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On March 16, the Federal Housing Finance Agency (FHFA) published the Refinance Report for January 2017. As highlighted in the report, mortgage interest rates continued to increase in December 2016, resulting in a decrease in total refinance volume, although the agency noted that interest rates declined in January 2017. Also included is an overview of the Home Affordable Refinance Program (HARP)—a program established in 2009 to assist homeowners unable to refinance due to home value declines by providing opportunities to refinance through “the transfer of existing mortgage insurance to their newly refinanced loan, or by allowing those without mortgage insurance on their previous loan to refinance without obtaining new coverage.” As reported by the FHFA, “[b]orrowers completed 4,553 refinances through [HARP], bringing total refinances from the inception of the program to 3,452,224 . . ., and borrowers who refinanced through HARP had a lower delinquency rate compared to borrowers eligible for HARP who did not refinance through the program.” HARP, originally scheduled to expire on December 31, 2015, has had its expiration date extended three times and is now set to expire September 30, 2017.
Treasury Department Releases Reports on “Troubled Asset Relief” and “Making Home Affordable” Programs
On March 10, the Treasury Department (Treasury) released the February 2017 edition of its 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 and the Community Development Capital Initiative, as well as administration obligations and expenditures, insurance contracts, and transaction reports.
That same day, Treasury also published its fourth quarter 2016 “Making Home Affordable” Program Performance Report. According to the report, the housing market has made "significant progress" towards recovery since the beginning of the financial crisis. From 2009 through 2016, the number of homeowners who are 30-plus days delinquent on mortgage loans decreased from 6.1 million to 2.7 million, and the number of reported homeowners underwater also dropped significantly from 10.2 million to 3.2 million. A decline was also seen in the number of initiated foreclosures. To date, “approximately 10 million homeowners have received help through government programs and additional private sector efforts,” and “more than 2.8 million Homeowner Assistance Actions have taken place under Making Home Affordable programs.” Also provided in the report are fourth quarter 2016 servicer assessment results.
9th Circuit Panel Reverses and Remands Dismissal of Pro Se Plaintiff’s Breach of Contract Claim in Connection with Bank’s Trial Loan Modification Process
In an opinion filed on March 13, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit reversed and remanded a district court’s dismissal of a homeowner-plaintiff’s breach of contract claim against a major bank for damages allegedly suffered when she unsuccessfully attempted to modify her home loan over a two-year period. Oskoui v. J.P. Morgan Chase Bank, N.A., [Dkt No. 47-1] Case No. 15-55457 (9th Cir. Mar. 13, 2017) (Trott, S.). The court also remanded with instructions to permit the pro-se plaintiff to amend her complaint to allege a right to rescind in connection with her previously-dismissed TILA claim in light of the Supreme Court’s January 2015 decision in Jesinoski v. Countrywide Home Loans, Inc. And, finally, the panel affirmed the district court’s ruling that the facts alleged demonstrated a claim under California’s Unfair Competition Law (“UCL”) because, among other reasons, the factual record supported a determination that the bank knew or should have known that the homeowner was plainly ineligible for a loan modification; yet, the bank encouraged her to apply for modifications (which she did), and collected payments pursuant to trial modification plans.
In reversing and remanding the district court’s ruling dismissing the breach of contract claim, the Ninth Circuit pointed to the styling on the first-page of the complaint—“BREACH OF CONTRACT”—along with allegations about the explicit offer language contained in the bank’s trial modification documents. The Ninth Circuit relied on the Seventh Circuit’s opinion in Wigod v. Wells Fargo, which it identified as the “leading federal appellate decision on this issue of contract,” to “illuminate the viability” of plaintiff’s breach of contract claim in connection with trial plan documents. 673 F.3d 547 (7th Cir. 2012). The Ninth Circuit remanded the claim with instructions to permit the plaintiff to amend if necessary in order to move forward with her breach of contract claim.
