The Federal Housing Finance Agency (FHFA) rejected the pleas of many in the mortgage industry by adding a question about the applicant’s language preference to the future Fannie Mae/Freddie Mac Uniform Residential Loan Application (URLA) (Form 1003/65). While the FHFA is seeking to promote access to credit for consumers with limited English skills, lenders remained concerned that the revisions will raise the risk of confusing or misleading those consumers. Read more about the FHFA’s upcoming changes in Mayer Brown’s latest Legal Update.
The anti-arbitration rule issued by the Consumer Financial Protection Bureau in July is now just one short step away from elimination.
The Senate tonight voted 51-50 (with Vice President Pence casting the deciding vote) to invalidate the CFPB’s rule under the Congressional Review Act (CRA). That vote follows the House of Representatives’ disapproval of the rule in July.
The last remaining step is the President’s signature on the legislation, which seems highly likely given the Administration’s statement today urging the Senate to invalidate the rule.
The President’s approval will trigger two provisions of the CRA.
First, the rule “shall not take effect (or continue)” (5 U.S.C. § 801(b)(1)). In other words, the rule no longer has the force of law and businesses are no longer required to comply with its terms.
Second, the CFPB may neither re-issue the rule “in substantially the same form” nor issue a new rule that is “substantially the same” as the invalidated rule—unless Congress enacts new legislation “specifically authoriz[ing]” such a rule (5 U.S.C. § 801(b)(2)). The scope of this “substantially the same” standard has not been addressed by the courts, but it seems clear that at the very minimum the Bureau cannot issue (a) a new rule banning class action waivers; (b) an express ban of pre-dispute arbitration clauses; (c) a rule that has the practical effect of eliminating pre-dispute arbitration clauses; or (d) any other rule that imposes similar burdens on the use of arbitration.
Invalidation of the rule under the CRA also will moot the pending broad-based industry lawsuit against the CFPB challenging the legality of the regulation. (Mayer Brown represents the plaintiffs in the litigation).
Who is responsible for the safety of drinking water?
The U.S. Department of Housing and Urban Development (HUD) Office of Inspector General (OIG) has suggested – for the second time – that lenders making Federal Housing Administration (FHA) insured loans should be held to a higher level of accountability in ensuring that FHA borrowers have a safe and potable water supply. In a report dated September 29, 2017, the OIG’s stated concerns are two-fold: first, HUD may be endorsing loans for properties with water contaminants that affect their occupants’ health; and second, property values may decrease due to water quality issues, thereby posing an increased risk of loss to both HUD and homeowners. The OIG’s solution is for HUD to improve its guidance on safe water requirements as well as to sanction lenders that fail to identify water safety issues for properties known to be affected by water contaminants. Continue Reading Nationwide Safe Water Requirements for FHA-Insured Loans
On October 4, the Consumer Financial Protection Bureau (“CFPB”) issued an interim final rule and a proposed rule related to the 2016 Mortgage Servicing Final Rule to clarify the timing of and facilitate the provision of certain required communications with borrowers.
The CFPB amended its mortgage servicing rules in August 2016, to go into effect in large part on October 19, 2017 (the “2016 Final Rule”). One provision of the 2016 Final Rule requires mortgage servicers to send certain delinquent borrowers early intervention notices, modified for use with a borrower who has requested a cease in communication under the Fair Debt Collection Practices Act (“FDCPA”). The FDCPA allows borrowers to request that servicers and other companies refrain from contacting them except in certain circumstances, such as when a borrower becomes delinquent. The 2016 Final Rule exempts servicers from sending the early intervention notices only in situations where the borrower does not have a loss mitigation option available or where the borrower is a debtor in bankruptcy.
Under the 2016 Final Rule, mortgage servicers, when communicating with consumers who have invoked the FDCPA’s cease communication right, were required to provide the consumers modified early intervention notices, but only once every 180 days. Continue Reading It’s All in the Timing: CFPB Addresses Timing Challenges in 2016 Mortgage Servicing Rules
On October 5th, the CFPB finalized its long-awaited payday lending rule, reportedly five years in the making. The final rule is substantially similar to the proposal the Bureau issued last year. However, the Bureau decided not to finalize requirements for longer-term high-cost installment loans, choosing to focus only on short-term loans and longer-term loans with a balloon payment feature.
The final rule will be become effective in mid-summer 2019, 21 months after it is published in the Federal Register (except that provisions facilitating “registered information systems” to which creditors will report information regarding loans subject to the new ability-to-repay requirements become effective 60 days after publication).
The final rule identifies two practices as unfair and abusive: (1) making a covered short-term loan or longer-term balloon payment loan without determining that the consumer has the ability to repay; and (2) absent express consumer authorization, making attempts to withdraw payments from a consumer’s account after two consecutive payments have failed. Continue Reading CFPB’s Final Payday Lending Rule: The Long and Short of It
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
No AfBA disclosure — no safe harbor!
By Consent Order dated September 27, 2017, the Consumer Financial Protection Bureau took action against Meridian Title Corporation for violating Section 8 of the Real Estate Settlement Procedures Act of 1974 by failing to furnish affiliated business arrangement (AfBA) disclosures to consumers. Meridian, an Indiana title and settlement agent, referred over 7,000 customers to its affiliated title insurer, Arsenal Insurance Corporation, without providing written AfBA disclosures notifying consumers of the entities’ affiliation and consumers’ rights. It also received compensation above and beyond its standard allowable commission set forth in the companies’ agency agreement. Under the Consent Order, Meridian agreed to disclose its affiliation with Arsenal, implement certain compliance measures, and set aside $1.25 million for affected consumers, with any portion of that amount not ultimately provided to consumers to be paid to the CFPB.
