Archive: June 2012

1
Supreme Court’s No Decision is a Decision in First American v. Edwards
2
The Massachusetts Supreme Judicial Court Issues Its Long-Anticipated Eaton Decision
3
Court Upholds Labor Department Interpretation That Mortgage Loan Officers Are Not Exempt From Overtime
4
Proposed Basel III Capital Rules for Mortgage Loans Would Further Push Mortgage Market to Homogeneous Products
5
It Takes Two to Tango: The Supreme Court Rejects Unilateral Liability under Section 8(b) of RESPA
6
Defining Prudent Underwriting: An International Struggle
7
Preemption Decision is Great News for National Banks and Federal Savings Associations
8
DOJ Doubles Down on Disparate Impact, Settles Discriminatory Pricing Case with SunTrust Mortgage
9
Consumer Financial Protection Bureau Requests Comment on Extending Regulation E to Cover GPR Cards
10
CFPB Proposes Method for Extending Supervisory Power to “Risky” Nonbanks

Supreme Court’s No Decision is a Decision in First American v. Edwards

By: Phillip L. Schulman, Emily J. Booth

Must a consumer suffer actual harm to sue the settlement service providers involved in his or her real estate mortgage transaction for engaging in activities that violate the Real Estate Settlement Procedures Act (RESPA), or is the mere allegation of a statutory violation sufficient to get the consumer into court? The U.S. Supreme Court’s decision in First American v. Edwards not to consider the standing issue under RESPA leaves the settlement service industry at the mercy of the lower courts and effectively invites private plaintiffs to sue settlement service providers under RESPA whenever a statutory violation is suspected regardless of whether any harm has resulted. Read More

The Massachusetts Supreme Judicial Court Issues Its Long-Anticipated Eaton Decision

By: Phoebe S. Winder

In a long-anticipated decision, the Massachusetts Supreme Judicial Court (“SJC”) ruled in Eaton v. Federal National Mortgage Ass’n, 2012 WL 2349008 (June 22, 2012) (“Eaton”) that when conducting a non-judicial foreclosure in Massachusetts, a foreclosing entity must not only hold the mortgage – it also must hold the note or be authorized to act on behalf of the note holder. But if the goal of consumer advocates was to void a large volume of foreclosures, then they failed in that goal, and Eaton should be seen as a victory for those who have foreclosed, or who are seeking to foreclose, on mortgage loans in Massachusetts. Read More

Court Upholds Labor Department Interpretation That Mortgage Loan Officers Are Not Exempt From Overtime

By: Thomas H. Petrides, John L. Longstreth

A federal district judge in Washington, D.C. has upheld an “Administrator’s Interpretation” issued in 2010 by the U.S. Department of Labor (“DOL”) that loan officers in the mortgage banking industry typically do not qualify as exempt employees under the administrative exemption of the federal Fair Labor Standards Act (“FLSA”). The Mortgage Bankers Association (“MBA”) had challenged the March 24, 2010 Administrator’s Interpretation (“Interpretation”) issued by the Acting Administrator of DOL’s Wage and Hour Division because the Interpretation had reversed and rescinded a contrary DOL Opinion Letter issued in 2006 that had concluded mortgage loan officers were generally exempt under the administrative exemption. However, Judge Reggie B. Walton ruled on June 6, 2012 that the 2010 Interpretation was not inconsistent with the FLSA regulations and was not arbitrary, capricious, or otherwise unlawful. [1] The court thus let stand the DOL’s Interpretation that employees performing the typical duties of a mortgage loan officer do not qualify for the administrative exemption and are therefore entitled to receive minimum wages and overtime compensation under the protections of the FLSA. [2] The MBA has the right to appeal this decision to the D.C. Circuit.

To view the complete alert online, click here.

Proposed Basel III Capital Rules for Mortgage Loans Would Further Push Mortgage Market to Homogeneous Products

By: Laurence E. Platt, Stanley V. Ragalevsky, Sean P. Mahoney

Banks that are concerned about potential fair lending claims if they refuse to make residential mortgage loans that are not “qualified mortgages” or “qualified residential mortgage loans” should be equally concerned about the new proposed bank capital rules. On June 7, 2012, the Federal Reserve approved for publication three sets of proposed regulations to revise the risk based capital rules for banks to make them consistent with the new international capital standard, generally known as Basel III, and certain requirements of the Dodd-Frank Act. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation followed suit on June 12, 2012. Conventional residential mortgage loans with loan-to-value ratios in excess of 80%, regardless of the presence of private mortgage insurance, could trigger material adverse capital requirements if the loans are held for investment and do not comply with certain regulatory underwriting criteria. Such loans could present the legal risk of loss under the “ability to repay” rules, the credit risk of loss under the “risk retention” rules and now increased capital charges under the implementation of Basel III.

