Pennsylvania became the latest state to impose a licensing obligation on mortgage loan servicers. It appears that the licensing obligation will apply not only to entities that conduct the typical mortgage loan servicing activities for others, but also to certain mortgage lenders servicing their own portfolio. In addition, the licensing obligation may apply to persons merely holding mortgage servicing rights. Pennsylvania regulators intend to issue guidance regarding the scope of the state’s new licensing obligation while the effective date is pending.

Read more in Mayer Brown’s Legal Update.

On December 22, 2017, Ohio Governor Kasich signed into law Ohio House Bill 199, which will make significant changes in how the state will license and regulate mortgage lenders and brokers. The bill takes effect 91 days after filing with the Ohio Secretary of State (which filing had not been made as of January 4, 2018).

The bill amends the Ohio Mortgage Brokers Act (the “OMBA”) to bring the registration of mortgage lenders and brokers, and the licensing of mortgage loan originators, together under a single statute. The amended statute will be called the Ohio Residential Mortgage Lending Act (“ORMLA”). Continue Reading Ohio Consolidates its Mortgage Finance Licensing Laws into a new Residential Mortgage Lending Act

The federal district court in Washington heard oral argument this morning in the case of English v. Trump, the challenge brought by Consumer Financial Protection Bureau (CFPB) Deputy Director Leandra English to President Trump’s appointment of Mick Mulvaney as Acting Director of the CFPB. The case largely turns on whether the Federal Vacancies Reform Act (FVRA) authorized Mulvaney’s appointment, as the government claims, or whether the Dodd Frank Act instead directs that the Deputy Director of the agency – and only the Deputy Director – can serve as the Acting Director when the Director resigns.  The oral argument lasted nearly two hours and was lively and engaging.  Judge Timothy Kelly was extremely well-prepared and ran the argument along topical lines about which he had questions.  Judge Kelly did not rule from the bench, but most of his questions were for English’s counsel and based on the nature of the questions it seems quite likely that Judge Kelly will deny her request for a preliminary injunction.

Judge Kelly moved methodically through the questions on the merits as well as the standards for a preliminary injunction. He asked questions about: the nature of the relief requested (is this a mandatory injunction and if so does that change the applicable standard); the nature of the claims in plaintiff’s complaint (does she really have a separate constitutional claim or does that claim collapse into her statutory claim); how to apply certain cannons of statutory interpretation when comparing the FVRA’s use of the word “may” and the Dodd Frank Act’s use of the word “shall”; how other provisions of Dodd Frank impact the analysis; whether the Dodd Frank Act provision the plaintiff relies on applies to a Director’s resignation; possible constitutional concerns with plaintiff’s argument; what constitutes irreparable injury; and what the balance of the equities supports.  In the back-and-forth, plaintiff’s counsel got most of the questions and did most of the talking.  Plaintiff’s counsel pressed the point that the President’s appointment of OMB Director Mulvaney undermines the CFPB’s independence and closed by arguing that the case posed a threat to the tradition of independent financial regulators more generally.  The government’s lawyer (Chad Readler, the Acting Assistant Attorney General in charge of the Civil Division) – clearly sensing that the Judge was on the government’s side and facing fewer questions – tended to make more targeted arguments that raised two or three points in rebuttal to the plaintiff.  A more comprehensive summary of the argument follows. Continue Reading English v Trump: Round 2

For most of 2017, the Trump Administration was quiet with regard to the Federal Housing Administration (“FHA”) loan program. However, the Department of Housing and Urban Development (“HUD”) recently offered some relief to lenders and servicers of FHA-insured loans. Through Mortgagee Letter 2017-18, HUD ended its policy of allowing FHA insurance for mortgage loans secured by properties encumbered with Property Assessed Clean Energy (“PACE”) obligations. FHA’s new policy prohibiting PACE obligations in connection with FHA-insured loans, which becomes effective for loans with FHA case numbers issued on or after January 7, 2018, reverses Mortgagee Letter 2016-11, a short-lived Obama era policy that permitted lenders to originate FHA-insured loans involving PACE obligations.

