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On September 28, FHA announced that it will require a second appraisal for certain reverse mortgage transactions. The purpose of this requirement, according to Mortgagee Letter 2018-06, is mitigation of the risk that valuation of the collateral poses to FHA borrowers and the Mutual Mortgage Insurance Fund. FHA will perform a collateral risk assessment of the appraisal prepared for use in all Home Equity Conversion Mortgage (HECM) originations (also known as “reverse mortgages”); whether a second appraisal is required will depend on the results of the assessment. A mortgagee may not approve or close a transaction until a second appraisal, if required, is obtained. If the second appraisal provides a lower value, the mortgagee must use the lower value in the origination of the HECM. The new requirements are effective for all HECM originations with FHA case numbers assigned on or after October 1 through September 30, 2019. FHA will evaluate these program changes at six and nine months to determine if it should extend the requirements beyond the current end date.
On September 18, Fannie Mae updated the Reverse Mortgage Loan Servicing Manual with changes related to a servicer’s responsibilities for paying escrow-related expenses for certain properties in Fannie Mae’s REO inventory. According to RVS-2018-03, Fannie Mae will now pay property taxes for all acquired proprieties in REO inventory and servicers are no longer required, except when directed by Fannie Mae, to pay co-op fees and assessments or ground rents for certain properties in REO inventory. The update applies to all property taxes and ground rents for all acquired properties effective on October 1, and applies to co-op fees and assessments for all acquired properties with a foreclosure sale or mortgage release date occurring on or after October 1.
On July 11, Fannie Mae issued RVS-2018-02, which updates the Reverse Mortgage Loan Servicing Manual to include changes related to REO Hazard Insurance Coverage Requirements for Home Equity Conversion Mortgage (HECM) mortgages. Specifically, the update requires a servicer to place a property insurance policy on acquired property up to the HUD foreclosure appraisal amount or deed-in-lieu property valuation amount, in accordance with HUD guidelines. If the servicer is unable to obtain either of these valuation amounts, the servicer must place coverage up to the unpaid principal balance amount. Servicers are required to implement the changes no later than October 1 for new and existing HECM properties in REO inventory.
On April 11, Fannie Mae updated its Servicing Guide, regarding servicing transfer welcome calls. Pursuant to Fannie Mae SVC-2018-03, transferee servicers are no longer required to, among other things, initiate welcome calls within five days of the transfer of servicing. Transferee servicers may now implement their own processes for borrower contact as long as the servicer remains in compliance with applicable laws. Fannie Mae also updated the Servicing Guide to add flexibility in connection with the collection of escrow shortages during a mortgage modification. Under the amendment to the Servicing Guide, servicers may spread repayment of the shortage amount over a term of up to 60 months, unless the borrower decides to pay up-front. Additionally, Fannie Mae released a revised Reverse Mortgage Loan Servicing Manual, which includes updates to expense reimbursement claim submissions and mortgage loan status codes.
On the same day, Freddie Mac released Guide Bulletin 2018-6, which, among other things, updates servicer requirements on Subsequent Transfers of Servicing (STOS) and borrower-paid mortgage insurance. Effective July 23, transferor servicers must use the automated STOS request system and new transfer requests must be submitted at least 45 days and no more than 60 days prior to the effective date of the transfer. The Bulletin also provides additional details on initiating the electronic STOS and executing the STOS agreement. There will be a temporary moratorium on STOS requests and modifications to existing requests from July 9 through July 20, in order for Freddie Mac to implement the new process.
Separately, the Bulletin includes various changes to streamline servicer responsibilities in canceling borrower-paid mortgage insurance, such as now allowing servicers to process a borrower’s verbal request to cancel mortgage insurance and simplifying the process to determine current value.
Consistent with the Fannie updates, Freddie Mac also modified its escrow shortage collection requirements to allow repayment to be spread over up to 60 months.
