K&L Gates – Page 12 – Consumer Financial Services Watch

GSEs Release Revised Framework for Origination Defects and Remedies — The Proof Will Be in the Execution

Oct 21 2015

By: Laurence E. Platt, Jennifer A. Overall

By recently releasing yet another revised representation and warranty framework, Fannie Mae and Freddie Mac continued their efforts to assuage the concerns of the lending industry that a default by a borrower poses an unfair risk of a loan repurchase demand. On October 7, 2015, Fannie Mae and Freddie Mac (the “GSEs”), at the direction of the Federal Housing Finance Agency (“FHFA”), announced a framework for origination defects and remedies (the “Framework”) that expands on existing frameworks governing the rights and responsibilities of lenders that sell or securitize loans to or with the GSEs. For example, permitting repricing or cure in lieu of the remedy of repurchase represents a concession by the GSEs. Nevertheless, the language of the new Framework is ambiguous enough that one may have to rely on the GSEs’ apparent spirit of good intentions rather than the precision of their language to take total comfort in the changes.

To read the full alert, click here.

HUD Withdraws Proposal to Establish Claim Filing Deadline

Oct 16 2015

By: Krista Cooley, Kathryn Baugher

Servicers of mortgage loans insured by the Federal Housing Administration (“FHA”) can breathe a sigh of relief—at least for now. Today, the U.S. Department of Housing and Urban Development (“HUD”) withdrew part of a recently proposed regulation that would have required FHA-approved servicers to file a claim for FHA insurance benefits within a certain period of time or else face termination of the FHA insurance policy. HUD stated that it withdrew the proposal to establish a claim filing deadline “[i]n response to public comments expressing concern over the implementation of the proposed provisions[.]”

Push Them Back, Shove Them Back, Way Back

Oct 15 2015

By: Laurence E. Platt

From the October 2015 issue of Mortgage Banking magazine, with permission from the Mortgage Bankers Associate (MBA).

Despite the opposition of major consumer and industry groups, the National Conference of Commissioners on Uniform State Laws adopted the proposed Uniform Home Foreclosure Procedures Act in July. There is much to like in the Act, such as limiting local governments from regulating foreclosures, expediting foreclosures for abandoned properties and extinguishing junior liens in short sales. Outweighing these potential benefits, however, are the likely material delays in, and increased costs of, foreclosure resulting from the imposition of “foreclosure resolution” requirements and assignee liability for origination errors. Individual state legislatures must now evaluate whether to enact the Act in whole, in part or not at all, in light of the anticipated active opposition from stakeholders.

To read the article, click here.

CFPB Publishes Major Changes to HDMA

Oct 15 2015

By: Melanie Brody, Christopher Shelton

Today, the Consumer Financial Protection Bureau issued a final rule that makes significant amendments to its Home Mortgage Disclosure Act (“HMDA”) regulations. The final rule is available here.

At 797 double-spaced pages, the final rule is almost half the length of the TILA-RESPA Integrated Disclosure rule, which came into effect earlier this month. Institutions will have to devote significant attention to digesting and implementing all the new HMDA requirements. The new requirements come into effect in three phases, starting in January 2018, January 2019, and January 2020.

K&L Gates will be circulating a client alert shortly, followed by a webinar, to help institutions navigate this complex final rule.

The CFPB on MSAs: Consider Yourself Warned

Oct 09 2015

By: Holly Spencer Bunting, Phillip L. Schulman

Settlement service providers have been begging the Consumer Financial Protection Bureau (“CFPB”) for regulatory guidance regarding marketing services agreements (“MSAs”) under Section 8 of the Real Estate Settlement Procedures Act (“RESPA”). Yesterday, they got it − sort of. After months of the industry deciphering enforcement actions in an attempt to gauge whether the CFPB believes MSAs between settlement service providers are legal under RESPA, the CFPB issued Compliance Bulletin 2015-05 (“Bulletin”) regarding “RESPA Compliance and Marketing Services Agreements.” But, the Bulletin neither answers the legality question nor provides clear guidelines on what can and cannot be done in an MSA. Rather, the Bulletin, as stated by the CFPB, “describe[s] the substantial risks posed by entering into [MSAs].” It is safe to say this is not the kind of guidance the industry was looking for.

CFPB and DOJ Continue to Pursue Indirect Auto and Redlining Claims

Oct 08 2015

By: Melanie Brody, Christa Bieker

The Department of Justice (“DOJ” or the “Department”) and the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) are increasingly pursuing lenders suspected of discriminatory lending practices. Last week, the DOJ and the CFPB announced two settlements with lenders resolving alleged violations of the Equal Credit Opportunity Act (“ECOA”) and the Fair Housing Act. These announcements come only days after the DOJ and the CFPB announced a consent order with Hudson City Savings Bank resolving allegations of racial redlining.

