A creditor’s inability to reset fee tolerances with a revised Closing Disclosure more than four business days before closing has been one of the more adverse unintended consequences of the TILA-RESPA Integrated Disclosure (“TRID”) regulations that became effective in October 2015. However, a fix is on the horizon. On Thursday, April 26, 2018, the Consumer Financial Protection Bureau (“CFPB”) announced final amendments to TRID to eliminate the timing restrictions that have plagued creditors and, in certain cases, increased creditors’ costs to originate residential mortgage loans. With an effective date 30 days after the final amendments are published in the Federal Register, this change is a welcome relief to mortgage lenders. Continue Reading A Ray of Light Through the “Black Hole”: TRID Amendment Permits Tolerance Reset with Revised Closing Disclosure
Characterized as “protecting veterans from predatory lending,” S.2155, the Economic Growth, Regulatory Relief and Consumer Protection Act, passed by the United States Senate on March 14, 2018. If enacted, the bill would impose material conditions on the eligibility of non-cash-out refinancings for government guaranty under the Veterans Affairs Loan Guaranty Program. While the legislation has received significant attention for the loosening of certain requirements under the 2010 Dodd-Frank Act for banks and other depository institutions, this particular provision should be of significant interest to all lenders of government-insured or guaranteed residential mortgage loans.
Read More in Mayer Brown’s Legal Update.
The U.S. Court of Appeals for the D.C. Circuit (the “court”) has issued its long-awaited en banc decision in PHH v. CFPB. In a January 31, 2018 opinion, the court rejected the three-judge panel’s conclusion that the structure of the Consumer Financial Protection Bureau (“CFPB”) is unconstitutional. But the en banc court reinstated the panel’s decisions that the CFPB’s interpretation of the Real Estate Settlement Procedures Act (“RESPA”) is unlawful and may not stand and that the CFPB is subject to a three-year statute of limitations even when bringing RESPA claims administratively.
As is well known, on October 11, 2016, a three-judge panel of the court had overturned a $109 million disgorgement order that the CFPB had imposed on PHH Corporation (“PHH”) for its involvement in an allegedly unlawful mortgage reinsurance arrangement. Pursuant to that arrangement, PHH did business with mortgage insurance companies that purchased reinsurance from a wholly-owned subsidiary of PHH. The court held, by a 2-1 vote, that the CFPB’s single-director structure allowing the President to remove the Director during his/her five-year term only for cause violates the Constitution’s separation-of-powers principles. The court severed the for-cause limitation, thereby effectively allowing the President to remove the Director at will at any time.
The three-judge panel also unanimously rejected the CFPB’s interpretation of Section 8 of RESPA, concluding that, contrary to the CFPB’s determination, Section 8(c)(2) of the statute provides an actual exemption to the anti-kickback provision in Section 8(a). On February 16, 2017, the court granted the CFPB’s petition for rehearing en banc, vacating the panel decision and setting up review by the full D.C. Circuit. Nearly a year later, the court ruled on these matters.
In a 7-3 majority ruling, the court held that the CFPB is not unconstitutionally structured and that the for-cause limitation on the President’s removal authority is a permissible exercise of congressional authority. This part of the decision, however, seems less momentous in the wake of former CFPB Director Richard Cordray’s resignation in November 2017 and President Trump’s appointment of Office of Management and Budget Director Mick Mulvaney as the CFPB’s Acting Director.
Of more immediate significance to the settlement service industry is the court’s decision to reinstate the three-judge panel decision respecting RESPA. The panel had found that Section 8(c)(2) was indeed an exemption to the Act’s Section 8(a) anti-kickback provisions, provided that reasonable payments are made in return for services actually performed or goods actually furnished. As a result of the court’s reinstatement, real estate brokers, lenders and title companies that were waiting on the sidelines for this decision may take another look at advertising agreements, desk rentals, and other services agreements.
The panel opinion also had rejected the CFPB’s contention that no statute of limitations applies to administrative enforcement of RESPA. That aspect of the reinstated opinion is likely to be helpful to respondents facing administrative claims under other federal consumer financial laws as well.
Finally, despite the 7-3 ruling on the constitutional issues and differences of opinion regarding the proper interpretation of RESPA, one thing all of the judges seem to agree on is that an agency cannot seek penalties for past conduct that violates a novel legal interpretation first advanced in an enforcement case. That is, “regulation by enforcement” is permissible as a way to announce new legal principles, but, for due process reasons, it cannot be a basis to penalize past conduct.
It remains to be seen if PHH will seek Supreme Court review of the constitutional holding or will instead try its luck on remand in front of the Mulvaney-led CFPB.
New title insurance regulations in New York restrict the marketing practices of title insurance agencies and affect the operation of affiliated businesses.
The New York Department of Financial Services (“DFS”) issued two final regulations on October 17, 2017 that follow a DFS investigation into the marketing practices and fees charged by title insurance industry members. The DFS stated that the investigation revealed that members of the title industry spend millions each year in “marketing costs” provided to attorneys, real estate professionals, and mortgage lenders in the form of meals, gifts, entertainment, and vacations and then include those expenses in the calculation of future title insurance rates. The DFS had already implemented emergency regulations to address those practices. The recent final regulations represent permanent guidelines on certain behavior the DFS deems prohibited and permissible under the state’s title insurance statutes. Continue Reading New York Takes Aim at Title Insurance Marketing Practices
Appraisal management companies (“AMCs”) are one step closer to being required to pay annual registry fees. The Appraisal Subcommittee (“ASC”) of the Federal Financial Institutions Examination Counsel published a final rule on September 25, 2017, pursuant to its authority granted under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), to govern a state’s collection of annual registry fees from AMCs. The final rule will take effect on November 24, 2017.
