Author - nkolen

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issued by the Acting Administrator of DOL’s Wage and Hour Division because the Interpretation had reversed and rescinded a contrary DOL Opinion Letter issued in 2006 that had concluded mortgage loan officers were generally exempt under the administrative exemption.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.

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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.

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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.

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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.

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