On September 28, the CFPB and the DOJ announced a consent order with Cincinnati-based Fifth Third Bank (“Fifth Third”) resolving allegations that Fifth Third’s indirect auto-lending pricing policies discriminated against African American and Hispanic borrowers. Although the CFPB does not have oversight over car dealers, the Bureau is able to investigate the auto loans that lenders like Fifth Third make through dealers. Coordinated investigations into Fifth Third’s indirect auto-lending business led the Bureau and the Department to conclude that African American and Hispanic borrowers paid approximately 35 or 36 basis points more, respectively, in dealer markups than similarly situated non-Hispanic white borrowers, which resulted in African American and Hispanic borrowers paying an average of $200 more for their car loans.

The CFPB Gives Student Loan Servicers Bad Grades in New Report (Card)

Oct 06 2015

By: Steve Kaplan, Elyse Schoenfeld*, and Tori Shinohara
*Ms. Schoenfeld is not admitted in D.C. She is supervised by Melanie Brody, a member of the D.C. Bar.

On September 29, 2015, the CFPB issued a 151-page report that details perceived problems with student loan servicing practices and provides insight into the CFPB’s agenda for changes to the student loan industry. The report signifies increased efforts by the CFPB to address issues in student loan servicing and suggests that servicers will be subject to increased scrutiny in the future.

The report details comments the CFPB received in response to its May 2015 public inquiry seeking input on and recommendations for improving student loan servicing practices. The CFPB received more than 30,000 public comments from individual consumers, state attorneys general and banking regulators, trade associations, and other organizations. The report highlights comments on a host of problems borrowers are facing, including lost paperwork and payment processing errors, difficulties in correcting servicing errors, and issues accessing affordable repayment options or alternatives to avoid default. Commenters also responded to queries regarding the similarity of the problems facing the student loan servicing industry to issues in the mortgage market after the financial crisis, and suggested that the reforms made to mortgage practices could inform future changes to student loan servicing.

Key Takeaways From the CFPB’s and DOJ’s Redlining Settlement With Hudson City Savings Bank

Sep 25 2015

By: Melanie Brody, Anjali Garg

On Thursday, September 24, 2015, the CFPB and DOJ filed a complaint and proposed consent order against Hudson City Savings Bank (“Hudson City”) alleging violations of the Equal Credit Opportunity Act and Fair Housing Act. The complaint alleges that Hudson City discriminated against Black and Hispanic borrowers by redlining majority-Black-and-Hispanic neighborhoods (defined in the consent order as a census tract in which more than 50 percent of the residents are identified in the 2010 U.S. Census as either “Black or African American” or “Hispanic or Latino”) in its residential mortgage lending in New York, New Jersey, and Pennsylvania. The complaint alleges that Hudson City engaged in redlining through its (1) location of branches and loan officers, (2) exclusion of Black and Hispanic census tracts from its Community Reinvestment Act (“CRA”) assessment area, (3) use of brokers outside of majority Black and Hispanic neighborhoods, (4) marketing directed at neighborhoods with relatively few minority residents, and (5) exclusion of residents from majority-minority counties from discounted home improvement loans for borrowers with low to moderate incomes.

You Had Me at “Hello” Letter: Second Circuit Concludes That a RESPA Transfer-of-Servicing Letter Can Be a Communication in Connection with Collection of Debt

Sep 22 2015

By: Brian M. Forbes, Gregory N. Blase, Roger L. Smerage, Edward J. Mikolinski

Sometimes it is just not that easy to say “hello.” A recent decision from the United States Court of Appeals for the Second Circuit highlights the uncertainty mortgage servicers face with respect to Fair Debt Collection Practices Act (“FDCPA”) compliance when notifying borrowers of changes in loan servicing rights, as required by the Real Estate Settlement Procedures Act (“RESPA”). Often the first communication from a new servicer to a borrower is a RESPA transfer-of-servicing letter—sometimes referred to as a “hello” letter. Under the FDCPA, however, a debt collector—which can include a mortgage servicer when the loan serviced was in default at the time servicing rights were acquired—must provide a debt-validation notice within five days of the “initial communication with a consumer in connection with the collection of [a] debt.” See 15 U.S.C. § 1692g(a). Given the multiple regulatory obligations applicable to communications with borrowers, it is no surprise that litigation often ensues (often in the form of class action litigation for statutory damages), and courts struggle to make sense of the various (and sometimes competing) obligations imposed by the FDCPA and RESPA.

In Win for CFPB, Federal Court Clarifies Scope of “Substantial Assistance” and “Service Provider” Provisions of Dodd-Frank Act

Sep 08 2015

In the first court decision to opine on the “service provider” and “substantial assistance” provisions of the Dodd-Frank Act, a federal district court in Georgia denied a motion to dismiss brought by payments processors who had been sued by the Consumer Financial Protection Bureau (“CFPB”) for their role in an alleged phantom debt collection scheme. The decision addresses two novel areas of the CFPB’s jurisdiction – its ability to enforce the prohibition against unfair, deceptive, and abusive acts and practices (“UDAAPs”) against “service providers,” and its ability to go after those individuals and entities that “knowingly or recklessly provide substantial assistance” to the commission of a UDAAP. While grounded in the specific facts pled in the CFPB’s detailed complaint, the opinion nevertheless provides insight into how the federal courts may interpret these provisions, and serves as a warning sign to companies about the importance of implementing robust compliance programs.

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