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Financial Services Law Insights and Observations


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  • 9th Circuit reverses lower court’s dismissal of TILA rescission enforcement claims


    On December 6, the U.S. Court of Appeals for the 9th Circuit reversed a lower court’s decision to dismiss TILA allegations brought against a bank, finding that the statute of limitations for borrowers to bring TILA rescission enforcement claims is based on state law, and is six years in the state of Washington. The panel opined that, because TILA does not specify a statute of limitations for when an action to enforce a TILA recession must be brought, “courts must borrow the most analogous state law statute of limitations and apply that limitation period” to these type of claims, which, in Washington, is the six-year statute of limitations on contract claims. According to the opinion, the plaintiffs refinanced a mortgage loan in 2010, but failed to receive notice of the right to rescind the loan at the time of refinancing in violation of TILA’s disclosure requirements. Consequently, the plaintiffs had three years—instead of three days—from the loan’s consummation date to rescind the loan. In 2013, within the three-year period, the plaintiffs notified the bank of their intent to rescind the loan. However, instead of taking action in response to the plaintiffs’ notice, the bank instead began a nonjudicial foreclosure nearly four years after the rescission demand, declaring that the plaintiffs were in default on the loan. The plaintiffs filed suit in 2017 to enforce the recession, which the bank moved to dismiss on the argument that the claims were time barred. According to the panel, the lower court wrongly interpreted the plaintiff’s request for damages under the Washington Consumer Protection Act “as a claim for monetary relief under TILA”—which has a one-year statute of limitations—and dismissed the plaintiffs’ claim as time barred without leave to amend. However, the consumers were seeking a declaratory judgment and an injunction, not damages.

    On appeal, the 9th Circuit rejected three possible statute of limitations offered by the lower court. The panel also rejected plaintiffs’ argument that no statute of limitations apply to TILA recession enforcement claims, and held that it could not be assumed that “Congress intended that there be no time limit on actions at all”; rather, federal courts must borrow the most applicable state law statute of limitations. Because the mortgage loan agreement was a written contract between the plaintiffs and the bank, and the plaintiffs’ suit was an attempt to rescind that written contract, Washington’s six-year time limit on suits under written contracts must be borrowed. Therefore, the panel concluded that the plaintiffs’ suit was not time-barred and reversed and remanded the case for further proceedings.

    Courts Ninth Circuit Appellate TILA Rescission Mortgages State Issues

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  • Court grants summary judgment, finding no concrete harm in alleged kickback scheme


    On December 7, the U.S. District Court for the District of Maryland granted a motion for summary judgment filed by a real estate team and title company (defendants), finding that an alleged kickback scheme involving the defendants did not constitute a violation of RESPA, and that the plaintiffs failed to demonstrate that they suffered from any concrete harm. According to the court, the plaintiffs filed a suit on behalf of a putative class more than four and a half years after they purchased their home, claiming the defendants violated RESPA by allegedly “using a ‘sham’ marketing agreement . . . to disguise an illegal kickback scheme,” which provided the real estate team with “unearned fees” through settlement referrals to the title company. The plaintiffs further argued that they were entitled to equitable tolling because the kickback scheme was allegedly concealed in an undisclosed marketing and services agreement, and that even if the agreement had been disclosed, it would have seemingly appeared to be valid. However, the court found “no genuine issue of material fact that the [p]laintiffs failed to exercise reasonable diligence to discover their claim” because at the time of closing, “they knew that they could choose their own settlement and title company” but elected not to. In addition, the court disagreed with the plaintiffs’ argument that they had Article III standing because they were “deprived of impartial and fair competition between settlement services,” finding that the plaintiffs were not overcharged for services due to the alleged kickback scheme and failed to show that the costs of settlement services were unnecessarily increased.

    Moreover, the court found that the plaintiffs (i) did not inquire about a potential relationship between the defendants; (ii) did not claim dissatisfaction with the title company services provided; and (iii) did not claim that the fees paid to the title company were “unreasonable or undeserved.” Furthermore, the court found that the claim was barred by RESPA’s one-year statute of limitations and that equitable tolling did not apply.

    Courts Mortgages RESPA Spokeo Kickback

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  • District Court rejects dismissal bid for California interest on escrow class action


    On December 7, the U.S. District Court for the Northern District of California denied a bank’s motion to dismiss a putative class action alleging the bank violated the California Unfair Competition Law (UCL) by not paying interest to residential mortgagors on funds held in escrow accounts, as required by California law. The three plaintiffs filed the complaint against the bank after the March decision by the U.S. Court of Appeals for the 9th Circuit in Lusnak v. Bank of America, which held that a national bank must comply with a California law that requires mortgage lenders to pay interest on the funds held in a consumer’s escrow account. (Previously covered by InfoBytes here.) The plaintiffs argued that the 9th Circuit decision requires the bank to comply with the California law requiring interest on funds held in escrow.

