The Securities and Exchange Commission (SEC) has published a concept release inviting public comment on potential reforms to disclosure requirements for residential mortgage-backed securities (RMBS) in the registered asset-backed securities (ABS) market. The initiative aims to address longstanding concerns that current rules, particularly those under Item 1125 of Regulation AB, have stifled public issuance of private-label RMBS by imposing overly burdensome asset-level data requirements (including providing protected private information) as well as whether the public disclosure framework of Regulation AB prevents dissemination of important borrower-level information to investors. The SEC is also considering whether to harmonize the definition of “asset-backed security” in Regulation AB with the broader Securities Exchange Act of 1934 (Exchange Act) definition.

For more, check out this Mayer Brown client alert, authored by James J. Antonopoulos, Amanda L. Baker, Julie A. Gillespie, Haukur Gudmundsson, Paul A. Jorissen, Brian L. Kuhl, Michelle M. Stasny, Angela M. Ulum, and Tameem A. Zainulbhai

Illinois continues to move forward in regulating “shared appreciation agreements.” On August 15, 2025, the Illinois Department of Financial and Professional Regulation proposed regulations implementing the Residential Mortgage License Act of 1987 to govern “shared appreciation agreements.” The term “shared appreciation agreements” is generally interpreted to include products commonly known as home equity contracts,” “home equity investments,” or “home equity agreements. The proposed regulations provide originators of these products with a roadmap for compliance with the Residential Mortgage License Act. Please read our Legal Update for a full discussion these proposed regulations.

While federal regulatory agencies retreat from enforcing disparate impact discrimination, at least one state agency has stepped forward. Massachusetts Attorney General Andrea Joy Campbell announced on July 10, 2025 a settlement with a student loan company, resolving allegations that the company’s artificial intelligence (“AI”) underwriting models resulted in unlawful disparate impact based on race and immigration status.

The disparate impact theory of discrimination in the lending context has been controversial. It has been 10 years since the Supreme Court held in Inclusive Communities that disparate impact is available under the Fair Housing Act if a plaintiff points to a policy or policies of the defendant that caused the disparity. In the fair lending context, then, disparate impact applies to mortgage loans. However, for other types of consumer credit – like auto loans or student loans – a plaintiff or government enforcer claiming discrimination would need to rely on the Equal Credit Opportunity Act (“ECOA”). While ECOA prohibits discrimination against an applicant with respect to any aspect of a credit transaction, there has been much debate over whether it applies to discrimination in the form of disparate impact. The federal government for years relied heavily on ECOA to bring credit discrimination actions. The Biden Administration pursued a vigorous redlining initiative against mortgage lenders. The government used the vast amount of data obtained under the Home Mortgage Disclosure Act (“HMDA”) and compared the activities of various lenders within a geographic area to determine whether a lender was significantly lagging its peers in making loans to certain protected groups. The government then looked to the lender’s branch locations, advertising strategies, the racial/ethnic make-up of its loan officers, and other factors to assert that the lender had discouraged loan applicants from protected classes. Through that redlining initiative, the government settled dozens of cases, resulting in well over $100 million in payments.

HMDA data provides extensive, if imperfect, demographic data on mortgage lending activities and has been key to building claims of lending discrimination, particularly disparate impact. However, that level of data is not generally available for other types of lending, like student loans. Without such data, the Office of the Massachusetts Attorney General (“OAG”) in this case reviewed the lender’s algorithmic rules, its use of judgmental discretion in the loan approval process, and internal communications, which the Attorney General described as exhibiting bias.

Disparate Impact Based on Race, National Origin

In that review, the OAG looked back to the scoring model the lender used prior to 2017, which relied in part on a Cohort Default Rate – the average rate of loan defaults associated with specific higher education institutions. The OAG asserted that use of that factor in its underwriting model resulted in disparate impact in approval rates and loan terms, disfavoring Black and Hispanic applicants in violation of ECOA and the state’s prohibition against unfair or deceptive acts or practices (“UDAP”). The public settlement order did not provide the level of statistical disparities. In addition, until 2023, the OAG asserted that the lender also included immigration status in its algorithm, knocking out applicants who lacked a green card. That factor “created a risk of a disparate outcome against applicants on the basis of national origin,” and as such violated ECOA and UDAP according to the OAG. The settlement order prohibits the lender from using the Cohort Default Rate or the knock-out rule for applicants without a green card (although it appears the lender had discontinued those considerations years ago).

Continue Reading Massachusetts AG Settles Fair Lending Action Based Upon AI Underwriting Model

On June 30, California Governor Newsom signed Assembly Bill No. 130 (“AB130” or the “Bill”). Effective immediately, the Bill added a new section to the California Civil Code to codify that certain actions constitute unlawful practices when taken by a “mortgage servicer” in connection with a subordinate mortgage. The Bill also adds a number of certification and disclosure requirements that mortgage servicers must adhere to in connection with nonjudicial foreclosures of subordinate mortgage loans.  