To view the complete alert online, click here.

It Takes Two to Tango: The Supreme Court Rejects Unilateral Liability under Section 8(b) of RESPA

By: Phillip L. Schulman, Andrew C. Glass, Holly Spencer Bunting, Roger L. Smerage

The United States Supreme Court has unanimously ruled that a real estate settlement service provider does not violate Section 8(b) [1] of the Real Estate Settlement Procedures Act (“RESPA”) where it keeps for itself an allegedly “unearned fee.” Instead, a provider violates Section 8(b) when it divides a fee with another entity which did not provide services in connection with the fee. The Court’s decision, Freeman v. Quicken Loans, Inc., [2] resolves a decade-old split among the lower federal appellate courts. Moreover, the decision makes clear that policy statements promulgated by the U.S. Department of Housing and Urban Development (“HUD”), applying Section 8(b) to a broad range of conduct, are not entitled to deference given their conflict with the unambiguous language of the statute itself. Nevertheless, the Court’s holding is limited to assessing unearned fees in light of RESPA, and settlement service providers should be aware that charging such fees may run afoul of other laws and enforcement mechanisms.

To view the complete alert online, click here.

Defining Prudent Underwriting: An International Struggle

By: Laurence E. Platt, Kristie D. Kully, Andrew L. Caplan

In an attempt to insulate credit markets from the high-risk residential mortgage lending activities that threatened the global financial system in 2008, regulators both in the United States and elsewhere are seeking to impose stricter residential mortgage underwriting standards. Specifically, the U.S. Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act[1] (“Dodd-Frank”) in part to create “Grade-A” designations for residential mortgage loans that meet stringent underwriting requirements and other criteria. Those loans may enjoy a presumption of compliance with certain federal laws, and some may also be exempt from economic risk retention requirements that will apply to other loans.

To view the complete alert online, click here.   

 

Preemption Decision is Great News for National Banks and Federal Savings Associations

By: David L. Beam

Last Thursday, the California Supreme Court handed down what arguably is the most important decision on federal preemption for national banks since the Dodd-Frank Act was passed in mid-2010. The specific issue in Parks v. MBNA America Bank, N.A., 2012 Cal. LEXIS 5795 (Cal. June 21, 2012), was whether California could require national banks to place certain disclosures on credit card “convenience checks.” MBNA, the defendant, argued that the California law was preempted for national banks by the National Bank Act. The state court of appeals had disagreed. Read More

DOJ Doubles Down on Disparate Impact, Settles Discriminatory Pricing Case with SunTrust Mortgage

By: Melanie Hibbs BrodyDavid G. McDonough, Jr.

The Department of Justice recently announced a $21 million settlement with SunTrust Mortgage over allegations that SunTrust’s neutral and non-discriminatory policy of granting loan originators discretionary pricing authority somehow resulted in loans to minority borrowers to be priced higher than loans to White borrowers. DOJ based its case on the disparate impact theory of discrimination; as such, the Department did not allege that SunTrust treated minority borrowers in a disparate or discriminatory manner. Instead, the case follows DOJ’s practice of filing fair lending cases solely on statistical analyses of loan data and without alleging that any person treated a borrower differently because of race or ethnicity. Read More

Consumer Financial Protection Bureau Requests Comment on Extending Regulation E to Cover GPR Cards

By: David L. Beam, Steven M. KaplanKathryn M. Baugher

Last week, the Consumer Financial Protection Bureau released an Advance Notice of Proposed Rulemaking (ANPR) on the subject of general purpose reloadable (GPR) cards. In the ANPR, the Bureau announced that it plans to issue a proposal to extend Regulation E to cover GPR cards. The ANPR poses a series of questions and gives the public an opportunity to submit comments. Comments must be received by July 23, 2012.

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CFPB Proposes Method for Extending Supervisory Power to “Risky” Nonbanks

By: Eric Mitzenmacher

The Dodd-Frank Act empowers the CFPB to supervise three classes of nonbank covered persons: (1) participants in certain enumerated consumer financial markets including consumer mortgages, private education loans, and payday loans; (2) larger participants in other consumer financial markets, as further defined by CFPB rulemaking; and (3) other nonbanks engaging in “conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.”

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