Real Estate Settlement Procedures Act (RESPA)/Regulation X

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).

 

Financial services companies that hoped for immediate regulatory relief when the Trump Administration assumed control may have to wait a bit longer, because the newly announced freeze on federal regulations does not appear to apply across the board.  “Independent regulatory agencies,” such as the Consumer Financial Protection Bureau (“CFPB”), the Federal Reserve Board, the Office of the Comptroller of the Currency (“OCC”), the Federal Deposit Insurance Corporation (“FDIC”), and the Securities and Exchange Commission (“SEC”) may be excluded from that moratorium. Continue Reading How Solid is the “Freeze”? Some Agencies May Be Excluded from White House Regulatory Moratorium

The Consumer Financial Protection Bureau (CFPB) has issued an updated small entity compliance guide for compliance with the Mortgage Servicing Rules after the CFPB’s recent amendments to the rules take effect, generally on October 19, 2017.

The existing guide is still relevant for compliance before the new amendments take effect.

To learn more about the amendments to the Mortgage Servicing Rules, read the Mayer Brown white paper.

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

The Consumer Financial Protection Bureau (CFPB) has offered its new mortgage servicing rule for public inspection today, meaning it is scheduled to be published in the Federal Register on October 19, 2016.  The CFPB informally released the rule on its website in August.

The effective date of the rule is tied to its publication date, so the bulk of its requirements (with some exceptions) will take effect in 12 months, on October 19, 2017.

To learn more about the rule, read our Mayer Brown white paper.

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

Several of Mayer Brown’s Consumer Financial Services partners will be featured at this month’s Regulatory Compliance Conference in Washington, DC, sponsored by the Mortgage Bankers Association.

On Sunday, September 18th, Kris Kully will participate in the Compliance Essentials Workshop outlining how the Dodd Frank Act changed the regulatory framework for mortgages.  This panel will be useful for attendees looking for an introduction or refresher course in mortgage origination compliance, and those seeking MBA certification.

Also on Sunday the 18th, Krista Cooley will participate on the Servicing Essentials panel, which will include a discussion of the latest updates to the CFPB’s servicing rules, the TCPA, and the FDCPA.

Melanie Brody will participate on a Sunday panel addressing fair lending and HMDA.

Phil Schulman will participate on a panel on Monday, September 19th, discussing how the CFPB’s views affect marketing and advertising campaigns under RESPA. If the Circuit Court releases its opinion in the PHH case before the Conference, Phil will discuss how the court’s opinion will affect future RESPA compliance.

We look forward to seeing you there!

Last week the American Association of Residential Mortgage Regulators (AARMR) hosted its 27th annual regulatory conference in Tampa, Florida. Over 300 attendees gathered to exchange information relating to the licensing, supervision, and regulation of the residential mortgage industry.  Here are some of the highlights from the conference:

NMLS 2.0 — What’s on Your Wish List?

By far the hottest topic was “NMLS 2.0,” an effort to modernize the existing Nationwide Multistate Licensing System (NMLS) introduced in 2008.  The NMLS, which was built for mortgage lending licenses, also applies to other types of consumer lenders.  Modernization entails rebuilding the system, not just selected upgrades, to meet anticipated future needs for usability, enhanced functionality, and expansion for use by collection agencies, money transmitters, and installment lenders licensed through NMLS. Initial modernization discussions addressed account management, entity affiliation and application submission, and maintenance. While the overhaul is expected to be complete in 2018, that may be overly optimistic.

Meanwhile, the State Regulatory Registry LLC (SRR), which formally administers the NMLS, has expressed its commitment to consider input from both regulator and industry users of the system as the modernization development continues. If you have been thinking that a single sign-on to assist in the management of multiple accounts, a customizable user role template to assist in the management of your organization users, a more streamlined sponsorship process, or an employment history that is linked to sponsorship for an automated update of your record is on your list of must haves, let us know – we are active participants in the NMLS industry development working group (IDWG), and we frequently submit comments to SRR regarding proposed functional changes to the NMLS.