As indicated above, the underlying basis for action in this case was Meridian’s failure to provide written AfBA disclosures to consumers it referred to Arsenal. The disclosure requirement is black and white – payments under an AfBA cannot qualify for RESPA’s Section 8(c)(4) exception to the anti-kickback and fee-splitting provisions unless the referring entity provides written disclosures to customers meeting certain form and content requirements. Failure to furnish the disclosures leaves payments between the entities subject to scrutiny to determine whether they constitute payments for referrals or qualify for some other exception, Continue Reading CFPB Requires Title Agent to Pay Up To $1.25 Million to Consumers Referred to Affiliated Title Insurer
You get what you pay for.
Ginnie Mae’s continual requests for increased funding to hire more staff have fallen on deaf ears for years. To add insult to injury, the HUD Office of Inspector General released an Audit Report this week that criticizes Ginnie Mae for insufficient supervision of its non-depository issuers. The Report concludes that, among other findings, Ginnie Mae did not adequately respond to changes in its issuer base because it did not implement policies and procedures in a timely manner to manage non-depository issuers. The Report also asserts that Ginnie Mae did not develop a written strategy to plan for all potential issuer default scenarios and, in particular, whether the agency and its contractors could absorb a large issuer default.
With fewer than 150 employees to supervise over 300 issuers, it is little wonder that Ginnie Mae is stretched, which may have hampered its response to the shifting issuer base and the different oversight approach required. In fact, the Report notes that Ginnie Mae’s small staff did not have sufficient secondary mortgage market experience to properly address the risks of its growing and shifting issuer base, as its “entire model had been built around the idea that the predominant issuers were regulated banking institutions.”
While the Report is critical of the speed with which Ginnie Mae responded to the changes , the Report acknowledges that Ginnie Mae recently has begun to address the shortcoming. For example, the Report notes several programs Ginnie Mae has implemented to increase its oversight efforts of non-depository issuers, including operational and desktop reviews and a Spotlight program that identifies issuers that warrant more intense levels of scrutiny. The Report also notes that, as of July 2017, Ginnie Mae was finalizing and implementing a more robust default strategy that includes plans for default, termination, and master subservicer portfolio seizure and requires master subservicers to submit semiannual plans on how they would absorb a large issuer default.
While these initiatives demonstrate Ginnie Mae’s amendments to its oversight procedures to manage its shifting issuer base, it remains to be seen whether the Report’s conclusions will result in additional funding and staffing to Ginnie Mae to provide additional support for this endeavor.
Yesterday, the CFPB issued two HMDA-related items – a final rule amending federal Regulation B’s information collection provisions and a proposed policy document addressing which HMDA data fields the Bureau intends to make public beginning in 2019.
The Regulation B amendment is intended to facilitate compliance with the new version of Regulation C going into effect on January 1, 2018. The final rule provides creditors with flexibility in complying with Regulation B’s information collection requirements and restrictions for certain dwelling-secured loans. This will allow lenders to use uniform information-gathering practices and consistent forms without running afoul with Regulation B, even when their loan volume or other circumstances exempts them from data collection and reporting under Regulation C. The final rule can be found here.
The policy guidance document sets out how the CFPB proposes to balance the competing goals of making HMDA data available to the public while also protecting loan applicant privacy. The Bureau believes that public disclosure of HMDA data is critical to advancing HMDA’s goals, including the identification of possible lending discrimination. On the other hand, there is a risk that the expanded list of HMDA fields that will be collected next year under amended Regulation C could reveal loan applicants’ identities and other personal information. The CFPB therefore proposes to exclude certain fields from public disclosure and to modify certain others so they are less specific. The proposed guidance can be found here. The Bureau will accept comments on the proposal for 60 following its publication in the Federal Register.
The Consumer Financial Protection Bureau (“CFPB”) has issued its first No-Action Letter (“No-Action Letter” or “Letter”) in response to a request from Upstart Network, Inc. (“Upstart”). The No-Action Letter means that CFPB staff currently has no intention of recommending enforcement or supervisory action against Upstart. This decision is limited to the application of the Equal Credit Opportunity Act (“ECOA”) and its implementing regulation, Regulation B, to Upstart’s automated model for underwriting applicants for unsecured, non-revolving credit (“automated model”).
Upstart is an online lending platform that, working with a bank partner, uses alternative data to facilitate credit and pricing decisions for consumers with limited credit or work history. In addition to relying on traditional credit information, Upstart uses non-traditional sources of information to evaluate a consumer’s creditworthiness. For instance, Upstart might look at an applicant’s educational information, such as school attended and degree obtained, and the applicant’s employment to determine financial capacity and ability to repay. Upstart submitted a Request for No-Action Letter (“Request”) in relation to its automated model to the CFPB pursuant to the agency’s no-action letter policy.
According to the CFPB, the no-action letter policy is intended to facilitate consumer-friendly innovations where regulatory uncertainty may exist for certain emerging products or services. In practice, however, the process has presented significant challenges for companies that might seek to benefit from it. Continue Reading CFPB Issues No-Action Letter to Alternative Credit Lending Platform