    In response, the bank filed a motion to dismiss, or in the alternative to stay the case, on the basis that the plaintiffs failed to provide the bank with notice and an opportunity to cure alleged misconduct prior to judicial action as required by the mortgage deed, and that the plaintiff’s claims were preempted by the Home Owners Loan Act (HOLA). The court rejected these arguments, finding that the plaintiff’s failure to comply with the ambiguous provisions in the mortgage deed do not foreclosure their claims, concluding “[t]o deprive Plaintiffs of recourse to their statutory rights based on an ambiguous contractual provision would also frustrate the consumer protection purposes of those statutes.” As to the HOLA argument, the court acknowledged that HOLA preempted the state interest law as to the originator of the mortgages, a now-defunct federal thrift, but disagreed with the bank’s assertion that the preemption attached throughout the life of the loan, including after the loan is transferred to a bank whose own lending is not covered by HOLA. Specifically, the court looked to the legislative intent of HOLA and noted it was unclear if Congress intended for preemption to attach through the life of the loan, but found a clear goal of consumer protection. Therefore, the court concluded that “[a]llowing preemption may run contrary to HOLA's purpose and could result in a gross miscarriage of justice” by depriving homeowners of state law protections.

    Additionally, the court rejected as moot the alternative request to stay the case pending the Supreme Court’s resolution of Lusnak, because the Supreme Court denied the petition of writ in that case in November (covered by InfoBytes here).

    Courts Mortgages Escrow National Bank Act HOLA Dodd-Frank Ninth Circuit Appellate

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  • HUD-OIG report examines top management challenges

    Federal Issues

    Earlier this fall, the HUD Office of Inspector General (HUD-OIG) published an annual report, which examines top management challenges facing the agency in 2019 and beyond. According to HUD-OIG, the six top challenges are a result of “critical unaddressed internal or external risks” that impede the success of HUD’s programs. Identified challenges impacting HUD’s performance relate to (i) the availability of safe, affordable housing; (ii) the ability to protect FHA’s mortgage insurance funds due to, among other things, a lack of sufficient safeguards, losses due to home equity conversion mortgages, increases in Ginnie Mae’s nonbank issuers, and emerging digital mortgage risks attributed to technology and information security problems; (iii) the inability to implement and institute adequate monitoring and oversight of its operations and program participants; (iv) identified inefficiencies in administering disaster recovery assistance; (v) a failure to modernize technology and properly oversee the information technology infrastructure, which leaves the agency vulnerable to data breaches; and (vi) the ability to institute sound financial management governance, internal controls, and systems due to a “lack of strong, consistent leadership over an extended period.” HUD-OIG states it will continue to identify challenges and assist in implementing solutions to remediate weaknesses.

    Federal Issues HUD FHA Ginnie Mae Disaster Relief Mortgages

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  • CFPB releases beta version of HMDA Platform

    Federal Issues

    On December 10, the CFPB announced the beta release of the new HMDA Platform. The beta version enables financial institutions to become familiar with the platform and permits entities to establish log-in credentials, upload sample files, validate data, and confirm their submissions of test data. Entities can test and retest throughout the beta period, and any test data will be removed from the system when the 2018 filing period opens on January 1, 2019. The announcement reminds institutions that in order to use the beta version of the HMDA Platform as well as to file HMDA data collected in 2018, financial institutions must have a Legal Entity Identifier (LEI) and that LEI must be recognized by the HMDA Platform in order to create a new account or test data with an existing account.

    Federal Issues HMDA CFPB Mortgages

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  • FDIC updates Affordable Mortgage Lending Guide

    Agency Rule-Making & Guidance

    On December 6, the FDIC issued FIL-84-2018 announcing updates to the Affordable Mortgage Lending Guide, Part I: Federal Agencies and Government Sponsored Enterprises (Guide), which reflect current information available about mortgage products offered through Fannie Mae and Freddie Mac. The Guide covers federal programs targeted to a variety of communities and individuals including rural, Native American, low- and moderate-income, and veterans, and is designed to provide community banks resources “to gain an overview of a variety of products, compare different products, and identify next steps to expand or initiate a mortgage lending program.” Updates to the Guide include, among other things, (i) revisions to the Program Matrix; (ii) changes to student loan debt in FHA, Fannie Mae, and Freddie Mac programs; and (iii) updates to certain FHA loan insurance products, USDA single family housing programs, and various Fannie Mae and Freddie Mac products.

