor Newsom signed Assembly Bill No. 130 (“AB130” or the “Bill”). Effective immediately, the Bill added a new section to the California Civil Code to codify that certain actions constitute unlawful practices when taken by a “mortgage servicer” in connection with a subordinate mortgage. The Bill also adds a number of certification and disclosure requirements that mortgage servicers must adhere to in connection with nonjudicial foreclosures of subordinate mortgage loans.  

At the outset, it is important to note that the Bill defines the term “mortgage servicer” broadly to include the current mortgage servicer and any prior mortgage servicers. Thus, the Bills’ requirements—including certifications that a mortgage servicer is required to record in connection with certain foreclosures—cover the activities of both the current servicer of a subordinate mortgage and any prior servicer of that mortgage.

Unlawful Practices for Subordinate Mortgages

Under the newly created Section 2924.13, a “subordinate mortgage” is defined to include a security instrument in residential real property that was, at the time it was recorded, subordinate to another security interest encumbering the same residential real property. The new section does not distinguish between loans for a consumer or business purpose. Pursuant to the new section, the following conduct constitutes an unlawful practice in connection with a subordinate mortgage:

Continue Reading California Enacts Servicing Requirements for Subordinate Residential Mortgages

In a social media post on Wednesday, June 25, 2025, Federal Housing Finance Agency (FHFA) Director William Pulte ordered Fannie Mae and Freddie Mac to develop guidelines for considering cryptocurrency holdings as assets in mortgage originations. The FHFA oversees Fannie Mae and Freddie Mac, which purchase and securitize a significant portion of the nation’s mortgage loans. This directive means that, for the first time, borrowers may be able to use their crypto investments to strengthen their financial profiles when applying for home loans. Director Pulte said this move was part of President Trump’s larger vision of making the U.S. the “crypto capital of the world.”

The proposal represents a significant step in the possible integration of digital assets into qualifications for homeownership. When mortgage lenders assess the financial stability of a mortgage applicant and his or her ability to repay the loan, lenders are required to consider the amount the borrower maintains in liquid assets/reserves available to the borrower after the loan closes. Current Fannie Mae and Freddie Mac mortgage underwriting guidelines view acceptable sources of reserves to include readily available liquid funds in checking and savings accounts, investments in stocks, bonds, mutual funds, certificates of deposit, money market funds, and trust accounts, the amount vested in a retirement savings account, and the cash value of a vested life insurance policy. Funds or stock options that have not vested or cannot be withdrawn except in narrow circumstances and the proceeds of personal unsecured loans are not acceptable assets under the mortgage origination guidelines. The Director’s order acknowledges that only the U.S. dollars received from redemption of cryptocurrency would be acceptable assets as reserves today.

Fannie Mae and Freddie Mac must now develop a plan to consider cryptocurrency without liquidation as an asset for reserves in connection with single-family mortgage loans. According to Director Pulte, that plan must include risk mitigants based on Fannie Mae’s and Freddie Mac’s assessment of the risks related to the non-liquid asset, such as adjustments for market volatility and capping the percentage of a borrower’s assets that may be comprised by cryptocurrency. Any crypto assets considered also must be evidenced and stored on a U.S. regulated centralized exchange and be subject to applicable laws. Fannie Mae and Freddie Mac might consider other issues related to cryptocurrencies, which could include the uncertain and evolving regulatory landscape for cryptocurrencies, the complexities of verifying the value and ownership of digital assets, the risk of crypto platform failures, and the potential increase in fees associated with the purchase of loans relying on cryptocurrency assets as part of their assessments of the feasibility and risk tolerance of counting cryptocurrency as an asset reserve. As Fannie Mae and Freddie Mac move forward with their assessments of risk and proposals, the effectiveness and impact of Director Pulte’s order may depend on how well a balance can be maintained between flexibility and risk management. This approach will be crucial to ensuring that the inclusion of cryptocurrency as an asset in mortgage origination guidelines supports sustainable homeownership while safeguarding the broader financial system.*

*Mr. Wright is not admitted in the District of Columbia. He is practicing under the supervision of firm principals.

On June 24, 2025, the Department of Housing and Urban Development (“HUD”) published a Request for Information (“RFI”) to better understand how increasing consumer use of Buy Now Pay Later (“BNPL”) products impacts housing affordability and stability in connection with the residential loan programs insured by the Federal Housing Administration (“FHA”). BNPL products, which allow consumers to purchase goods and services and repay over time (typically, though not always, through four or fewer deferred installments payable over six to eight weeks with no periodic interest or other finance charges), have continued to gain popularity over the past decade. To date, however, HUD has not incorporated consideration of BNPL products into underwriting guidelines for FHA-insured mortgage loans. With the RFI, HUD is seeking more information on whether it should develop policies to address potential ability-to-repay risks from these relatively new products.

