As the country grapples with the impacts of the COVID-19 pandemic, financial service providers should hold fast to the adage that those who forget the past are destined to repeat it. The last financial crisis centered in large part on the mortgage industry, both in its inception and its slow climb to stabilization. Like the last crisis, a growing percentage of homeowners are not able to make their mortgage payments, requiring loan servicers to employ various loss mitigation tools to reduce individual’s financial hardships. While the COVID-19 pandemic is impacting nearly all sectors of the economy, the mortgage industry can look back to past experiences to help mitigate present and future risks. If past is prologue, one risk likely to increase in the coming months is class action litigation.Read More
A Summary of Federal and State Statutes, Rules and Orders
The coronavirus (“COVID-19”) pandemic has been and will continue to be a major business disrupter that will have a substantial impact on the consumer financial services industry in the weeks and months to come. Notably, federal, state and local governments and agencies are acting swiftly and changing the rules by which consumer financial services companies are to do business in the short and long term. K&L Gates LLP (“K&L Gates”) has developed a COVID-19 Task Force to closely monitor these developments and is tracking them in several jurisdictions across the firm’s footprint. Below is a summary, current as of March 30, 2020, of key new and proposed statutes, rules, and orders that are likely to impact consumer financial services companies. Keeping track of these almost daily developments to foreclosure, eviction, debt collection, student loans and other business lines, which vary state to state, is critical for consumer financial services companies to respond to their customers. As with previous nationwide crises, how these companies implement and apply these changes will have a substantial impact on post-pandemic compliance, litigation, and risks. K&L Gates has team members assigned to each of the states listed below who are able to help answer your questions and help companies address ongoing issues associated with the pandemic. Please click on a jurisdiction below for more information:Read More
The Massachusetts Supreme Judicial Court (“SJC”) heard argument on February 13, 2020, on whether compliance with a state-mandated default notice could, nevertheless, void foreclosure sales in Massachusetts. Specifically, the SJC examined whether the provision of the state-mandated notice has the potential to deceive a borrower where it describes a period for reinstating a loan that varies (to the benefit of the borrower) from the period contained in the mortgage.Read More
On behalf of the American Bankers Association, Consumer Bankers Association, and Housing Policy Council, K&L Gates Partner Paul F. Hancock and Associate Olivia Kelman crafted a comment that was submitted to the U.S. Department of Housing and Urban Development (“HUD”) on October 18, 2019, addressing the proposed amendments to HUD’s interpretation of the Fair Housing Act’s disparate impact standard. The preamble to the proposed rule states that HUD “proposes to amend” its disparate impact regulation “to better reflect the U.S. Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507 (2015).”  In that decision, the Supreme Court articulated the standards for, and limitations on, disparate impact claims under the Fair Housing Act. The comment explains that the proposed amendments properly reflect binding precedent and provide necessary guidance regarding the application of the law, and supports the amendments in HUD’s Proposed Rule, with some suggested modifications. A copy of the comment is available here.Read More
Extensive data about mortgage lending activity collected pursuant to the Home Mortgage Disclosure Act (“HMDA”) was just made available to the public for the first time on March 29, 2019. More detail about borrowers, about underwriting, and about loan features is now available than ever before, and that information also is easier for the public to access than it ever has been. The mortgage lending industry should expect that the expanded HMDA data will receive significant attention and scrutiny from private organizations and individuals, and the data is certain to spark controversy about the racial, ethnic and gender fairness of mortgage lending.Read More
Members of the K&L Gates Financial Institutions & Services Litigation Group will speak on key topics at the upcoming the MBA’s Legal Issues and Regulatory Compliance Conference in Miami, FL (May 7-10).
Olivia Kelman will review the Home Mortgage Disclosure Act (HMDA) as well as other lending-related requirements of the Fair Housing Act and the Equal Credit Opportunity Act (ECOA) on Sunday afternoon (May 7).
Andrew C. Glass will address major litigation and enforcement trends, including cases heard or pending before the Supreme Court and other federal courts on Monday afternoon (May 8).
Paul F. Hancock will discuss fair lending issues affecting business models and practices, a topic of particular interest with the entrance of a new administration, on Monday afternoon (May 8). Paul also will facilitate a fair lending roundtable discussion later that same afternoon.
In addition, many of our group’s attorneys are attending the conference. We look forward to seeing you all in Miami!
K&L Gates LLP recently presented the views of the major banking and lending trade associations, as amici curiae, in a federal challenge to HUD’s Fair Housing Act disparate-impact rule. The views expressed are those of the American Bankers Association, the American Financial Services Association, the Consumer Bankers Association, the Consumer Mortgage Coalition, the Financial Services Roundtable, the Independent Community Bankers of America®, and the Mortgage Bankers Association. The HUD rule challenge is likely to have a far-reaching effect on the housing industry and affiliated sectors of the economy. The lending industry argued that the HUD rule fails to comply with binding Supreme Court precedent governing disparate-impact claims. Moreover, HUD—which lacks the power to legislate—impermissibly adopted a legal standard that Congress enacted for a different civil rights law. And compounding its error, HUD cherry-picked only the plaintiff-friendly portions of that standard while ignoring substantial limitations Congress had imposed. Amici filed their brief to assist the trial court in understanding the full potential effect of the HUD disparate-impact rule, urging the court to overturn the rule.
To read the full alert, click here.
On May 9, 2014, the Department of Veterans Affairs (“VA”) issued an Interim Final Rule defining which VA-guaranteed loans would be “qualified mortgages” or “QMs” for the purposes of the Truth in Lending Act’s (“TILA”) ability-to-repay requirements. With its recent release of Circular 26-13-3, the VA has now clarified the application of that rule through FAQs focusing largely on Interest Rate Reduction Refinance Loans (“IRRRLs”). These loans are VA streamlined refinances, which generally allow for reduced income verification for eligible veterans’ loans. IRRRLs represent a small sliver of mortgage lending in the United States, but their treatment under VA’s Interim Final Rule has presented significant problems for some lenders.
On December 29, 2015, CFPB Director Richard Cordray responded to MBA President and CEO David Stevens’ desperate plea for clarity to address what the MBA claimed is a significant rejection by large aggregators and investors of correspondent lending channel loans for minor or technical TRID errors. In its December 21, 2015 letter to Director Cordray, Mr. Stevens noted that these minor and technical errors include “issues with the alignment or shading of forms, rounding errors, time stamps with the wrong time zone, or check boxes that are improperly completed on the LE.” The MBA feared that without some clarity from the CFPB disruption and liquidity issues would overwhelm the mortgage markets.
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.