On February 20, a federal judge for the U.S. District Court for the Southern District of Florida issued an opinion and order against a borrower after a two-day bench trial, finding that the borrower failed to establish a private right of action for any of her alleged RESPA violations. According to the opinion, one of the defendants, a mortgage company, initiated foreclosure proceedings against the borrower for failing to pay required insurance and tax associated with her reverse mortgage. During this period, the mortgage company purchased force-placed insurance through an insurance intermediary company to protect its collateral for the reverse mortgage. When the borrower later brought the account current, the mortgage company dismissed the foreclosure complaint. However, the borrower filed a suit against the mortgage company for failing to “advance insurance premiums on her behalf through an escrow account” and against the second defendant, an insurance company, for procuring a policy that “tortiously interfered” with her business relationship with the mortgage company. Specifically, the borrower alleged the procedure used to obtain the force-placed rates violated Florida Insurance Code Section 626.916, and were, therefore, “not bona fide and reasonable under RESPA.”
However, the judge ruled that none of the borrower’s claims created a private right of action under RESPA, and furthermore, the borrower could not “bootstrap Section 626.916 through another cause of action.” Additionally, the judge noted that counsel for the borrower was unable to provide case law authority to support the “proposition that [the borrower’s] RESPA claim could be premised on a Florida statue which lacked a private right of action.” Concerning the borrower’s allegations of tortious interference against the insurance company, the judge concluded that the claim failed to show that the insurance company “intentionally or unjustifiably” interfered with her relationship with the mortgage company.
On November 2, CFPB Director Richard Cordray delivered prepared remarks at the Consumer Advisory Board (CAB) Meeting in Tampa, Florida addressing, among other things, the new rule (Rule) covering payday loans and certain other installment products (previously covered by a Buckley Sandler Special Alert). Cordray indicated that the Rule is intended to reform a market where many borrowers end up rolling over their loans multiple times, incur fees, and have trouble ultimately paying off their original balance. Cordray encouraged the CAB to discuss the Rule, noting the Bureau previously received over 1.4 million public comments on the proposal. Cordray also touched on topics regarding (i) financial security of older consumers, including reverse mortgages; (ii) complexities with delivering products to consumers with limited English proficiency ; and (iii) the Bureau’s September report, “Financial Well-Being in America,” which discussed the results of a nationwide survey measuring individual financial well-being.
The CFPB Consumer Advisory Board will host a public meeting on Thursday, November 2, at 10:00am EST in Tampa, Florida. According to the notice, published in the Federal Register on October 17, the board will discuss Know Before You Owe: Reverse Mortgages; financial well-being; trends and themes; and payday, vehicle title, and certain high-cost installment loans.
Attendees must RSVP by noon, November 1, to CFPB_CABandCouncilsEvents@cfpb.gov.
On August 2, Oregon Governor Kate Brown signed into law the Mortgage Loan Servicer Practices Act (SB 98), which places certain residential mortgage loan servicers under the supervision of the state’s Department of Consumer and Business Services (DCBS) and requires them to comply with a range of requirements. Among other things, the law gives licensing, examination, investigation, and enforcement authority to the DCBS, and requires applicable residential mortgage loan servicers to: (i) obtain and renew a license through the DCBS if they “directly or indirectly service a residential mortgage loan” in Oregon; (ii) maintain “sufficient liquidity, operating reserves and tangible net worth”; (iii) notify the DCBS in writing before certain operational changes occur; and (iv) comply with a range of consumer protection, antifraud, and recordkeeping requirements, including those related to borrower communications, payment processing, and fee assessments. The law becomes operative on January 1, 2018, and applies “to service transactions for residential mortgage loans that occur on or after” that date.
