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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.

The long awaited en banc oral argument in the PHH v. CFPB appeal was heard this morning.  Based upon the questions asked by the judges, and with the caveat that such questioning is not always an indicator of how a court will rule, it seems likely that the D.C. Circuit will not find the CFPB to be unconstitutionally structured.  While Judge Kavanaugh, author of the roughly 100-page 3-judge panel decision last October, tried mightily to defend his position that a single director removable only for cause thwarts the President’s Article II authority, most of the judges did not seem to share his views.  Some judges, like Judge Griffith, implied that the Court was bound by the Supreme Court’s decision in Humphrey’s Executor v. United States, which upheld the constitutionality of removal-for-cause provisions as pertains to the multi-member Federal Trade Commission.  Other judges appeared to believe there was sufficient accountability for the CFPB Director because he or she can be removed for cause.  Judge Pillard defended the independence of financial regulatory agencies such as the CFPB.  On the whole, fewer judges seemed inclined to declare the for-cause provisions unconstitutional than to keep the status quo.

Notably, only about 60 seconds of the 90 minute oral argument addressed RESPA concerns, in particular Section 8(c)(2).  The judges’ RESPA-related questions concerned whether the industry had notice that RESPA prohibited the conduct in question (which had been blessed by a 1997 Letter from HUD permitting captive reinsurance if the Section 8(c)(2) safe harbor provisions were met) and whether the CFPB was bound by RESPA’s 3-year statute of limitations.  Questions about both issues were directed to CFPB counsel.  He stated that the statute itself provided ample notice of its prohibitions in Sections 8(a) and 8(c)(2). He also said the Bureau was bound by the generally-applicable 5-year statute of limitations at least insofar as penalties are concerned, but he did not concede the Bureau was otherwise bound by RESPA’s limitations period in an administrative proceeding.  That said, given how little attention was directed to the RESPA questions, it is likely that the full 11-member panel will affirm the 3-judge panel’s views on RESPA expressed last October.

It would appear that Director Cordray will remain at his desk until his term expires in July 2018.  He may, however, need to revise his interpretation of Section 8(c)(2).

 

On January 11, 2017, the U.S. Department of Housing and Urban Development (HUD) published Mortgagee Letter (ML) 2017-03, “Federal Housing Administration (FHA) Loan Review System – Implementation and Process Changes.”  The ML indicates that HUD is developing a new Loan Review System (LRS) that will provide an electronic platform for FHA loan-level file reviews and other functions for single family insured mortgages. The new requirements will apply to all FHA Title II Single Family programs, including reverse mortgages. Continue Reading HUD/FHA to Launch New Automated Loan Review System, Incorporating Defect Taxonomy

With just a week to spare before its 45-day deadline for appeal expired, last week the Consumer Financial Protection Bureau (CFPB) petitioned the U.S. Court of Appeals for the D.C. Circuit for en banc review of the October three-judge panel decision in PHH Corp. v. CFPB.  Penned by Judge Brett Kavanaugh, that ruling declared the CFPB’s single-director structure unconstitutional and rejected the CFPB’s interpretation of Section 8 of the Real Estate Settlement Procedures Act (RESPA).  The CFPB’s petition does not come as a surprise.  If the D.C. Circuit agrees to rehear the constitutional and/or RESPA arguments, the three-judge panel ruling will be stayed pending the full court’s decision and the CFPB will return to business as usual, at least for now. Continue Reading CFPB Petitions D.C. Circuit for Review of PHH Ruling by Full Court

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.

The hearing before the U.S. Court of Appeals for the D.C. Circuit in PHH Corp. v. Consumer Financial Protection Bureau on April 12 was a tale of two arguments.

The presentation on behalf of PHH was relatively uneventful: its counsel (Ted Olson) was asked a limited number of questions in roughly 25 minutes at the podium, with at least five minutes passing before the first question was posed. In contrast, counsel for the CFPB (Larry Demille-Wagman) was kept at the podium for a solid 40 minutes and subjected to a steady stream of tough questions.

While it is hard to predict based on the oral argument how the Court of Appeals will rule, including whether the Court will reach the constitutional questions it previously raised, today’s argument suggests that the CFPB may well be on track for its first major litigation defeat. Continue Reading U.S. Court of Appeals for the D.C. Circuit Sharply Questions CFPB At Oral Argument In PHH Corp. v. CFPB

On April 18 and 19, 2016, Phil Schulman will be making two presentations to the Real Estate Settlement Service Providers Council (RESPRO) Annual Conference in New Orleans.  The first presentation involves RESPA requirements pertaining to real estate agents, and the second concerns advertising and co-advertising opportunities to settlement service providers, including builders, real estate brokers, lenders and title companies.

Get more information about the RESPRO conference.