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  • CFPB and OCC fine national bank $1 billion for mortgage and auto lending practices

    Federal Issues

    On April 20, the CFPB, in coordination with the OCC, announced a $1 billion settlement with a national bank for certain auto and mortgage lending practices the bank had previously discontinued and for which voluntary consumer remediation was initiated by the bank. According to the CFPB consent order, the Bureau alleged the bank inappropriately (i) charged fees for mortgage rate-lock extensions, and (ii) operated a force-placed insurance program in connection with auto loans. Specifically, the CFPB alleged that the bank sometimes charged rate lock extension fees to consumers when it should have absorbed the fees. With respect to auto loans, the Bureau alleged that, due to issues with the vendor employed to monitor for insurance and issue insurance if not maintained by the consumer, certain consumers paid for force-placed insurance premiums and interest that may not have been required resulting in potential consumer harm. The CFPB consent order acknowledges that the bank voluntarily discontinued the above practices and has voluntarily begun consumer remediation. Under the terms of both of the consent orders, the bank will remediate affected consumers and will implement necessary changes to its compliance risk-management program.

    Federal Issues CFPB OCC Settlement Auto Finance Mortgages Rate Lock Force-placed Insurance

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  • NYDFS announces investigation into rent-to-own as predatory lending

    Lending

    On April 16, the New York Department of Financial Services (NYDFS) announced an investigation into whether rent-to-own and land installment home purchase agreements constitute unlicensed, predatory mortgage lending in New York. NYDFS acknowledged the ongoing investigation while releasing a consumer alert to New Yorkers about rent-to-own and land installment contract pitfalls. The alert notifies consumers that the agreements may violate certain New York laws and regulations governing fair lending, mortgage protection, interest rates, habitability, and property condition. NYDFS encourages consumers to consider a traditional leasing option and be aware of the state of disrepair the property may be in before signing the agreement.

    Lending State Issues NYDFS Rent-to-Own Predatory Lending Fair Lending Mortgages

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  • Bank petitions for rehearing of 9th Circuit preemption decision; OCC to file amicus brief in support of bank

    Courts

    On April 13, a national bank filed a petition for an en banc rehearing of the U.S. Court of Appeals for the 9th Circuit’s March decision, which held that a California law that requires the bank to pay interest on escrow funds is not preempted by federal law. As previously covered by InfoBytes, the 9th Circuit held that the Dodd-Frank Act of 2011 (Dodd-Frank) essentially codified the existing National Bank Act (NBA) preemption standard from the 1996 Supreme Court decision in Barnett Bank of Marion County v. Nelson. The panel cited to Section 1639d(g)(3) of Dodd-Frank, which, according to the opinion, expresses Congress’ view that the type of law at issue does not “prevent or significantly interfere with a national bank’s operations” because the law does not “prevent or significantly interfere” with the national bank’s exercise of its power. Additionally, the 9th Circuit concluded that the OCC’s 2004 preemption regulation had no effect on the preemption standard.

    In its petition for rehearing, the bank argues that the 9th Circuit’s decision, if allowed to stand, “will create confusion regarding which state laws apply to national banks and restrict the terms on which they may extend credit” because the decision conflicts with previous decisions by the same court, the Supreme Court, and other circuits. The bank also acknowledges the OCC’s intent to file an amicus curiae brief in support of the petition no later than April 23.

    Courts Ninth Circuit Appellate State Issues Escrow National Bank Act Mortgages OCC Preemption

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  • Fannie Mae and Freddie Mac release updates to servicing guides

    Federal Issues

    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.

    Federal Issues Fannie Mae Freddie Mac Servicing Guide Mortgages Mortgage Modification Mortgage Servicing Reverse Mortgages Mortgage Insurance

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  • 8th Circuit reverses district court’s decision, rules plaintiff failed to demonstrate actual damages under RESPA

    Courts

    On April 3, the U.S. Court of Appeals for the 8th Circuit reversed a district court’s decision, which granted summary judgement in favor of a consumer (plaintiff) who claimed a mortgage loan servicer violated the Real Estate Settlement Procedure Act (RESPA) and the Minnesota Mortgage Originator and Servicer Licensing Act when it failed to adequately respond to his qualified written requests concerning erroneous delinquency allegations. The district court ruled that the plaintiff suffered actual damages of $80 under his RESPA claims when the loan servicer “made minimal effort to investigate the error” and failed to provide the plaintiff with requested information about his loan history since origination. The “pattern or practice” of non-compliance also, in the district court’s view, justified $2000 in statutory damages. The plaintiff also received a separate damage award, attorney’s fees and costs under the Minnesota statute. However, under RESPA, a plaintiff must demonstrate proof of actual damages resulting from a loan servicer’s failure, and the three-judge panel argued that the plaintiff “failed to prove actual damages” because the loan servicer’s “failure to comply with RESPA did not cause [the plaintiff’s] alleged harm.” The panel opined that while the loan servicer failed to (i) conduct an adequate investigation following the plaintiff’s request as to why there was a delinquency for his account, and (ii) failed to provide a complete loan payment history when requested, its failure to comply with RESPA involved pre-2011 payment history for which the plaintiff eventually requested and received the relevant loan payment records at no cost. In fact, the panel stated, the only evidence of actual damages was the $80 the plaintiff spent for bank account records, but that expense concerned a separate dispute about whether the plaintiff missed two payments in 2012 and 2013, which the plaintiff eventually acknowledged that he did, in fact, fail to make. Since the loan servicer did not commit an error with respect to the missed payments, the court concluded that the $80 spent by plaintiff were not the result of the loan servicer’s failure to investigate and provide information related to the pre-2011 payment history. To the contrary, with respect to responding to the plaintiff’s inquiries regarding the missing payments, the loan servicer had “complied with its duties under RESPA.”

