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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

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  • CFPB Issues Report Finding That 90 Percent of Student Borrowers Are Not Enrolled in Income Driven Repayment Plans

    Lending

    On May 16, the CFPB published analysis of a student loan industry data sample, which indicates that nine out of ten of the highest-risk borrowers are not enrolled in federal affordable repayment plans. The report, entitled Update from the CFPB Student Loan Ombudsman, is based on data the Bureau received in response to a voluntary request (Appendix C) for information it sent to several student loan servicers seeking information regarding practices used on borrowers transitioning from default to income-driven repayment plans (IDR). As previously reported in InfoBytes, the 2016 report highlighted the fact that “the majority of borrowers who cure a default and seek to enroll in IDR do so by first rehabilitating their defaulted debt. However, these borrowers describe a range of communication, paperwork processing, and customer service breakdowns at every stage of the default-to-IDR transition.” The Bureau found that data provided in response to its request support the following preliminary observations:

    • More than 90 percent of borrowers who rehabilitated one or more defaulted loans were not enrolled and making IDR payments within the first nine months after “curing” a default.
    • Borrowers were five times more likely to default for a second time if they did not enroll in an IDR.
    • As previously projected in 2016,  nearly 30 percent of borrowers who exited default through rehabilitation defaulted for a second time within 24 months and more than 40 percent of borrowers re-defaulted within three years.
    • More than 75 percent of borrowers who default for a second time did not successfully pay a single bill to their student loan servicers. The CFPB estimates that “as many as four out of every five borrowers who rehabilitate a student loan could be eligible for a zero dollar ‘payment’ under an IDR plan, suggesting many of these defaults were preventable, even for the most economically vulnerable consumers.”
    • Borrowers who used the consolidation option, which requires borrowers to enroll in an IDR plan (except in rare circumstances) to resolve their student loan defaults, are more likely to immediately begin to repay their debts successfully.

    According to the CFPB, the data reinforce the Bureau’s concern that “hundreds of thousands of borrowers who recently cured their default through rehabilitation are unable to successfully access a stable and affordable repayment plan and soon end up back in default.” Further, the Bureau found support for its position that “borrowers who cure default through consolidation appear to fare much better, particularly in the first months after exiting default.”

    Lending CFPB Student Lending

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  • DOJ Enters $89 Million Settlement with Texas-Based Bank in False Claims Act Matter

    Lending

    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.

    Lending Reverse Mortgages Enforcement False Claims Act / FIRREA Whistleblower

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  • Boston Fed President Speaks on Trends and Risks in Commercial Real Estate and GSE Exposure

    Federal Issues

    On May 9, Boston Fed President Eric S. Rosengren delivered a speech entitled “Trends in Commercial Real Estate” at a conference in New York. Mr. Rosengren’s remarks addressed a variety of factors influencing the market, analyzing favorable conditions as well as potential concerns.

    Mr. Rosengren noted the “tailwinds” that have allowed for rising commercial real estate valuations, including low and stable inflation, accommodative monetary policy, and the relative economic strength in the U.S. compared with the rest of the world.  In addition, with respect to multifamily commercial real estate in particular, Mr. Rosengren discussed the positive impact of several broader societal trends – including later marriage age, “greater urbanization and a preference among the large cohort of millennials to seek multifamily accommodations.” The Boston Fed President cautioned, however, that the conditions may not warrant the extent of the price increase in the market, and pointed to the “significant exposures” that leveraged institutions and the GSEs—whose holdings include significant guarantees of multifamily loans— have to commercial real estate. He also noted that the commercial real estate market could suffer further shock if regulatory and legislative proposals require the GSEs to reduce their holdings of multifamily loans.

    Federal Issues Lending Commercial Lending

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  • Eleventh Circuit Rules that Return of a Certified Mail Receipt Satisfies Regulation X of RESPA

    Courts

    In a per curiam opinion issued on March 1, 2017, the Eleventh Circuit Court of Appeals affirmed the dismissal of a complaint alleging that a mortgage servicer had violated Regulation X of the Real Estate Settlement Procedures Act (“RESPA”) by failing to “correctly or timely acknowledge receipt of his [written request for information (“RFI”)].” See Meeks v. Ocwen Loan Servicing LLC, [Order] No. 16-15536 (11th Cir. Mar. 1, 2017). Regulation X requires that, within five days of receiving an RFI, mortgage servicers must “provide to the borrower a written response acknowledging receipt of the information request.” 12 C.F.R. § 1024.36(c). Plaintiff alleged that the mortgage servicer violated 12 C.F.R. § 1024.36(c) when it signed and sent a Certified Receipt on the same day as receiving the RFI and when it sent a substantive response nine days later. Plaintiff sought actual damages of less than $100 and attorneys’ fees and costs.

    The Eleventh Circuit ruled, as a matter of first impression, that the mortgage servicer’s return of the Certified Receipt , which the plaintiff’s attorney “unquestionably received,” satisfied Regulation X. Alternatively, the Court affirmed the district court’s decision because the plaintiff “did not suffer any compensable damages from [the] alleged violation” and plaintiff’s counsel’s notice of error “falsely question[ed] the servicer’s receipt in order to create a claim for damages.” As to the claim for statutory damages, the Eleventh Circuit held that the plaintiff lacked Article III standing because he did not suffer a concrete injury-in-fact. Rather, because the plaintiff (and his attorney) “had undisputed actual knowledge of receipt of the RFI,” plaintiff “suffered at most ‘a bare procedural violation.’”