At the outset, it is important to note that the Bill defines the term “mortgage servicer” broadly to include the current mortgage servicer and any prior mortgage servicers. Thus, the Bills’ requirements—including certifications that a mortgage servicer is required to record in connection with certain foreclosures—cover the activities of both the current servicer of a subordinate mortgage and any prior servicer of that mortgage.

Unlawful Practices for Subordinate Mortgages

Under the newly created Section 2924.13, a “subordinate mortgage” is defined to include a security instrument in residential real property that was, at the time it was recorded, subordinate to another security interest encumbering the same residential real property. The new section does not distinguish between loans for a consumer or business purpose. Pursuant to the new section, the following conduct constitutes an unlawful practice in connection with a subordinate mortgage:

Continue Reading California Enacts Servicing Requirements for Subordinate Residential Mortgages

In a social media post on Wednesday, June 25, 2025, Federal Housing Finance Agency (FHFA) Director William Pulte ordered Fannie Mae and Freddie Mac to develop guidelines for considering cryptocurrency holdings as assets in mortgage originations. The FHFA oversees Fannie Mae and Freddie Mac, which purchase and securitize a significant portion of the nation’s mortgage loans. This directive means that, for the first time, borrowers may be able to use their crypto investments to strengthen their financial profiles when applying for home loans. Director Pulte said this move was part of President Trump’s larger vision of making the U.S. the “crypto capital of the world.”

The proposal represents a significant step in the possible integration of digital assets into qualifications for homeownership. When mortgage lenders assess the financial stability of a mortgage applicant and his or her ability to repay the loan, lenders are required to consider the amount the borrower maintains in liquid assets/reserves available to the borrower after the loan closes. Current Fannie Mae and Freddie Mac mortgage underwriting guidelines view acceptable sources of reserves to include readily available liquid funds in checking and savings accounts, investments in stocks, bonds, mutual funds, certificates of deposit, money market funds, and trust accounts, the amount vested in a retirement savings account, and the cash value of a vested life insurance policy. Funds or stock options that have not vested or cannot be withdrawn except in narrow circumstances and the proceeds of personal unsecured loans are not acceptable assets under the mortgage origination guidelines. The Director’s order acknowledges that only the U.S. dollars received from redemption of cryptocurrency would be acceptable assets as reserves today.

Fannie Mae and Freddie Mac must now develop a plan to consider cryptocurrency without liquidation as an asset for reserves in connection with single-family mortgage loans. According to Director Pulte, that plan must include risk mitigants based on Fannie Mae’s and Freddie Mac’s assessment of the risks related to the non-liquid asset, such as adjustments for market volatility and capping the percentage of a borrower’s assets that may be comprised by cryptocurrency. Any crypto assets considered also must be evidenced and stored on a U.S. regulated centralized exchange and be subject to applicable laws. Fannie Mae and Freddie Mac might consider other issues related to cryptocurrencies, which could include the uncertain and evolving regulatory landscape for cryptocurrencies, the complexities of verifying the value and ownership of digital assets, the risk of crypto platform failures, and the potential increase in fees associated with the purchase of loans relying on cryptocurrency assets as part of their assessments of the feasibility and risk tolerance of counting cryptocurrency as an asset reserve. As Fannie Mae and Freddie Mac move forward with their assessments of risk and proposals, the effectiveness and impact of Director Pulte’s order may depend on how well a balance can be maintained between flexibility and risk management. This approach will be crucial to ensuring that the inclusion of cryptocurrency as an asset in mortgage origination guidelines supports sustainable homeownership while safeguarding the broader financial system.*

*Mr. Wright is not admitted in the District of Columbia. He is practicing under the supervision of firm principals.

On June 24, 2025, the Department of Housing and Urban Development (“HUD”) published a Request for Information (“RFI”) to better understand how increasing consumer use of Buy Now Pay Later (“BNPL”) products impacts housing affordability and stability in connection with the residential loan programs insured by the Federal Housing Administration (“FHA”). BNPL products, which allow consumers to purchase goods and services and repay over time (typically, though not always, through four or fewer deferred installments payable over six to eight weeks with no periodic interest or other finance charges), have continued to gain popularity over the past decade. To date, however, HUD has not incorporated consideration of BNPL products into underwriting guidelines for FHA-insured mortgage loans. With the RFI, HUD is seeking more information on whether it should develop policies to address potential ability-to-repay risks from these relatively new products.

Background on BNPL

While retail financing has a long history in the U.S., the concept of BNPL as a distinct class of product largely stems from the introduction of a “pay-in-4” product into the U.S. around 2018. This core element of the BNPL market involves the origination of unsecured, interest-free short-term installment loans to pay for relatively small-dollar retail purchases. Payments are usually due in four or fewer equal installments, with the first payment often due as a down payment at the time of sale. Subsequent payments are typically due every two weeks. Consumers enter into BNPL loans frequently through apps or purchase-and-origination flows managed by fintech BNPL providers. BNPL lenders may approve or deny a loan based on their own individual underwriting criteria, which may include reliance on a consumer report (often pulled as a soft pull to prequalify a consumer for a potential range of terms) and/or the consumer’s repayment history with the BNPL lender. BNPL lenders generally do not report repayment history or default to the consumer reporting agencies, although: (i) some lenders offer consumers the option to report positive repayment histories, and (ii) credit bureaus are planning to incorporate BNPL payments into credit scores and craft new categories to better match typical BNPL structures (as compared to reporting formats currently relevant for installment loans with monthly payments or traditional credit cards), each of which may increase adoption of BNPL credit reporting over time.