PACE loans provide homeowners an alternative to traditional financing for energy efficient home improvements such as solar panels, insulation, water conservation projects, and HVAC systems. Instead of funding the home improvements through loans, the borrower pays through special property tax assessments. PACE financing does not follow the standard review of a borrower’s income, debt, and FICO score, but rather is based on the borrower’s equity in the home and the mortgage or property tax payment history. Many states and municipalities passed legislation implementing a PACE program and establishing their own terms and conditions for PACE loans. Homeowners voluntarily sign up for PACE financing through private companies, which often offer PACE through a network of approved dealers and installers. The PACE loan is secured by a property tax lien, often with terms of up to twenty years, which takes priority over both existing and future mortgages on the property.  Continue Reading FHA Changes Course on PACE Obligations

Fannie Mae and Freddie Mac (the “agencies”) have developed new uniform instruments for use with Texas home equity loans beginning January 1, 2018. Those forms will reportedly be available on the agencies’ web sites as that date approaches. In addition, the agencies are imposing a temporary moratorium on purchasing Texas home equity loans while lenders transition to new disclosures.

As we described here, Texas voters recently ratified amendments to the state constitution’s strict requirements for equity loans secured by homestead property. Among other topics, the amendments addressed fee restrictions for those loans, and loosened the limitation that a home equity loan can only be refinanced into another home equity loan that is subject to all the same strict requirements. Those amendments become effective in connection with loans made on and after January 1, 2018.

In addition, the agencies announced that they will not purchase any Texas home equity loans closed during the period of January 1 through January 12, 2018. The reason for the moratorium relates to a 12-day waiting period until closing that starts when the lender provides the borrower a mandatory disclosure describing the borrower’s rights and protections in connection with Texas home equity loans. That disclosure has been amended to reflect the recent amendments. That 12-day waiting period represents a conundrum in connection with loans for which the application process spans the new year. Accordingly, the agencies will temporarily decline to purchase Texas home equity loans closed during the first 12 days of January.

The agencies also, as expected, remind lenders that they must comply with all state law requirements, including the revised requirements for Texas home equity loans.

 

For years, state regulators have been considering whether the law that licenses residential mortgage loan servicers should be applied to entities that acquire and hold mortgage loan servicing rights (“MSRs”). As states enacted new laws to license mortgage loan servicers, one of the first questions we asked of regulators is whether the licensing obligation is applied to those who only hold the servicing rights for the mortgage loans. (For instance, Oregon’s new Mortgage Loan Servicer Practices Act, effective January 1, 2018, will require a license by those who hold mortgage loans servicing rights under certain conditions.) While states continue in that direction, they have not been quick to take action against companies that acquire and hold mortgage servicing rights without a license.

However, Arkansas recently joined California as a state prepared to sanction companies that acquire and hold MSRs without a license. On November 2, 2017, the Arkansas Securities Department, which administers the Arkansas Fair Mortgage Lending Act (“FMLA”), entered into a consent order with Aurora Financial Group, Inc. (the “Company”). The Department had concluded that Aurora was “operating as an unlicensed mortgage servicer in Arkansas by holding master servicing rights on 169 residential mortgage loans in Arkansas.” We understand this is the Department’s first such action. The fine was small, only $5,000, and the Company did not need to divest itself of its servicing rights, which may be because the Company self-reported its error. The Department required the Company to apply for a license under the FMLA and maintain its license until such time as it no longer conducts mortgage servicing activities under the FMLA.

Arkansas has licensed those who only hold MSRs without actually servicing mortgage loans since August 2013. At that time, amendments to the Arkansas FMLA became effective that changed the definition of “mortgage servicer” to mean a person that receives, or has the right to receive, from or on behalf of a borrower: (A) funds or credits in payments for a mortgage loan; or (B) the taxes or insurance associated with a mortgage loan. From our conversations with Arkansas regulators, we understand they apply the mortgage servicer licensing obligation to those that acquire and hold mortgage loans with the servicing rights, as well as those that only hold mortgage servicing rights.

Over 20 states now license entities that hold MSRs. The definition of a mortgage servicer under the Arkansas FMLA as a person that has the right to receive funds for a mortgage loan is a key component of the definition in some other states. However, other definitional language could impose a licensing obligation for holding mortgage loan servicing rights. For instance, in a few states (such as New Hampshire), the licensing obligation expressly applies to a person that holds mortgage servicing rights. Other states (such as Connecticut) define a mortgage loan servicer as a person that indirectly services a mortgage loan, and apply that definition and licensing obligation to a person that merely holds servicing rights. Then there is the California Department of Business Oversight, which has applied the licensing obligations of the California Residential Mortgage Lending Act (“RMLA”) to persons that only hold mortgage loan servicing rights, even though the RMLA defines “servicing” on the basis of receiving payments and performing services related to the receipt of those payments on behalf of the note holder.

It is unclear if the Arkansas action, and similar actions by California, signal that a long overlooked licensing obligation under the laws of many states may be coming into focus for enforcement actions. It is clear, though, that more states are moving to license entities that merely hold MSRs.