On March 3, FHFA Director Melvin Watt issued orders directing FHFA regulated government-sponsored enterprises (GSEs)—Fannie Mae (Order No. 2017-OR-FNMA-01), Freddie Mac (Order No. 2017-OR-FHLMC-01), and the 11 Federal Home Loan Banks collectively (Order No. 2017-OR-B-01)—to report the results of their stress tests so that the financial regulators may determine whether the GSEs “have the capital necessary to absorb losses as a result of adverse economic conditions.” The orders were issued pursuant to the requirement under the Dodd-Frank Act that covered financial institutions with total consolidated assets of more than $10 billion conduct an annual stress test to determine whether they have sufficient capital to support operations in adverse economic conditions. Accompanying each order was a copy of the “2017 Report Cycle Dodd-Frank Stress Tests Summary Instructions and Guidance.”
On February 8, the CFPB released its monthly complaint report for December 2016. The report focused on complaints about mortgages. Along with debt collection and credit reporting, the report stated that mortgages are consistently among the three products and services generating the most complaints to the CFPB, and that since July 21, 2011, mortgages have been the second-most-complained-about product, representing 24 percent of all complaints. The most common issues raised by consumers are problems that arise when they are unable to pay their mortgage, such as issues related to loan modifications, collection, and foreclosure. Such issues were raised in 49 percent of complaints about mortgages. Other common issues raised in consumer complaints relating to mortgages include making payments (such as the misapplication of payments (33 percent)), applying for a mortgage (9 percent), signing the agreement (5 percent), and getting an offer of credit (3 percent).
The Report also noted that student loans showed the greatest increase in complaints year-over-year of any product or service—a 109 percent jump. The CFPB believes the increase may be due, at least in part, to the result of a February 2016 update to its student loan intake form allowing the submission of complaints about Federal student loan servicing. During the same period, complaints about prepaid products, payday loans, and mortgages declined by 59 percent, 23 percent, and 5 percent respectively—continuing a trend also observed in the Bureau’s last complaint report.
On February 6, the U.S. District Court for the Northern District of California denied the CFPB’s motion for summary judgment and held that its “intrinsically factual” deception claims would have to be decided at trial. See CFPB v. Nationwide Biweekly, et. al., [Order Denying Motions for Summary J.] No. 15-cv-2106 (N.D. Cal. Feb. 6, 2017). The Bureau alleges that the defendant company—which helps homeowners restructure their mortgage payments to help them pay down their mortgages faster—misrepresented the savings that consumers would gain through its services. Lawyers for the defendants rejected those claims, saying in a court filing last month that consumers were told multiple times about the setup fee and that promises of interest savings are true. Ultimately, Judge Richard Seeborg sided with defendants, disagreeing with the CFPB’s assertion that it had presented “uncontroverted evidence” of deception and that “no reasonable fact finder” could find in defendants’ favor.
On January 31, the CFPB issued consent orders against four entities—a mortgage lender, two real estate brokers, and a mortgage servicer—alleged to have participated in an illegal mortgage business referral scheme. According to the first order (2017-CFPB-0006), the mortgage lender violated RESPA when it, among other things, (i) paid for referrals pursuant to various agreements with real estate brokers and other counterparties; (ii) encouraged brokers to require consumers to “prequalify” with the lender; and (iii) split fees with a mortgage servicer to obtain consumer referrals. Based on these and other allegations, the CFPB ordered the lender to pay a $3.5 million civil money penalty. In addition, the Bureau issued consent orders against the two real estate brokers and the mortgage servicer that allegedly participated in the kickback scheme (see 2017-CFPB-0008, 2017-CFPB-0009, and 2017-CFPB-0007). Notably, the Bureau alleges that the servicer also violated FCRA by ordering “trigger leads” from credit bureaus so that it could market the lender to consumers. The real estate brokers and servicer were ordered to pay a combined $495,000 in consumer relief, repayment of ill-gotten gains, and penalties. Read the special alert issued February 1 on InfoBytes.