Background on BNPL

While retail financing has a long history in the U.S., the concept of BNPL as a distinct class of product largely stems from the introduction of a “pay-in-4” product into the U.S. around 2018. This core element of the BNPL market involves the origination of unsecured, interest-free short-term installment loans to pay for relatively small-dollar retail purchases. Payments are usually due in four or fewer equal installments, with the first payment often due as a down payment at the time of sale. Subsequent payments are typically due every two weeks. Consumers enter into BNPL loans frequently through apps or purchase-and-origination flows managed by fintech BNPL providers. BNPL lenders may approve or deny a loan based on their own individual underwriting criteria, which may include reliance on a consumer report (often pulled as a soft pull to prequalify a consumer for a potential range of terms) and/or the consumer’s repayment history with the BNPL lender. BNPL lenders generally do not report repayment history or default to the consumer reporting agencies, although: (i) some lenders offer consumers the option to report positive repayment histories, and (ii) credit bureaus are planning to incorporate BNPL payments into credit scores and craft new categories to better match typical BNPL structures (as compared to reporting formats currently relevant for installment loans with monthly payments or traditional credit cards), each of which may increase adoption of BNPL credit reporting over time.

Continue Reading HUD Requests Information on Buy Now Pay Later

On June 12, 2025, Judge Valderrama of the federal district court for the Northern District of Illinois denied the joint motion to vacate the stipulated final judgment reached between the Consumer Financial Protection Bureau (“CFPB”) and Townstone Financial, Inc., in an action alleging violations of the Equal Credit Opportunity Act (“ECOA”).

As explained in Mayer Brown’s Consumer Financial Services Review blog, the CFPB sought to vacate the settlement, in which Townstone agreed to pay a small penalty and take certain actions to resolve a years-long battle related to alleged discouragement of potential mortgage applicants on a prohibited basis. The settlement was entered in November 2024. However, the CFPB’s new leadership asserted that although the lawsuit was launched during President Trump’s first administration, it did so without substantial evidence of discrimination and based on the expressed political views of the mortgage company’s principal. The CFPB’s motion to vacate claims that CFPB lawyers at the time misled their superiors, leading them to pursue the litigation based on incomplete or inaccurate information.

Interestingly, Judge Valderrama wrote the opinion that initially dismissed the CFPB’s case against Townstone in 2023, holding that ECOA does not apply to prospective applicants for credit. However, the Court of Appeals for the Seventh Circuit reversed that decision and remanded the case to the district court, after which the parties reached their settlement.

In denying the parties’ joint motion to vacate that settlement, Judge Valderrama now states that more is at stake than the parties’ current alignment. The court must now also consider that the parties were not engaged in a private dispute – rather, the mortgage company’s alleged wrongdoing affected the public. In addition, the judge wrote that the court must consider the public interest in the finality of judgments.

The court considered the claims regarding deficiencies in the initial agency decision to bring the case, and the counter-arguments of the 14 nonprofit organizations that filed an amicus brief opposing the motion to vacate. Referring to the agency’s present assertion that its case lacked merit, the court called it “an act of legal hara-kiri that would make a samurai blush.” The court stated that it would be unprecedented under these circumstances to vacate a settlement voluntarily entered into by the parties, and it declined to take that step.

Recent news reports have indicated that several financial institutions have sought to take advantage of the current administration’s apparent willingness to reverse the actions of the prior administration. While one could argue that courts should grant motions filed by both parties, the Northern District of Illinois held that doing so in this case would open a Pandora’s box.

Maryland’s secondary mortgage market has been in turmoil since a disruptive 2024 court decision held that a purchaser of mortgage loans inherits the original lender’s obligations—including the obligation to obtain a Maryland Mortgage Lender license. Secondary market investors that acquire residential mortgage loans through a passive trust can breathe a sigh of relief now that Maryland has enacted its legislative fix to address the court decision and related guidance by the Maryland Office of Financial Regulation. Please read our Legal Update on the latest developments in Maryland.

Although the Fifth Circuit Court of Appeals vacated the Federal Trade Commission’s (“FTC”) Combating Auto Retail Scams Trade Regulation Rule (“CARS Rule”) on January 27, 2025, the FTC and state attorneys general continue to target the auto sales and lending industries through enforcement actions and legislation. Among those efforts, the California legislature is considering its own CARS Act. Read about these efforts in Mayer Brown’s Legal Update.

