Special Feature: Report on the AARMR 23rd Annual Regulatory Conference

CFPB Mortgage Licensing Nonbank Supervision Mortgage Origination NMLS CSBS

The American Association of Residential Mortgage Regulators (AARMR) held its 23rd Annual Regulatory Conference in Boston, Massachusetts from August 14-17, 2012.  AARMR is the trade association of state mortgage regulators that coordinates state-level regulation of the mortgage industry and, in partnership with the Conference of State Bank Supervisors (CSBS), created the National Mortgage Licensing System & Registry (NMLS).

The Conference brought together state and federal mortgage regulators, industry professionals, compliance companies, legal professionals, and education providers to discuss the latest developments in mortgage supervision and pressing issues confronting the industry, most notably developments regarding: (i) the SAFE Act and entity level licensing through the NMLS and (ii) the examination, enforcement and rulemaking initiatives of the Consumer Financial Protection Bureau (CFPB).

On August 14, recently appointed NMLS Ombudsman Timothy Siwy, Deputy Secretary for Non-Depository Institutions, Pennsylvania Department of Banking, presided over his first bi-annual NMLS Ombudsman Meeting, which allows NMLS users an opportunity to raise concerns and questions regarding the NMLS.  Specifically, the session addressed the following topics, among others:

• Continued discussion of the states potentially issuing (1) “reciprocal licenses” for mortgage loan originators (MLOs) based on similar state education and testing standards, or (2) a 90- to 120-day “transitional license” for MLOs needing additional time to complete a state’s specific MLO requirements;
• “Inactive licenses” for federally registered MLOs, which would allow MLOs not currently employed by a state-licensed entity to obtain and maintain an “Approved-Inactive” status in the NMLS if the MLO otherwise satisfies the state’s MLO licensing requirements;
• The Uniform State Test for MLOs, which is expected to launch in Spring 2013;
• Alleviating “home state” licensure for MLOs, which is where a state requires the MLO to secure a license not because the MLO makes loans to borrowers in the state or secured by property in the state, but rather because the MLOs office is located in the home state;
• Issues facing exempt companies, such as insurance companies, that may be required to obtain entity level approval via NMLS because of certain non-lending activities performed by its employees, e.g., underwriting activities;
• States compelling submission of information from depository institutions to authorize state exemptions via the NMLS when such depository institutions may otherwise be exempt from a state’s mortgage lending law;
• The April 2012 NMLS amendments, including a request for uniformity among states regarding recently-implemented requirements to upload documentation to the NMLS; and
• Suggestions on how to improve the user interface of the NMLS.

Subsequent panel discussions provided more detailed information on several of these topics, and also examined related NMLS issues.

Details regarding the specific issues submitted for comment, as well as accompanying exhibits and an audio recording, will be made available on the NMLS Ombudsman website.

The Conference included several CFPB focused panels, which included presentations from high ranking CFPB officials.

First, on August 15, Edwin Chow, Regional Director, CFPB, West Region, discussed the CFPB’s supervision process for both banks and non-bank lenders with a focus on the recently launched non-bank exams.  Mr. Chow stated that the general intention of a CFPB examination is to evaluate a company’s ability to manage its compliance.  An entity’s ability to manage its compliance is assessed through the CFPB’s examination approach, which at a macro level includes:

• The CFPB initiating the first point of contact through a preliminary meeting by phone or in-person with the entity;
• Prior to an examination, issuing a letter to the entity requesting information to facilitate fast and efficient review of the entity;
• Throughout the process, coordinating with state regulators of the entity; and
• Following the examination, performing an “exit interview” prior to any finalized action to discuss tentative findings and conclusions and to address how issues may be corrected.

Regardless of the region in which the examination is being conducted, Mr. Chow indicated that the CFPB will strive for uniformity and consistency in its examination approach.

Also, on August 16, Steven Antonakes, Associate Director for Supervision, Enforcement, and Fair Lending, CFPB, and David Bleicken, Acting Deputy Associate Director for Supervision, Enforcement, and Fair Lending, CFPB, provided an update on the CFPB’s Supervision, Enforcement, and Fair Lending division and provided an overview of the CFPB’s enforcement approach.  Specifically, the officials indicated that during examinations the CFPB will:

• Focus on harm to consumers, as it weighs heavily into whether the CFPB takes a “punitive” or “instructive” approach in a particular examination, (e.g., the CFPB may consider on a case-by-case basis whether consumer reimbursements are appropriate when there was no actual harm to a particular consumer);
• Continue its efforts to maintain any relevant attorney-client privilege for information disclosed by entities.  Following the issuance of its January bulletin and June 28 final rule, the CFPB has asserted that a party may submit information to the CFPB in the supervisory or regulatory process without waiving any applicable privileges;
• Utilize a product-based, rather than institution-based, focus; and
• Utilize real-time information sharing.

While the CFPB touched on the process for making decisions about what constitutes an “abusive” practice under the CFPB’s unfair, deceptive, or abusive acts or practices (UDAAP) authority, the officials declined to comment regarding mortgage-specific practices that the CFPB would generally deem to be “abusive.”

The CFPB expects to issue the first summary of its examination findings this fall.

Finally, during a separate panel on August 16, Peter Carroll, Assistant Director of Mortgage Markets, CFPB provided an overview of the CFPB’s widely-reported rulemakings on the combined TILA/RESPA disclosure form, HOEPA, appraisals, ability to repay and qualified mortgages, mortgage servicing guidelines, and MLO compensation and qualification.  Mr. Carroll indicated that next year the CFPB plans to focus on HMDA reporting and reverse mortgages.

In addition to the above, the Conference covered other various federal and state regulatory issues, including the following:

• In the panel “Mortgage Fraud and Other Trends Affecting Housing Finance Federal Housing Finance Agency (FHFA) Office of Inspector General,” representatives of the FHFA-OIG provided an overview of its ongoing audits of mortgage fraud;
• “Mortgage Loan Servicing: Aftermath of National Servicer Settlement/Updates & Lessons” provided an overview of the widely-reported mortgage servicing settlement announced earlier this year.  Notably, Joseph Smith, Monitor of the Office of Mortgage Settlement Oversight, provided several comments regarding the settlement and fair lending concerns.  Specifically, while some have expressed a concern regarding the application of principal reductions for protected classes, the Monitor noted that violations of state fair lending laws were specifically reserved in the settlement, and the Monitor takes the position that the consumer relief provisions do not authorize him to assess whether principal reductions are being equally applied with respect to protected classes;
• In the panel “Multistate Mortgage Committee Overview of Examination Procedures: Risk Scoping to Post-Exam Enforcement,” the Multistate Mortgage Committee (MMC), which coordinates examination and supervision of mortgage lenders, servicers and brokers operating in more than one state, gave an overview of its activities that (i) emphasized a risk-based approach to examinations, and (ii) outlined an examinations process that strives for uniformity, modernization, and effectiveness;
• “A Look at Foreclosure Prevention, Loan Modification Scams and the Role of the Regulators” provided an overview of loan modification and foreclosure-related concerns,  including issues affecting low-income borrowers and protected classes; and
• “FinCEN, Updates on AML for Mortgage Lenders and Originators” provided an overview of anti-money laundering, specifically the recently-effective requirement for non-banking entities, including residential mortgage lenders and originators, to file suspicious activity reports.