    Agency Rule-Making & Guidance FDIC Mortgages GSE FHA Fannie Mae Freddie Mac Community Banks

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  • Freddie Mac announces temporary selling requirements related to California wildfires

    Federal Issues

    On December 6, Freddie Mac issued Bulletin 2018-25 (Bulletin), announcing temporary selling requirements for certain mortgages secured by properties located in identified zip codes that were impacted by the California wildfires. With respect to properties located in the eligible areas with a mortgage application date on or before November 12, 2018 and a note date on or before May 12, 2019, the Bulletin, among other things, provides (i) age of documentation requirements that will remain in effect for six months; (ii) specific collateral requirements and guidance; and (iii) seller reimbursement for certain property inspections.

    Federal Issues Freddie Mac Selling Guide Disaster Relief Mortgages

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  • CFPB sues mortgage company for allegedly deceiving veterans about refinance benefits


    On December 6, the CFPB announced the filing of a complaint and proposed final judgment in the U.S. District Court for the District of Nevada against a non-bank mortgage company for allegedly deceiving veterans about the benefits of refinancing their mortgages in violation of the Consumer Financial Protection Act. According to the complaint, during in-home presentations, the company would allegedly use flawed “apples to apples” comparisons between the consumers’ mortgages and an Interest Rate Reduction Refinancing Loan (a loan, guaranteed by the Department of Veterans Affairs, which allows veterans to refinance mortgages at lower interest rates). The Bureau alleges the presentations misrepresented the future cost savings of the refinance by (i) inflating the future amount of principal owed under the existing mortgage; (ii) overestimating the future loan’s term, which underestimated the future monthly payments; and (iii) overestimating the total monthly benefit of the loan after the first month.

    If ordered by the court, the judgment would require the company to pay $268,869 in redress to consumers and a civil penalty of $260,000; it would also prohibit the company from misrepresenting the terms or benefits of mortgage refinancing.

    Courts CFPB Civil Money Penalties Military Lending Department of Veterans Affairs IRRRL Refinance Mortgages

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  • Freddie Mac releases various selling and servicing updates in Guide Bulletin 2018-24

    Federal Issues

    On December 5, Freddie Mac released Guide Bulletin 2018-24 (Bulletin) announcing selling and servicing updates, including updates to the Single-Family Seller/Servicer Guide to reflect 2019 loan limit increases for both base conforming and super conforming mortgages. (As previously covered by InfoBytes, on November 27, the FHFA raised the maximum base conforming loan limits for mortgages purchased in 2019 by Fannie Mae and Freddie Mac.) The Bulletin notes that Freddie Mac’s Loan Quality Advisor and Loan Product Advisor have been updated to allow sellers to immediately begin evaluating and originating mortgages with these new loan amounts. However, the Bulletin states that qualifying mortgages may not be sold to Freddie Mac until on or after January 1, 2019.

    Among other things, the Bulletin also provides (i) single security initiative updates; (ii) updates to 10-day pre-closing verification requirements for union members; (iii) revised master insurance policy requirements for unaffiliated condominium projects or planned unit developments; and (iv) updates for document custodian requirements.

    Federal Issues Freddie Mac Selling Guide Mortgages FHFA

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  • Fannie Mae updates Selling Guide

    Federal Issues

    On December 4, Fannie Mae issued SEL-2018-09, which announces updates to the Selling Guide, including a new self-employment income calculation tool and an updated policy for appraisal waivers for disasters. Specifically, the guide now addresses the use of an approved vendor tool to assist lenders in calculating self-employment income: Fannie Mae “will provide representation and warranty enforcement relief on the accuracy of the calculation of the amount of self-employment income” to lenders that use this tool and enter the income calculated into Fannie Mae’s Desktop Underwriter. Additionally, the guide now allows lenders to exercise appraisal waiver offers on loans in process at the time of a disaster. If a property was damaged during a disaster, but the damage does not affect the safety, soundness, or structural integrity of the property and the repair items are covered by insurance, the lender may still deliver the loan to Fannie Mae; however, the lender must obtain a cost estimate for the repair and ensure that funds are available to the borrower to guarantee the completion of the repairs. The appraisal waiver change is available starting on or after the weekend of December 8. Among other things, the updates also include changes to (i) commission income and unreimbursed business expenses; (ii) Desktop Underwriter Version 10.3; (iii) small business administration loans; and (iv) duplicative provisions regarding flood insurance coverage.

    Federal Issues Fannie Mae Selling Guide Underwriting Appraisal Mortgages

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