Continue Reading HUD Requests Information on Buy Now Pay Later

On June 12, 2025, Judge Valderrama of the federal district court for the Northern District of Illinois denied the joint motion to vacate the stipulated final judgment reached between the Consumer Financial Protection Bureau (“CFPB”) and Townstone Financial, Inc., in an action alleging violations of the Equal Credit Opportunity Act (“ECOA”).

As explained in Mayer Brown’s Consumer Financial Services Review blog, the CFPB sought to vacate the settlement, in which Townstone agreed to pay a small penalty and take certain actions to resolve a years-long battle related to alleged discouragement of potential mortgage applicants on a prohibited basis. The settlement was entered in November 2024. However, the CFPB’s new leadership asserted that although the lawsuit was launched during President Trump’s first administration, it did so without substantial evidence of discrimination and based on the expressed political views of the mortgage company’s principal. The CFPB’s motion to vacate claims that CFPB lawyers at the time misled their superiors, leading them to pursue the litigation based on incomplete or inaccurate information.

Interestingly, Judge Valderrama wrote the opinion that initially dismissed the CFPB’s case against Townstone in 2023, holding that ECOA does not apply to prospective applicants for credit. However, the Court of Appeals for the Seventh Circuit reversed that decision and remanded the case to the district court, after which the parties reached their settlement.

In denying the parties’ joint motion to vacate that settlement, Judge Valderrama now states that more is at stake than the parties’ current alignment. The court must now also consider that the parties were not engaged in a private dispute – rather, the mortgage company’s alleged wrongdoing affected the public. In addition, the judge wrote that the court must consider the public interest in the finality of judgments.

The court considered the claims regarding deficiencies in the initial agency decision to bring the case, and the counter-arguments of the 14 nonprofit organizations that filed an amicus brief opposing the motion to vacate. Referring to the agency’s present assertion that its case lacked merit, the court called it “an act of legal hara-kiri that would make a samurai blush.” The court stated that it would be unprecedented under these circumstances to vacate a settlement voluntarily entered into by the parties, and it declined to take that step.

Recent news reports have indicated that several financial institutions have sought to take advantage of the current administration’s apparent willingness to reverse the actions of the prior administration. While one could argue that courts should grant motions filed by both parties, the Northern District of Illinois held that doing so in this case would open a Pandora’s box.

Maryland’s secondary mortgage market has been in turmoil since a disruptive 2024 court decision held that a purchaser of mortgage loans inherits the original lender’s obligations—including the obligation to obtain a Maryland Mortgage Lender license. Secondary market investors that acquire residential mortgage loans through a passive trust can breathe a sigh of relief now that Maryland has enacted its legislative fix to address the court decision and related guidance by the Maryland Office of Financial Regulation. Please read our Legal Update on the latest developments in Maryland.

Although the Fifth Circuit Court of Appeals vacated the Federal Trade Commission’s (“FTC”) Combating Auto Retail Scams Trade Regulation Rule (“CARS Rule”) on January 27, 2025, the FTC and state attorneys general continue to target the auto sales and lending industries through enforcement actions and legislation. Among those efforts, the California legislature is considering its own CARS Act. Read about these efforts in Mayer Brown’s Legal Update.

Consistent with expectations for lighter regulation under the Trump administration, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) indicated in a March 26, 2025 court filing that it intends to revoke an Interpretative Rule it issued in May 2024 that would regulate certain Buy Now, Pay Later (“BNPL”) products as credit cards for the purposes of the federal Truth in Lending Act (“TILA”).

As discussed in an earlier Mayer Brown blog post, the Bureau previously issued an Interpretative Rule clarifying that lenders who issue “digital user accounts” that allow consumers to access credit for retail purchases are considered “card issuers” who must comply with additional disclosure and substantive requirements under TILA and its implementing regulation, Regulation Z. Prior to the issuance of the CFPB’s Interpretive Rule, providers of what has become the “core” BNPL product in the US—a closed-end loan that does not bear a finance charge and is repayable in not more than four installments—generally took the position that their activities did not trigger Regulation Z compliance obligations. The Interpretive Rule, however, explained that certain Regulation Z requirements nevertheless apply where a credit card is involved, and characterized “digital user accounts” as credit cards.  The Interpretive Rule followed over three years of market research on the BNPL industry during which the CFPB determined that consumers often used BNPL as a substitute for conventional credit cards, and represented an attempt to close what it characterized as a regulatory loophole, notwithstanding various ways in which typical BNPL accounts differ materially from credit cards in the way in which consumers access credit.

Continue Reading CFPB Indicates That It Will Rescind Buy Now, Pay Later Interpretative Rule