Examination Findings

Both the state and the federal regulators at the AARMR conference discussed frequent findings in their examinations. Across the country, regulators saw (i) failures in timely filing of advance change notices, (ii) unapproved records storage locations, (iii) property owners who were locked out of their homes even when actively working with the servicer, and (iv) deficiencies in compliance systems. In addition, regulators are starting to look not only at the licensee’s compliance with the individual rules and regulations, but at its ability to test and audit technology-based processes, quickly identify issues, and implement a resolution process.

Vendor Management

Regulators also expressed concerns about licensees’ assessment of risks presented by reliance on vendors.  Many state regulators are requiring more oversight (including auditing) of certain vendors by the licensee.  Regulators warned that a licensee could be penalized for the inappropriate actions of certain vendors, even if the vendor is regulated and examined by another agency.

States Regulators Consider CFPB Rules

Consumer Financial Protection Bureau (CFPB) Deputy Assistant Director Brown discussed the final mortgage servicing rules under the Real Estate Settlement Procedures Act (Regulations X) and Truth in Lending Act (Regulation Z).  That rule addresses loss mitigation, early intervention, and periodic statements.  It also addresses successors in interest, debtors in bankruptcy, and borrowers who send a cease communication request under the Fair Debt Collection Practices Act (FDCPA).

Simultaneously, the CFPB issued an interpretive rule to clarify the interaction of the FDCPA and certain mortgage servicing rules in Regulations X and Z.  The interpretive rule provides safe harbors from liability for servicers : (1) communicating about the loan with confirmed successors in interest; (2) providing the written early intervention notice required by Regulation X to a borrower who has invoked the cease communication right; and (3) responding to a borrow-initiated communication concerning loss mitigation after the borrower has invoked a cease communication right.

Given what we hear from state regulators, do not be surprised if many of the CFPB’s rules find their way into state law.

(Mayer Brown’s Consumer Financial Services Review addressed the CFPB’s final mortgage servicing rules and its FDCPA interpretation here.)

Account Executive Licensing?

The NMLS Ombudsman session included a lively discussion of whether individual account executives of wholesale mortgage lenders must be licensed as mortgage loan originators. After a detailed description of the activities performed by these account executives, a few state regulators recommended licensing, but affirmed that it was not required. Several state regulators declined to respond categorically, but warned that an individual could “step over the line” and be considered a mortgage loan originator if he or she discusses loan terms with the consumer.

Generally, states have adopted the SAFE Act definition of a “mortgage loan originator,” and unless exempt, an individual is required to be licensed if he or she takes a residential mortgage loan application and offers and negotiates the terms of a residential mortgage loan for compensation or gain. As account executives or similar persons perform their duties, they should be aware of whether they are performing those mortgage loan originator activities, regardless of their current professional title.

Keisha Whitehall Wolf served as the Acting Deputy Commissioner for the Maryland Office of the Commissioner of Financial Regulation before joining Mayer Brown.

Today the CFPB finalized the final mortgage servicing rules update that it proposed at the end of 2014.  The rule adds new protections for mortgage borrowers in financial distress, including provisions that require servicers to:

  • Provide some borrowers with foreclosure protections more than once over the life of the loan;
  • Provide protections to an expanded universe of successors in interest upon the death of a borrower;
  • Provide more information to borrowers in bankruptcy;
  • Notify borrowers when their loss mitigation applications are complete;
  • Comply with specific timing requirements for loss mitigation activities when servicing rights are transferred;
  • Avoid wrongful foreclosures by refraining from pursuing those actions until loss mitigation applications are properly dispositioned;
  • Comply with clear timing requirements for borrower delinquencies.

The final rule also addresses force-placed insurance and periodic disclosure requirements.

Concurrently with that final servicing rule, the CFPB issued an interpretive rule under the federal Fair Debt Collections Practices Act (FDCPA), to address its interplay with the new servicing rules and their requirements related to certain borrower communications.

Most of the new requirements will become effective one year following their publication in the Federal Register, so their effective date will likely be in the fall of 2017.  The requirements addressing successors in interest and periodic statements for borrowers in bankruptcy will become effective 18 months after publication.

Mayer Brown will issue a detailed analysis of the new provisions in an upcoming Legal Update.

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.