On Tuesday, a federal district court in the Southern District of New York issued an order dismissing a lawsuit brought by the New York Department of Financial Services (NYDFS) regarding a proposal of the Office of the Comptroller of the Currency (OCC) to issue federal charters to certain fintech firms. In dismissing the case, U.S. District Court Judge Naomi Reice Buchwald held the NYDFS did not have standing to sue because the OCC had not yet officially decided to issue charters to fintech companies. Judge Buchwald explained that because the OCC had not made “a final determination” that it will issue such charters, the injuries alleged by the NYDFS are “too future-oriented and speculative” to support the lawsuit.

By way of background, in December 2016, the OCC announced plans to study whether it could issue special purpose charters to fintech firms. In March 2017, OCC Comptroller Thomas J. Curry announced the OCC would be issuing charters to fintech companies. In the same month, the OCC released a document describing how fintech companies could apply for a charter. In May 2017, Mr. Curry stepped down from his position, and President Trump named Keith Noreika Acting OCC Comptroller.

The NYDFS then sued the OCC regarding the proposal to grant charters to fintech companies. According to the NYDFS, the OCC did not have authority to issue a charter to fintech companies and should not allow such companies to operate in New York without complying with the state’s usury law and other consumer financial regulations. In the following months, Acting Comptroller Noreika stated several times that the OCC had not reached a final decision about whether to issue charters to fintech companies. Joseph Otting was then nominated by President Trump as permanent Comptroller of the Currency and was confirmed in November 2017. In Judge Buchwald’s decision, she noted that she was not aware of any statement by Mr. Otting indicating his position on fintech charters.

The Conference of State Bank Supervisors filed a similar lawsuit against the OCC in the U.S. District Court for the District of Columbia. The OCC filed a motion to dismiss that lawsuit as premature, which motion is currently pending before the court.

The dispute over the CFPB acting director designation has moved into federal court.

In yesterday’s post, we explained why the President’s designation of Mick Mulvaney as acting CFPB director complies with the law, and why Mr. Mulvaney—rather than CFPB deputy director Leandra English—qualifies as the lawful acting director.

On the evening of November 26, Ms. English filed a lawsuit against President Trump and Mr. Mulvaney seeking a declaration that she is the lawful acting director.  (Note that Ms. English is represented by private counsel, not by CFPB lawyers.)

Meanwhile, the Justice Department’s Office of Legal Counsel on November 25 issued an opinion supporting the President’s designation of Mr. Mulvaney as acting director.  Among other things, the opinion points out that the Federal Vacancies Reform Act—the statute invoked by President Trump—expressly does not apply to a number of specified positions (in 5 U.S.C. § 3349c), but that the CFPB director is not included in that list.

Finally, the CFPB’s general counsel agrees with the Justice Department’s analysis: Continue Reading CFPB Acting Director – The Controversy Escalates

Richard Cordray is no longer the director of the Consumer Financial Protection Bureau. He resigned as of midnight on November 24.

But—as with so many events relating to the CFPB since its creation in 2010—there is a controversy about what happens next.

Before he resigned, Mr. Cordray appointed Leandra English—who had been serving as the agency’s chief of staff—to the position of deputy director.  And in a note to the Bureau’s employees, Mr. Cordray stated: “upon my departure, she will become the acting Director.”

Hours later, the White House announced that the President “is designating Director of the Office of Management and Budget (OMB) Mick Mulvaney as Acting Director of the Consumer Financial Protection Bureau (CFPB).” It stated that “Director Mulvaney will serve as Acting Director until a permanent director is nominated and confirmed.”

Is the New York Times correct in asserting that the Bureau now has “dueling directors, and there [is] little sense of who actually would be in charge Monday morning”? Continue Reading The CFPB’s Acting Director Is . . .

The Consumer Financial Protection Bureau (CFPB) recently posted its Enforcement Policy and Procedures Manual (Manual) on its FOIA reading room website.  This is a welcome step in transparency, which was driven by the agency’s receipt of multiple FOIA requests for the Manual.  Other documents available in the FOIA reading room relating to the agency’s enforcement process now include the instructions and template for the memo sent to the Action Review Committee (ARC), which determines whether issues identified in the course of a CFPB examination warrant public enforcement action, and a template of the memo that staff send to the Director seeking authority to settle or sue at the conclusion of an enforcement investigation.  Hopefully, the CFPB will not wait for multiple FOIA requests to post other helpful documents on its website, such as a staff directory, which is available via FOIA request but is not currently posted on the CFPB website.