Special Alert: CFPB Consent Orders Address Wide Range of Real Estate Referral Practices Under Section 8(a) of RESPA
On January 31, the CFPB announced consent orders against mortgage lender Prospect Mortgage, LCC (“Prospect”), real estate brokers Willamette Legacy, LLC d/b/a Keller Williams Mid-Willamette, and RGC Services, Inc. d/b/a Re/Max Gold Coast Realtors (together, “the Brokers”), and mortgage servicer Planet Home Lending, LCC (“Planet”), based on allegations that a wide range of business arrangements between the parties violated the prohibition on “kickbacks” in Section 8(a) of RESPA.
In a press release accompanying the settlements, CFPB Director Richard Cordray stated that the Bureau “will hold both sides of these improper arrangements accountable for breaking the law, which skews the real estate market to the disadvantage of consumers and honest businesses.” The consent orders address a number of practices that have long been the source of uncertainty within the industry. Unfortunately, despite acknowledging in the orders that referrals are an inherent part of real estate transactions, the Bureau provided little constructive guidance as to how lenders, real estate brokers, title agents, servicers, and other industry participants should structure referral arrangements to comply with RESPA.
RESPA Section 8(a)
Section 8(a) of RESPA provides that “[n]o person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.”
Notably, the CFPB’s consent orders make no reference to Section 8(c)(2), which provides that “[n]othing in this section shall be construed as prohibiting … the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.” In a much discussed decision, a panel of the U.S. Court of Appeals for the D.C. Circuit reversed the CFPB’s $109 million penalty against PHH Corporation in October 2015 based on, among other things, the CFPB’s failure to establish that payments for the service at issue (reinsurance) exceeded the fair market value of the service. The CFPB is currently seeking rehearing of this decision from the full D.C. Circuit, as discussed in our summaries of the Bureau’s petition for en banc reconsideration, responses from PHH and the Solicitor General, a motion to intervene filed by several State Attorneys General, and, most recently, PHH’s reply to both the Solicitor General and the motions to intervene.
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If you have questions about the order or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.
Nevada Supreme Court Holds that HOA Superpriority Statute Does Not Violate Due Process, Declines to Follow 9th Circuit
On January 26, in Saticoy Bay LLC Series 350 Durango 104 v. Wells Fargo Home Mortgage, No 68630, (Nev. Jan 26, 2017), the Nevada Supreme Court reaffirmed its interpretation of the state statute granting priority lien status to unpaid condo assessments (Nev. Rev. Stat. § 116.3116 et seq.); specifically that foreclosure of such liens extinguishes prior-recorded mortgages. The Nevada Supreme Court declined to follow a 2016 ruling by the Ninth Circuit holding that the statute violates the Due Process Clause of the 14th Amendment. Rather, the Nevada Supreme Court stated that the Due Process Clause protects individuals from state actions, and a foreclosing HOA cannot be deemed to be a state actor. In doing so, the court specifically notes that “[w]e acknowledge that the Ninth Circuit has recently held that the Legislature's enactment of NRS 116.3116 et seq. does constitute state action. . . . However, for the aforementioned reasons, we decline to follow its holding.”
Supreme Court Holds that Sue-and Be-Sued Clause Does Not Create Automatic Federal Jurisdiction in Suits Involving Fannie Mae
On January 18, in Lightfoot v. Cendant Mortgage Corp., No. 14-1055, the Supreme Court of the United States unanimously held that Fannie Mae’s sue-and-be sued clause does not grant federal courts jurisdiction over all cases involving Fannie Mae. In reaching its conclusion, the Court found that the clause, which authorizes Fannie Mae “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal,” was distinct from other sue-and-be-sued clauses previously considered to confer jurisdiction. Unlike other clauses, which referred to suit in federal court without qualification, the Fannie Mae clause authorized suit in “any court of competent jurisdiction.” Accordingly, the Court concluded that “[i]n authorizing Fannie Mae to sue-and-be-sued ‘in any court of competent jurisdiction, State or Federal’ it permits suit in any state or federal court already endowed with subject-matter jurisdiction over the suit” and thus a suit involving Fannie Mae does not automatically create federal jurisdiction.