Consistent with expectations for lighter regulation under the Trump administration, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) indicated in a March 26, 2025 court filing that it intends to revoke an Interpretative Rule it issued in May 2024 that would regulate certain Buy Now, Pay Later (“BNPL”) products as credit cards for the purposes of the federal Truth in Lending Act (“TILA”).

As discussed in an earlier Mayer Brown blog post, the Bureau previously issued an Interpretative Rule clarifying that lenders who issue “digital user accounts” that allow consumers to access credit for retail purchases are considered “card issuers” who must comply with additional disclosure and substantive requirements under TILA and its implementing regulation, Regulation Z. Prior to the issuance of the CFPB’s Interpretive Rule, providers of what has become the “core” BNPL product in the US—a closed-end loan that does not bear a finance charge and is repayable in not more than four installments—generally took the position that their activities did not trigger Regulation Z compliance obligations. The Interpretive Rule, however, explained that certain Regulation Z requirements nevertheless apply where a credit card is involved, and characterized “digital user accounts” as credit cards.  The Interpretive Rule followed over three years of market research on the BNPL industry during which the CFPB determined that consumers often used BNPL as a substitute for conventional credit cards, and represented an attempt to close what it characterized as a regulatory loophole, notwithstanding various ways in which typical BNPL accounts differ materially from credit cards in the way in which consumers access credit.

Continue Reading CFPB Indicates That It Will Rescind Buy Now, Pay Later Interpretative Rule

In an unprecedented move, the Consumer Financial Protection Bureau’s (“CFPB” or “Bureau”) Acting Director is seeking to vacate the Bureau’s settlement with Townstone Financial (“Townstone” or the “Company”), which was entered by the US District Court for the Northern District of Illinois on November 7, 2024. In a press release, Acting Director Vought stated that the CFPB “abused its power, used radical ‘equity’ arguments to tag Townstone as a racist with zero evidence . . . to further the goal of DEI in lending via their regulation by enforcement tactics.”

Continue Reading CFPB Seeks to Vacate Townstone Redlining Settlement

The New York legislature has introduced no fewer than three separate bills in 2025 to license and regulate the business activities of providers of buy-now-pay-later (“BNPL”) products. The first quarter of the year has seen the introduction of Senate Bill 4606, Assembly Bill 6757, and lengthy budget bill Assembly Bill 3008, each of which would enact a similar, but not identical, “Buy-Now-Pay-Later Act.” If enacted into law, each of the three bills would require certain providers of BNPL credit to obtain a license from the New York Department of Financial Services (“NYDFS”).

BNPL products have experienced increasing popularity in recent years as an alternative to credit cards for small-dollar retail transactions. While there are differences between available BNPL programs, the most common BNPL model is an extension of credit repayable in four or fewer installments that does not carry any interest, origination fee, or other finance charges—although such products frequently charge other incidental charges such as late fees or insufficient funds charges. Providers historically have argued that products structured in this manner generally do not trigger cost-of-credit disclosure (and limited substantive) requirements under the federal Truth in Lending Act (“TILA”). That view was challenged recently with the May 2024 publication of a Consumer Financial Protection Bureau (“CFPB”) interpretive rule asserting that traditional four-installment BNPL loans with no finance charge may be subject to certain TILA requirements pertaining to credit cards if they are offered through a “digital user account” access model, but the CFPB has since indicated that it likely will rescind such guidance. Research conducted by the CFPB indicated that BNPL products are more likely to be used by consumers with higher levels of debt, lower incomes, and less liquidity than some competing products, which has been part of the impetus for regulatory action under a consumer protection rationale. Particularly in light of the CFPB’s rollback of its BNPL Interpretive Rule, states, like New York, may see a greater need to take a more active role in regulating the product.

Continue Reading New York Proposes to License Buy-Now-Pay-Later Lenders

Earlier today the Trump administration’s nominee to lead the Consumer Financial Protection Bureau (“CFPB” or “Bureau”), Jonathan McKernan, testified before the Senate Committee on Banking, Housing and Urban Affairs.  McKernan was most recently a member of the Board of Directors of the Federal Deposit Insurance Corporation and has also worked in private practice, in Congress, and at the Federal Housing Finance Agency.

During the hearing, news broke that the CFPB had moved to dismiss a number of pending lawsuits with prejudice.  Dismissing a case with prejudice is significant because it essentially prohibits the Bureau from filing the same claims against the defendant in the future.  These developments follow other moves the agency made to reverse prior actions, including filing a motion to withdraw an amicus brief it submitted in a lawsuit shortly before Trump’s inauguration.

Continue Reading McKernan Testifies before Senate Committee amidst Rollback of CFPB Actions