Mortgage Loan Servicing

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Earlier this week, the Bureau released the Winter 2019 edition of Supervisory Highlights.  This marks the first edition issued under the CFPB’s new Director, Kathy Kraninger, who was confirmed to a five-year term in December.  The report describes observations from examinations that were generally completed between June and November 2018 and summarizes recent publicly-released enforcement actions and guidance.

Like the sole edition of Supervisory Highlights issued under Acting Director Mick Mulvaney’s tenure, this edition emphasizes that “it is important to keep in mind that institutions are subject only to the requirements of relevant laws and regulations,” and that the purpose of disseminating Supervisory Highlights is to “help institutions better understand” how the Bureau examines them for compliance—statements that signal a shift in how the Bureau approaches its supervisory role. Continue Reading First Supervisory Highlights Under Director Kraninger Reflects Focus on Corrective Action and Prevention of Harm

Freddie Mac is an outlier among the three primary secondary market investors with its mid-month investor reporting cycle. In an effort to standardize the marketplace, Freddie Mac is joining Fannie Mae and Ginnie Mae by shifting its investor reporting cycle to the beginning of each month. In this regard, Freddie Mac is implementing the following changes: (i) the investor reporting cycle will run from the first day of each calendar month to the last day of such month; (ii) Freddie Mac is encouraging daily loan-level reporting, with reporting of at least one loan level-transaction detailing activity submitted no later than the 15th calendar day of each month (or next business day) (the “P&I Determination Date”); (iii) servicers will report the actual principal received and the forecasted scheduled interest based on unpaid principal balance reported at the end of the current one-month period; (iv) Freddie Mac will draft principal and interest from the servicer’s custodial account two business days after the P&I Determination Date; (v) on the fifth business day following a payoff, Freddie Mac will draft payoff proceeds, provided such payoff was reported within two business days of the payoff date, subject to certain requirements; and (vi) Freddie Mac will process and settle loan modifications on a daily basis.

Freddie Mac has released several bulletins outlining the transition (2016-15, 2017-4, 2017-15, and 2018-14), summarized in the following timeline:

Continue Reading Freddie Mac’s Investor Reporting Changes

The California legislature was active in 2018, enacting several new requirements and provisions applicable to the financial services industry. Those requirements include an important and comprehensive privacy regime (the California Consumer Privacy Act of 2018, or CCPA), which establishes new protections for personal information that covered commercial enterprises collect. The CCPA becomes effective January 1, 2020, with implementing regulations due July 1, 2020.

However, many new California provisions become effective on January 1, 2019, including new foreclosure protections (and the reinstatement of certain protections from the California Homeowner Bill of Rights) and the exclusion of reverse mortgage loans from certain successor-in-interest protections. A new requirement to provide mortgage loan modification disclosures in the language in which they are negotiated (e.g., in Spanish, Chinese, Tagalog, Vietnamese, or Korean) becomes effective for covered entities once the regulator develops those disclosures.

California also imposed new restrictions and requirements applicable to debt collectors and a new licensing obligation for servicers of student loans, and expanded certain financial protections for servicemembers.

Read more about California’s active legislature in Mayer Brown’s recent Legal Update.

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.

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.)

As the Mortgage Bankers Association gathers for its Regulatory Compliance conference next week in Washington, DC, Mayer Brown’s Consumer Financial Services group will be addressing all the hot topics.

Melanie Brody will be talking about the Equal Credit Opportunity Act (ECOA) on a panel called “Fair Lending and Equal Opportunity Laws” on Sunday, September 16.

On Monday, September 17th, Phillip Schulman will discuss trends in RESPA Section 8 compliance. He will also join in the round-table discussion of RESPA later that afternoon.

Ori Lev will speak on panel entitled “UDAAP Compliance.”

Krista Cooley will be discussing the latest developments in FHA servicing compliance. She will also field questions on the topic during the afternoon servicing round-table.

On Tuesday, September 18th, Keisha Whitehall Wolfe will discuss state compliance issues.

Also in attendance from Mayer Brown will be new partner Michael McElroy, partner David Tallman, and associates Christa Bieker, Joy Tsai, and James Williams.

We look forward to seeing you there!

 

Foreign statutory trusts that acquire delinquent residential mortgage loans are NOT required to be licensed under the Maryland Collection Agency Licensing Act (the “Act”), based on an opinion released today by the Maryland Court of Appeals. The opinion reverses lower court rulings that called for such licensing. According to the opinion, the Act’s plain language is ambiguous as to whether the Maryland General Assembly intended foreign statutory trusts, acting as a special purpose vehicle in the mortgage industry, to obtain a license as a collection agency. The court conducted a fulsome review of the original legislative history, subsequent legislation, and related statutes to discern legislative intent.

Finding that the original impetus for licensing was to address abuses in the debt collection industry, the court held that the General Assembly did not intend for foreign statutory trusts to obtain a collection agency license under the Act before their substitute trustees filed foreclosure actions in various circuit courts. As a result, the court held that the lower courts improperly dismissed foreclosure actions (which the courts had done simply because the two foreign statutory trusts that had acquired the delinquent mortgage loans were not licensed under the Act before the substitute trustees instituted the foreclosure proceedings).

Of particular interest in the opinion is the conclusion that a foreign statutory trust is not “doing business” as a collection agency. The court wrote:

 Applying that definition of “business” as used in [the Act] to the consolidated cases before us presents further ambiguity. Specifically, the foreign statutory trusts that own the mortgage loans in the cases sub judice do not have any employees or offices, do not have any registered agent, and do not have any specifically identified pursuit in the State of Maryland. Instead, [the trusts] both act solely through trustees and substitute trustees. Therefore, it would be hard for this Court in the first instance to conclude that the foreign statutory trusts engage, either directly or indirectly, in the business of a collection agency when it is hard to deduce if these entities are even conducting “business” under Funk and Wagnall’s definition.

The earlier, now overturned, opinions had set off a frenzy within the Maryland foreclosure bar and the delinquent loan holders they represent. Many foreclosure law firms simply were unwilling to pursue foreclosures unless the owner of a loan that had been acquired in a delinquent status was licensed as a collection agency, and Maryland had to create an entirely new process to license trusts. Underlying the confusion was the view that a trust simply is not “doing business” as a matter of law, and thus a state did not have jurisdiction to require the licensing of the trust. The earlier Maryland opinions followed a twisted logic that a trust may not be “doing business” in the state as a matter of Maryland law on foreign qualifications, but is “doing business” as a collection agency. The plain speaking Maryland Court of Appeals concluded that doing business means doing business, and not doing business means not doing business — a logical conclusion that is elegant in its simplicity.

The US Court of Appeals for the Ninth Circuit’s recent decision in Lusnak v. Bank of America, N.A.—holding that the National Bank Act did not preempt a California law requiring banks to pay interest on certain funds held in escrow accounts for mortgage borrowers—has received considerable attention in the consumer finance industry. Bank of America’s bid for rehearing en banc was significantly strengthened on Monday, when the Office of the Comptroller of the Currency (“OCC”) took the unusual step of filing an amicus curiae brief in support of the petition for rehearing.

Mayer Brown’s Legal Update summarizes how, according to the OCC, the court got the preemption issue in Lusnak wrong.