    Furthermore, the panel stated that the plaintiff failed to provide evidence that the loan servicer engaged in a “pattern or practice of noncompliance.” The 8th Circuit remanded the case back to the district court with directions to enter judgment in favor of the loan servicer on the RESPA claims and for further proceedings on claims under the Minnesota statute.

    Courts Appellate Eighth Circuit RESPA Mortgage Servicing Mortgages State Issues

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  • VA releases FAQs on IRRRL policy guidance

    Agency Rule-Making & Guidance

    On April 5, the Department of Veterans Affairs released FAQs regarding policy guidance for VA Interest Rate Reduction Refinance Loans (IRRRL). The FAQs address a range of questions regarding the IRRRL policy guidance issued in February (previously covered by InfoBytes here), including noting that the requirement to provide the Lender Certification disclosure with initial disclosure documents has been removed. If a Lender Certification is necessary, the lender will be required to provide the document at closing. Additionally, the FAQs clarify that, while the lender will need to be able to demonstrate that the Veteran’s Statement was sent to and received by the veteran in the initial disclosure package, the VA will not require the veteran’s signature until the final statement given with the closing documents.

    Agency Rule-Making & Guidance Department of Veterans Affairs Mortgages Refinance IRRRL

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  • Fannie Mae updates Selling Guide with lender contribution clarifications

    Federal Issues

    On April 3, Fannie Mae updated its Selling Guide, including changes to clarify its lender contribution policy and add the option of full-service certificate custodians (FCCs). According to Fannie Mae SEL-2018-03, lender-sourced contributions to fund closing are permitted as long as the contribution is not (i) used to fund any portion of the down payment; (ii) subject to repayment requirements; or (iii) sourced from a third party. While the contribution cannot exceed borrower-paid closing costs, there is otherwise no limit on the amount of the lender contribution unless the lender is an interested party to the transaction. If the lender is an interested party, the contribution is subject to the Interested Party Contributions policy. Additionally, the Selling Guide includes information related to lenders’ option to use a Fannie Mae approved FCC for whole loans and for loans in mortgage-backed securities. The updated information includes (i) documentation and delivery requirements for loans delivered to FCCs; (ii) certification process for loans delivered to FCCs; and (iii) recognition of the new Master Custodial Agreement, which will govern the relationships involved. The Selling Guide also clarifies transaction timing related to whether a single-closing construction-to-permanent transaction is processed as a purchase or a refinance.

    Federal Issues Fannie Mae Selling Guide Mortgages

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  • West Virginia passes bill amending licensing requirements for mortgage loan originators

    Lending

    On March 22, the West Virginia governor signed HB 4285, which amends provisions under the West Virginia Safe Mortgage Licensing Act (Act) related to licensing requirements for mortgage loan originators, including those related to continuing education. HB 4285, among other things, (i) updates requirements for applicants registering for mortgage loan originator licenses; (ii) requires nonresident mortgage loan originators licensed under the Act to “acknowledge that they are subject to the jurisdiction of the courts of West Virginia”; (iii) outlines provisional license exceptions for loan originators; and (iv) specifies prelicensing and relicensing education requirements. The amendments take effect May 31.

    Lending State Issues State Legislation Mortgage Origination Mortgages Licensing

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  • Florida enacts legislation prohibiting the misrepresentation of a residential mortgage loan as a business purpose loan

    Lending

    On March 21, the Florida governor signed HB 935, which prohibits the misrepresentation of a residential mortgage loan as a business purpose loan. HB 935 defines “business purpose loan” and requires that “a person must refer to the official interpretation” of the CFPB under 12 C.F. R. Section 1026.3(a) to determine if a loan is for a “business purpose.”  It also provides penalties for knowingly or willfully misrepresenting a residential mortgage loan as a business purpose loan. Additionally, HB 935 defines the phrase “hold himself or herself out to the public as being in the mortgage lending business” to include representing to the public through advertisements or solicitations that the individual or business is a licensed mortgage lender. The law is effective July 1.

    Lending State Issues State Legislation Mortgages

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  • Nebraska enacts legislation amending certain provisions related to the recording of real property interests

    State Issues

    On March 21, the Nebraska governor signed Legislative Bill 750 (LB 750), which amends and clarifies provisions related to the rights and responsibilities of secured creditors and the recording of real property interests. Among other things, LB 750 addresses (i) recording requirements for licensed mortgage bankers and (ii) the liability of a secured creditor that fails to timely record a deed of reconveyance or a release of mortgage when the obligation has been satisfied and a written request to record it has been received from the trustor, mortgagor or grantor. It also provides that “the transfer of any debt secured by a mortgage shall also operate as a transfer of a security of such debt.” The bill takes effect July 18.

    State Issues State Legislation Mortgages Licensing

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