The Dodd-Frank Act amended Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) to require states that opt to register and supervise AMCs to collect an annual AMC registry fee. The federal law requires such states to collect (i) from AMCs that have been in existence for more than one year, an annual registry fee of $25 multiplied by the number of appraisers working for or contracting with the AMC in the state during the previous year; and (ii) from AMCs that have not been in existence for more than a year, $25 multiplied by an appropriate number determined by the ASC. The Dodd-Frank Act gives the ASC discretion to increase the $25 fee to $50 if necessary to satisfy the ASC’s functions under the Dodd-Frank Act.
The ASC proposed regulations in May 2016 to implement the registry fee requirement and received 104 public comment letters. Most notably, the proposed regulations offered the ASC’s interpretation of what it means to be “working for or contracting with” an AMC for purposes of the registry fee. The final rule effectively adopts the standards from the proposed rule and establishes the annual AMC registry fee for AMCs in states that opt to register and supervise AMCs as follows:
- For AMCs that have been in existence for more than one year, $25 multiplied by the number of appraisers who have performed an appraisal for the AMC in connection with a covered transaction in said State during the previous year; and
- For AMCs that have been in existence for less than one year, $25 multiplied by the number of appraisers who have performed an appraisal for the AMC in connection with a covered transaction in said State since the AMC commenced doing business.
The final rule defines “performed an appraisal” to mean “the appraisal service requested of an appraiser by the AMC was provided to the AMC.” Continue Reading FFIEC Finalizes Regulations for the Payment of AMC Registry Fees
The Consumer Financial Protection Bureau announced a final rule to clarify the TILA/RESPA Integrated Disclosure requirements. The rule finalizes many of the CFPB’s earlier proposals, some with modifications. However, the agency still has not formally addressed important issues (like a lender’s ability to cure errors and the disclosure of title insurance premiums where a simultaneous discount applies), and it offers a new proposal to address the “black hole” on resetting fee tolerances. The final regulations will take effect 60 days after publication in the Federal Register.
Mayer Brown’s Legal Update discusses the CFPB’s latest attempt to strike a balance between the disclosure burdens on lenders or closing agents and ensuring consumers receive clear and useful information.
Today, a three-judge panel of the United States Court of Appeals for the District of Columbia Circuit issued a ruling overturning a $109 million monetary penalty imposed by the Consumer Financial Protection Bureau (“CFPB” or “Bureau”). The decision in PHH Corporation v. CFPB, written by Circuit Judge Brett Kavanaugh, addressed the unconstitutionality of the Bureau’s structure and its retroactive application of a new RESPA interpretation, and imposed RESPA’s three-year statute of limitations on the Bureau. Continue Reading Court Rejects CFPB’s RESPA Interpretation, Declares Single-Director Structure Unconstitutional
With only a few days to spare in order to meet its July 2016 target release date, the Consumer Financial Protection Bureau (“CFPB”) finally issued a Notice of Proposed Rulemaking (NPRM) today, proposing a number of amendments to its TILA-RESPA Integrated Disclosure rule (“TRID” or the “Know Before You Owe” rule).
On April 28, 2016, the CFPB issued a letter stating that it would engage in formal rulemaking in order to provide “greater certainty and clarity” to the mortgage industry. (Mayer Brown’s post regarding the April 28 letter can be found here.) Since then, the industry has been anxiously awaiting the proposal to see which of the many issues the CFPB would address. While it may not have touched upon every issue on which the mortgage lending industry has pleaded for guidance, the NPRM is a step in the right direction, indicating that the CFPB understands some of the challenges market participants have faced.
Since the regulations were finalized in November 2013, the CFPB has periodically issued informal guidance through webinars, compliance guides, and sample disclosures. With its current proposal, the CFPB is seeking to memorialize its past guidance, as well as make additional clarifications and technical updates. In the NPRM, the CFPB highlights the following four amendments:
- Tolerances for the Total of Payments Disclosure — The Truth in Lending Act provides certain tolerances when calculating the finance charge and “disclosures affected by the disclosed finance charge.” Prior to TRID, the finance charge was a component of the Total of Payments disclosure. However, TRID changed the Total of Payments calculation so that the finance charge was not specifically used. The current proposal would include a tolerance provision for the Total of Payments that would parallel the tolerance for the finance charge.
- Housing Assistance Lending — TRID currently provides a partial exemption for certain housing assistance loans that are originated primarily by housing finance agencies and non-profits. According to the CFPB, the exemption was not operating as intended, so the CFPB is proposing to clarify that recording fees and transfer taxes may be charged in connection with a housing assistance loan without losing eligibility for the exemption. The proposal also would exclude recording fees and transfer taxes from the exemption’s limits on costs.
- TRID’s Application to Cooperatives — Currently, TRID’s applicability to loans secured by interests in cooperative units depends on whether a cooperative is considered real property under state law. Since some states treat cooperatives as real property, and others deem it personal property, there is not uniform coverage of cooperatives under the regulation. In order to provide more consistency, the CFPB proposes to require the provision of the TRID disclosures in all transactions involving cooperative units, regardless of whether state law classifies the interests as real or personal property.
- Privacy and Information Sharing — The CFPB has received many requests for guidance regarding the sharing of disclosures with sellers, real estate agents, and others involved in the mortgage origination process. In its proposal, the CFPB seeks to add a comment that addresses a creditor’s ability to modify the Closing Disclosure in order to accommodate the provision of separate disclosures to the consumer and seller. The proposal would also add examples where the creditor may choose to provide separate Closing Disclosure forms to the consumer and the seller.
In addition, the CFPB includes a number of “minor changes and technical corrections” in the NPRM.
Mayer Brown’s Legal Update detailing the CFPB’s proposal is coming soon.