    Courts Lending Mortgages RESPA Regulation X

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  • Massachusetts AG Announces Settlement with Student Loan Debt Relief Company

    Lending

    On April 28, Massachusetts Attorney General Maura Healey announced a settlement with a student loan debt relief company to resolve allegations that the company charged consumers illegal upfront fees to receive debt relief assistance and falsely led customers to believe it was affiliated with the federal government. According to the Attorney General’s office, this is the fourth in a series of enforcement actions brought against student loan debt relief companies in the state. Under the terms of the April settlement, the company is required to refund $6,500 to 18 affected borrowers, must agree to discontinue providing student loan services, and is prohibited from selling or disseminating Massachusetts customer information collected. Previously in 2015 and 2016, Healey announced settlements with three debt relief companies, bringing the overall recovery total to-date to more than $260,000. In November 2015, the state launched the Student Loan Assistance Unit to assist borrowers unable to repay their loans (see previous InfoBytes summary).

    Lending Debt Relief Student Lending State AG

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  • Treasury Department Releases Report on Troubled Asset Relief Program (TARP)

    Lending

    On April 10, the Treasury Department released the March 2017 Monthly Report to Congress on the status of its Troubled Asset Relief Program (TARP). Among other things, the report provides updates on TARP programs such as the Capital Purchase Program, the Community Development Capital Initiative, and the Making Home Affordable Program, among others. Additionally, the report highlights, among other things, administration obligations and expenditures, insurance contracts, transaction reports, and projected costs and liabilities. On May 1, the Treasury issued a monthly TARP update noting principal, investment, income, and revenue totals affecting certain TARP programs.

    Lending Treasury Department TARP Mortgages

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  • Nevada AG Issues Advisory Opinion Finding Assignment of a Retail Installment Sales Contract Does Not Subject Assignee to Licensure or Regulation Under Ch. 675 of the NV Code

    Lending

    Last month, the Office of the Attorney General for the State of Nevada (OAG) issued an Advisory Opinion[1] finding that a retail seller financing its own sales pursuant to the retail installment sales contract (RISC) provisions found in Chapter 97 of the Nevada Revised Statutes (NRS), but which is otherwise not engaging in lending activity, is not required to secure a lender’s license under Chapter 675 of the NRS. In reaching this conclusion, the OAG references another opinion[2]it had issued earlier this year concerning retail installment lending, and noted that “[w]hen a retail seller finances its own sales pursuant to the provisions of Chapter 97, but otherwise engages in no lending activity, the retailer's business activity is governed exclusively by the provisions of Chapter 97” (emphasis added). In light of this earlier holding, the OAG reasoned as follows:

    [W]hen a person purchases or takes an assignment of a RISC pursuant to the provisions of Chapter 97 of the NRS, the person’s acceptance of the assignment does not subject the person to regulation or licensure under NRS Chapter 675. Assuming that the person is not independently engaged in lending activity subject to licensure and regulation under NRS Chapter 675, the person’s financing activity is governed exclusively by the provisions of NRS Chapter 97. To the extent that a vehicle dealer adopts the contractual terms of the form RISC as prescribed by the Commissioner in accordance with Chapter 97, the vehicle dealer is permitted to assign the RISC to a financial institution. Although it applies in general terms to certain types of lending activity, NRS Chapter 675 does not specifically abrogate the exclusive provisions of Chapter 97 that govern the parties to a RISC made and assigned pursuant to Chapter 97.

    Notably, the Opinion was issued in response to a request from the Commissioner of the Financial Institutions Division of the Nevada Department of Business and Industry (NDBI), seeking a “formal opinion” regarding certain indirect vehicle financing transactions that use the form retail installment contract prescribed for use in the sale of vehicles pursuant to NRS 97.299. Specifically, the Commissioner sought an opinion addressing “[w]hether a financial institution that purchases Retail Installment Sales Contracts ("RISC[ s ]") from motor vehicle dealers in the State of Nevada (i.e. engages in indirect financing) is required to be licensed pursuant to Chapter 675 of the NRS[.]” The Commissioner also requested clarification addressing “[w]hether NRS Chapter 675 requires such a financial institution to have an in-state physical presence[.]”

    Lending Agency Rulemaking & Guidance Insurance State AG

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  • FDIC Releases May List of CRA Compliance Examinations

    Lending

    On May 3, the FDIC published its monthly list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). The list reports CRA evaluation ratings assigned to institutions in February 2017. Monthly lists of all state nonmember banks and their evaluations that have been made publically available can be accessed through the FDIC’s website. As noted by the FDIC, the CRA is “intended to encourage insured banks and thrifts to meet local credit needs, including those of low- and moderate-income neighborhoods, consistent with safe and sound operations.”

    Lending Consumer Finance CRA FDIC

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