Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations
Section Content

Upcoming Events

Filter

Subscribe to our InfoBytes Blog weekly newsletter for news affecting the financial services industry.

  • Senate Banking Committee to Host July 20 Hearing on Mortgage Reform

    Federal Issues

    On July 20, the Senate Banking Committee will hold a hearing on mortgage reform for small lenders. The hearing, entitled “Housing Finance Reform: Maintaining Access for Small Lenders,” will feature witnesses from the American Bankers Association, the Credit Union National Association, the Independent Community Bankers of America, the National Association of Federally-Insured Credit Unions, the Community Mortgage Lenders of America, and the Community Home Lenders Association.

    Federal Issues Senate Banking Committee Mortgages ABA NCUA CUNA ICBA Mortgage Lenders

    Share page with AddThis
  • South Carolina Governor Amends Mortgage Lender, Broker Licensing Requirements

    State Issues

    On May 19, South Carolina Governor Henry McMaster signed into law amendments (S 366) to the state’s Mortgage Lending Act, Mortgage Broker Act, and related laws to revise a variety of mortgage lending definitions, licensing procedures and requirements, and disclosure obligations. The legislation also adds license requirements for mortgage lenders who act as mortgage brokers on the majority of their mortgage loans. The amendments take effect September 16, 2017.

    State Issues Mortgage Lenders Licensing State Legislation

    Share page with AddThis
  • National Fair Housing Alliance Settles Lending Discrimination Claims Brought Against National Bank

    Lending

    On May 19, the National Fair Housing Alliance (NFHA) announced it had reached an agreement with a major national bank (Bank) related to a housing discrimination complaint the NFHA filed with HUD in 2014. The complainant alleges that NFHA conducted a series of tests over a period of several months revealing a “pattern of discriminatory conduct.” Latino prospective qualified borrowers were often quoted higher monthly payment and closing costs and were denied opportunities to speak with loan officers. The complainants also cited data showing that the number of purchase loan applications received from Latinos had declined over the past few years. While the Bank denied all allegations in the complaint, it agreed to contribute more than $400,000 towards fair housing efforts in South Carolina and nationwide. Separately, the original complaint led to HUD filing charges against the Bank last December on behalf of the NFHA for lending discrimination—citing, in particular, that prospective Latino borrowers were treated less favorably than non-Latinos, in violation of the Fair Housing Act.

    Lending HUD Enforcement Fair Lending Mortgage Lenders

    Share page with AddThis
  • City of Philadelphia Sues National Bank for Discriminatory Lending Practices

    Lending

    On May 15, the City of Philadelphia filed a lawsuit against a national bank (Bank) alleging that it violated the Fair Housing Act by engaging in discriminatory lending practices that targeted minority borrowers. (See City of Phila. v. Wells Fargo & Co., Case No. 2:17-cv-02203-LDD, 2017 WL 2060317 (E.D. Pa.).) The complaint alleges that beginning in 2004 and continuing through the present, the Bank engaged in “a continuous and unbroken discriminatory pattern and practice of issuing higher cost or more onerous mortgage loans to minority borrowers” while offering better terms to similarly situated non-minority borrowers. The City’s complaint alleges discrimination under both disparate treatment and disparate impact theories. The City claims that the Bank has a long history of both redlining (the practice of refusing to make loans in minority neighborhoods) and reverse redlining (the practice of targeting higher cost loans or loans with less favorable terms to minority neighborhoods). The complaint further describes a pattern of knowing and intentional discrimination by the Bank, relying on statistical analyses finding, among others, that: (i) a loan for a home in a predominantly minority neighborhood was 4.7 times more likely to go into foreclosure than a loan on a home in a mainly white neighborhood; (ii) African American and Latino borrowers were more than twice as likely to receive a high-cost loan as white borrowers; and (iii) when credit scores were factored in for borrowers with FICO scores of more than 660, African American borrowers were more than 2.5 times more likely than white borrowers to receive a high cost loan, and Latino borrowers more than twice as likely. As a result of the foreclosures and vacant homes, the City says it suffered a suppression of property tax revenue and increased cost of providing services such as police, fire fighting, and other municipal services.

    City of Miami Suit. As previously covered in InfoBytes, the Supreme Court recently ruled that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the Fair Housing Act (FHA) against lenders for injuries allegedly flowing from discriminatory lending practices, although the five-justice majority held that such injuries must be proximately caused by the FHA violations. The Supreme Court returned the City’s lawsuit to the U.S. Court of Appeals for the Eleventh Circuit because, while the Court found that the City’s injuries appeared to be a foreseeable result of the lender’s practices, this was not enough to establish proximate cause. Therefore, it remains to be seen whether the City can show proximate cause.

    Lending Courts FHA Mortgage Lenders Consumer Finance

    Share page with AddThis
  • Massachusetts Regulator Offers Interpretation of Mortgage Loan Originator Exclusivity Requirement

    State Issues

    On May 10, the Division of Banks of the Massachusetts Office of Consumer Affairs and Business Regulations (Division) issued a letter determining that a professional employer organization (PEO) may provide limited human resources services to Massachusetts licensed mortgage lenders and brokers without violating an exclusivity requirement governing the employment of mortgage loan originators in the Commonwealth. The exclusivity requirement prohibits Massachusetts licensed mortgage loan originators from being employed by more than one “entity,” which, as defined by Massachusetts General Laws Chapter 255F, Section 4(b), effectively prohibits a mortgage loan originator from being employed by more than one mortgage lender or broker. The opinion letter stems from a request made last year from a Massachusetts-based human resources service provider (Service Provider) inquiring as to whether the exclusivity requirement prohibits Massachusetts licensed mortgage lenders and brokers employing mortgage loan originators from outsourcing human resource services. The Service Provider—operating as a PEO—stated that it provides human resources services to small business clients, and while it is deemed the “employer” of the client's employees solely for designated human resource functions, the client remains the employer for all other purposes. Because of this, and since the Service Provider offers functions that are unrelated to a loan originator's mortgage industry work, the Division asserted “that the exclusivity provision . . . operates to limit a mortgage loan originator to a single licensed mortgage broker or lender for purposes of the originator's mortgage industry work.” Accordingly, the Division concluded that the Service Provider may provide its services to Massachusetts licensed mortgage lenders and brokers without violating the exclusivity requirement.

    State Issues Mortgage Origination Mortgage Lenders

    Share page with AddThis
  • California Department of Business Reaches $1.4 Million Settlement with Michigan-Based Mortgage Lender and Servicer

    Lending

    On April 10, the California Department of Business Oversight (DBO) announced a settlement with a California-licensed mortgage lender and servicer—whose principal place of business is based in Michigan—resolving allegations that the company violated California’s statutory restriction on per diem interest. California law prohibits lenders from “charging interest on mortgage loans prior to the business day that immediately precedes the day the loan proceeds are disbursed.” Pursuant to the consent order, the allegations against the company arose from two regulatory examinations conducted by DBO in2011 and 2013, whereby the company—in order to avoid an enforcement action—agreed to cooperate fully with DBO’s request for audits, to refund per diem overcharges, and to consent to the issuance of the final order to pay refunds, penalties, and discontinue further violations. The terms of the consent order include $293,127 in refunds previously provided to approximately 3,400 borrowers for loans funded between August 2011 and May 2015, as well as future restitution to additional borrowers identified in required self audits of loans made between from June 2015 through February 2018. The order further requires the company to pay an additional $1.1 million in penalties for identified overcharges, as well as $125 for each additional violation discovered in the self audits.

    Lending State Issues Enforcement Mortgage Lenders

    Share page with AddThis
  • CFPB Proposes Amendment to Regulation B to Harmonize Regulation B with Other Mortgage Lending Regulations

    Agency Rule-Making & Guidance

    On March 24, the CFPB announced the release of its proposal to amend Regulation B (12 CFR Part 1002), which implements the ECOA, a federal civil rights law that protects applicants from discrimination by lenders. According to the Bureau, the proposed amendment is intended to “provide additional flexibility for mortgage lenders concerning the collection of consumer demographic information.” Specifically, the regulation, as amended, would allow lenders to use the updated Uniform Residential Loan Application form adopted by Fannie Mae and Freddie Mac in 2016, rather than the 2004 version currently included in Regulation B, along with additional changes that would permit lenders to employ more uniform practices.

    As explained in a March 24 CFPB blog post, a core justification for the proposed change is consistency and clarity with respect to other Bureau rules. While ECOA and Regulation B generally prohibit creditors from asking loan applicants about their race, religion, ethnicity, national origin, or gender, in some cases, such as mortgage loans, other regulations (i.e., Regulation C and the HMDA) require creditors to specifically ask for some of the very same information – including, for instance, race and ethnicity. To address this issue, the proposed amendments would allow institutions not subject to HMDA reporting requirements to choose on an “application-by-application basis” between two approaches to collecting personal demographic data from applicants: either the more limited, aggregate race and ethnicity categories required by Regulation B, or the disaggregated and more expansive categories required for HMDA-reporting institutions under revisions to Regulation C effective in 2018. The new rule would also create a safe harbor allowing for the collection (in certain circumstances) of data previously barred by Regulation B, establish consistent race and ethnicity categories that could be used in complying with both Regulation B and C.

    Comments on the proposal will be due within 30 days of its publication in the Federal Register.

    Agency Rule-Making & Guidance CFPB Regulation B ECOA Mortgage Lenders HMDA

    Share page with AddThis
  • CFPB Issues Largest HMDA Fine in Bureau History Against Nonbank Mortgage Lender

    Lending

    On March 15, the CFPB announced a consent order assessing a $1.75 million civil money penalty against a national mortgage lender for failing to accurately report mortgage data in violation of the Home Mortgage Disclosure Act (“HMDA”). The Bureau alleged that, during the supervision process, it found the lender’s HMDA compliance systems to be flawed, and that the flaws led to the generation of “significant, preventable” errors in its mortgage lending data. The following violations were also alleged: (i) a failure to “maintain detailed HMDA data collection and validation procedures”; (ii) a failure to “implement adequate compliance procedures”; and (iii) a failure to “consistently define data among its various lines of business,” which resulted in data discrepancies.  As reported by the Bureau, the size of the penalty reflects the lender’s market size, the magnitude of the errors, and its history of violations. The terms of the consent order require the lender to pay a $1.75 million penalty, develop an effective compliance management system to prevent future violations, and review and correct HMDA reporting inaccuracies for the defined time period. Notably, the consent order does not provide for consumer redress.

    Later that day, the mortgage lender issued a statement announcing the resolution of the Bureau’s examination and highlighting the company’s efforts “over the past two years” to “proactively ma[ke] substantial investments in new staff, training and technology to enhance all of [their] HMDA-related processes and controls.”

    Lending CFPB Mortgage Lenders HMDA Data Collection / Aggregation

    Share page with AddThis
  • Illinois-Based Lender, HUD Resolve Fair Housing Act Matter

    Lending

    On March 10, HUD released a Conciliation Agreement with an Illinois-based lender alleged to have discriminated against African-American and Hispanic borrowers seeking mortgage loans. The complaint, brought by HOPE Fair Housing Center (HOPE), claims the lack of bank branches in majority African-American and Hispanic communities resulted in fewer financial services being offered to applicants based on their race and national origin in violation of the Fair Housing Act. HOPE’s complaint also claims that African-American and Hispanic applicants were more likely to receive less favorable mortgage terms than other races. As part of the settlement, the lender will establish a $1 million loan program to “increase mortgage lending to residents in majority African-American and Hispanic areas” and will pay $75,000 to HOPE. Among other things, the agreement also states the lender will offer consumer education outreach in minority areas and provide fair lending training for its staff.

    Lending Mortgage Lenders Fair Housing HUD Fair Lending

    Share page with AddThis
  • Fannie Mae Reports Earnings of $5 Billion for Fourth Quarter; $12.3 Billion for 2016

    Lending

    On February 17, Fannie Mae announced that it had reported net income of $5 billion for the fourth quarter of 2016 and $12.3 billion for fiscal year 2016. These figures exceeded previous earnings of $3.2 billion for the third quarter of 2016 and $11.0 billion for fiscal year 2015. According to a company statement, “fair value gains in the fourth quarter of 2016 were due primarily to increases in longer-term interest rates positively impacting the value of the company’s risk management and mortgage commitment derivatives.” The fourth quarter 2016 net income, while higher than in the third quarter, was “partially offset by a shift to a provision for credit losses in the fourth quarter compared with a benefit for credit losses in the third quarter.” Fannie attributed its year-over-year net income increase to “a higher benefit for credit losses and lower foreclosed property expense” and “[l]ower fair value losses in 2016 compared to 2015.”

    Following the strong results, Fannie said it would pay a $5.5 billion dividend to the U.S. Treasury in March, bringing its total dividend payments to $159.9 billion since it entered federal conservatorship in 2008.

    Lending Fannie Mae Treasury Department Mortgage Lenders

    Share page with AddThis

Pages