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  • Ohio Governor Signs Residential Mortgage Lending Act

    Lending

    On December 22, Ohio Governor John Kasich signed legislation enacting amendments to the state’s residential mortgage lending act. HB 199, among other things, (i) updates certain definitions, such as modifying the definition of “nationwide mortgage licensing system and registry” to broadly include “persons providing non-depository financial services”; (ii) provides limits on the application of the current law to “unsecured loans and loans secured by other than residential real estate”; and (iii) updates requirements for applicants registering for mortgage loan originator licenses. The amended act takes effect March 23.

    Lending State Issues State Legislation Mortgage Lenders Mortgages Debt Collection

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  • Fannie Mae Updates Selling Guide with Underwriting Information on Borrower Credit Freezes

    Lending

    On December 19, Fannie Mae announced updates to its Selling Guide, including guidance related to underwriting a loan for borrowers who have frozen their credit files at one or more of the three national credit repositories. The Selling Guide now states that a credit report is acceptable for manual underwriting or “Desktop Underwriter” when a borrower’s credit information is frozen at only one of the credit repositories as long as credit data is available from two repositories, a credit score is obtained from at least one of those two repositories, and the lender requested a three in-file merged report. If the borrower’s credit file is frozen at two or more of the credit repositories, the loan will not be eligible for either form of underwriting. Other notable updates to the Selling Guide include, (i) adding requirements on premium pricing to the mortgage eligibility policy; (ii) relief from the enforcement of selling representations and warranties for mortgages that are subject to a disaster-related forbearance plan, where the disaster impacting the loan occurred on or after August 25, 2017 and other requirements are met; (iii) additional details about minimum requirements for internal audit and management controls for all seller/servicers; and (iv) consolidation in the Selling Guide of individual mortgage loan file records retention provisions from the Servicing Guide (as previously covered by InfoBytes here).

    Lending Fannie Mae Mortgage Lenders Underwriting Selling Guide Servicing Guide

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  • Acting Comptroller Discusses Efforts to Promote Lending and Investment in Distressed Communities

    Lending

    On November 2, Acting Comptroller of the Currency Keith A. Noreika addressed the National Association of Affordable Home Lenders to emphasize the OCC’s efforts to support depository institution lending and investment in distressed communities. In his speech, Noreika discussed the guidance issued by the OCC in August (previously covered by InfoBytes), which covers owner-occupied residential mortgage originations with loan-to-value (LTV) ratios greater than 100 percent. The guidance is intended to aid in the revitalization of certain areas around the country and provide a framework for the OCC’s monitoring of these programs for safe and sound lending practices. Noreika concluded that since August “the guidance and the programs being established…are beginning to make differences in the communities that need reinvestment the most” and encouraged their continued use by reminding the conference that these programs can also provide banks credit under the Community Reinvestment Act (CRA).

    Lending OCC CRA Mortgage Lenders

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  • 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

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  • 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

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  • 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

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  • 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 Redlining

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  • 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

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  • 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 in 2011 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 DBO

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  • 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

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