On May 16, the U.S. Department of Justice (DOJ) announced that a Texas-based bank (Bank) agreed to settle the DOJ’s allegations that it violated the False Claims Act and FIRREA by wrongfully seeking payments from a federally insured reverse mortgage program. To protect lenders, HUD provides mortgage insurance through a program administered by the Federal Housing Administration (FHA) on reverse mortgage loans, in which seniors borrow money against the equity they have in their homes. The DOJ alleged that the Bank sought to obtain insurance payments for interest from the FHA despite failing to properly disclose on the filed insurance claim forms that the mortgagee was not eligible for such interest payments because it had failed to meet various deadlines relating to appraisal of the property, submission of claims to HUD, and pursuit of foreclosure proceedings. As a result, from approximately 2011 to 2016, the mortgagees on the relevant reverse mortgage loans serviced by Bank “allegedly obtained additional interest that they were not entitled to receive.” The Bank agreed to pay more than $89 million to resolve the allegations, of which $1.6 million will be paid to the individual who filed the lawsuit under the whistleblower provisions of FIRREA.
On December 7, the CFPB announced that it had entered into consent orders with three reverse mortgage companies to settle claims that their advertisements for those mortgages were deceptive under the Mortgage Acts and Practices Advertising Rule. The alleged misconduct included deceptive advertising campaigns that misrepresented, among other things: (i) the risk of losing home and the right to remain in the home; (ii) expected costs and mortgage payments; (iii) government affiliations of the mortgage company; and (iv) the effectiveness of a reverse mortgage credit product to eliminate debt.
The consent orders require the companies to make clear and prominent disclosures in their reverse mortgage advertisements and implement systems to ensure they are following all laws. One of the three firms also cannot imply affiliation with the government and must maintain complete and accurate records. In addition, the consent orders impose civil penalties ranging from $65,000 up to $400,000.
- American Advisors Group Consent Order
- American Advisors Group Stipulation
- Reverse Mortgage Solutions Consent Order
- Reverse Mortgage Solutions Stipulation
- Aegean Financial Consent Order
- Aegean Financial Stipulation
- Valerie L. Hletko to discuss "Forecasting litigation and settlement trends in the mortgage servicing and fair lending context" at the American Conference Institute National Forum on Residential Mortgage Regulatory Enforcement & Litigation
- Michelle L. Rogers and Jonice Gray Tucker to discuss “Building a govt affairs program; Government investigations” at the TechGC National Summit
- Tina Tchen to deliver keynote address at the American Bar Foundation Montgomery Summer Research Diversity Fellowship 30th Anniversary Celebration
- Douglas F. Gansler to discuss "Privacy, security and protection of your assets in contracts; Security exercises and tactical measures" at the TechGC National Summit
- H Joshua Kotin will discuss federal regulatory developments in mortgage lending and servicing at the Mortgage Bankers Association of Arkansas Fall Conference
- Kate Shrout to discuss "Conducting workplace investigations" at the TechGC National Summit
- Kathryn R. Goodman to discuss "HECM servicing policies and updates" at the National Reverse Mortgage Lenders Association Annual Meeting & Expo
- Fredrick S. Levin to discuss "Reverse mortgage litigation trends" at the National Reverse Mortgage Lenders Association Annual Meeting & Expo
- Melissa Klimkiewicz to speak at the "Digital marketing compliance roundtable" at the National Reverse Mortgage Lenders Association Annual Meeting & Expo
- Hank Asbill to discuss "The role of the media in white collar criminal investigations and the Mueller probe" at the American Bar Association White Collar Crime Town Hall
- John C. Redding to discuss "Regulatory compliance update" at PowerSports Finance
- Matthew P. Previn to discuss "Enforcement trends: Who is doing what and how?" at the Cambridge Forums Inc. Forum on Consumer Finance Litigation & Enforcement
- Jonice Gray Tucker to discuss "Protect yourself from a CFPB investigation" at the National Association of Settlement Purchasers Conference
- Tina Tchen to deliver keynote address at the American Bar Association Professional Success Summit
- Andrea K. Mitchell to discuss "Developments in fair lending law" at the Mortgage Bankers Association Summit on Diversity and Inclusion
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "New CDD Rule: Pitfalls in compliance" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference