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Financial Services Law Insights and Observations

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  • Department of Education Withdraws Student Loan Guidance; Bipartisan Legislation Introduced to Require APR Disclosure on Federal Student Loans

    Lending

    On March 16, the U.S. Department of Education (Department) Acting Assistant Secretary Lynn B. Mahaffie notified relevant agencies that the Department is withdrawing statements of policy and guidance regarding repayment agreements and liability for collection costs on Federal Family Education Loan Program (FFELP) loans as previously stated in its July 10, 2015 Dear Colleague Letter (DCL) GEN 15-14. GEN 15-14 barred a "guaranty agency from charging collection costs to a defaulted borrower who (i) responds within 60 days to the initial notice sent by the guaranty agency after it pays a default claim and acquires the loan from the lender; (ii) enters into a repayment agreement, including a rehabilitation agreement; and (iii) honors that agreement.” The Department emphasized that the "position set forth in the DCL would have benefited from public input on the issues discussed in the DCL,” and as a result, the Department has withdrawn the DCL and will not require compliance without the opportunity for the public to provide comments.

    Earlier in the month, Representatives Randy Hultgren (R-IL), Luke Messer (R-IN), and David Scott (D-GA) reintroduced the Transparency in Student Lending Act (H.R. 1283)—bipartisan legislation requiring the disclosure of the annual percentage rate on federal loans issued by the Department of Education. In 2008 the Truth in Lending Act disclosure requirements were applied to private loans, but not to federal student loans—an omission that does a “gross disservice” to borrowers according to Hultgren. “The Department of Education is the largest consumer lender in the United States, and should provide the most transparent and helpful information to borrowers. Helping borrowers understand their debt obligations is an important first step to ensuring they are able to make their payments, and also helps prevent taxpayers from being on the hook for delinquent borrowers,” noted Hultgren.

    Lending Agency Rulemaking & Guidance Student Lending Department of Education TILA

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  • FHFA Releases January 2017 “Refinance Report”

    Lending

    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.

    Lending FHFA Mortgages Home Affordable Refinance Program

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  • Treasury Department Releases Reports on “Troubled Asset Relief” and “Making Home Affordable” Programs

    Lending

    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.

    Lending Treasury Department TARP Mortgages

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  • FDIC Releases Winter 2016 “Supervisory Insights”

    Lending

    On March 7, the FDIC released its Winter 2016 Supervisory Insights, which contains articles discussing credit risk trends and balance sheet growth, emphasizes the importance of strong risk management practices, and provides a roundup of recently released regulatory and supervisory guidance. Doreen Eberley, Director of the FDIC’s Division of Risk Management Supervision, stated in the release that “[h]istorically, financial institutions that have prudently managed loan growth have been better positioned to withstand periods of stress and continue to serve the credit needs of their local communities.” Her statement goes on to “encourage bankers to identify and correct loan underwriting and administration problems before they adversely affect the bottom line.” The Supervisory Insights note that nearly 80 percent of insured institutions grew their loan portfolios during the third quarter of 2016, which is “a figure not far from the peak of nearly 83 percent of institutions that grew their portfolios in 2005.” While this edition focused primarily on lending in the following sectors—commercial real estate, agriculture, and oil and gas—it also stressed the need for managing loan concentrations through strong, forward-looking risk management practices that allow for early intervention.

    Lending FDIC Risk Management

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  • CFPB Reaches Settlement with Arizona-Based Title Lender

    Lending

    On March 13, the CFPB issued a consent order and stipulation in an enforcement action against the fifth of five Arizona-based title lenders under investigation for advertising periodic interest rates without including corresponding annual percentage rates. As previously covered in Infobytes in September and February, this marks the conclusion of the investigation initiated by the Bureau last year against five title lenders for alleged violations of TILA, Regulation Z, and the Consumer Financial Protection Act’s prohibition against unfair, deceptive, or abusive acts or practices. The terms of the consent order include a $40,000 civil money penalty, an agreement that the lender will refrain from further violations of TILA, and a requirement that the lender submit a comprehensive plan to ensure compliance with all applicable federal consumer financial laws and the terms of the consent order.

    Lending Consumer Finance CFPB TILA Regulation Z UDAAP

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  • CFPB Issues Largest HMDA Fine in Bureau History Against Nonbank Mortgage Lender

    Lending

    On March 15, the CFPB announced a consent order assessing a $1.75 million civil money penalty against a national mortgage lender for failing to accurately report mortgage data in violation of the Home Mortgage Disclosure Act (“HMDA”). The Bureau alleged that, during the supervision process, it found the lender’s HMDA compliance systems to be flawed, and that the flaws led to the generation of “significant, preventable” errors in its mortgage lending data. The following violations were also alleged: (i) a failure to “maintain detailed HMDA data collection and validation procedures”; (ii) a failure to “implement adequate compliance procedures”; and (iii) a failure to “consistently define data among its various lines of business,” which resulted in data discrepancies.  As reported by the Bureau, the size of the penalty reflects the lender’s market size, the magnitude of the errors, and its history of violations. The terms of the consent order require the lender to pay a $1.75 million penalty, develop an effective compliance management system to prevent future violations, and review and correct HMDA reporting inaccuracies for the defined time period. Notably, the consent order does not provide for consumer redress.

    Later that day, the mortgage lender issued a statement announcing the resolution of the Bureau’s examination and highlighting the company’s efforts “over the past two years” to “proactively ma[ke] substantial investments in new staff, training and technology to enhance all of [their] HMDA-related processes and controls.”

    Lending CFPB Mortgage Lenders HMDA Data Collection / Aggregation

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  • Illinois-Based Lender, HUD Resolve Fair Housing Act Matter

    Lending

    On March 10, HUD released a Conciliation Agreement with an Illinois-based lender alleged to have discriminated against African-American and Hispanic borrowers seeking mortgage loans. The complaint, brought by HOPE Fair Housing Center (HOPE), claims the lack of bank branches in majority African-American and Hispanic communities resulted in fewer financial services being offered to applicants based on their race and national origin in violation of the Fair Housing Act. HOPE’s complaint also claims that African-American and Hispanic applicants were more likely to receive less favorable mortgage terms than other races. As part of the settlement, the lender will establish a $1 million loan program to “increase mortgage lending to residents in majority African-American and Hispanic areas” and will pay $75,000 to HOPE. Among other things, the agreement also states the lender will offer consumer education outreach in minority areas and provide fair lending training for its staff.

    Lending Mortgage Lenders Fair Housing HUD Fair Lending

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  • FDIC Advisory Committee on Community Banking to Host Open Meeting on March 28

    Lending

    The Federal Deposit Insurance Corporation’s Advisory Committee on Community Banking will host an open meeting on Tuesday, March 28, 2017, at 9 a.m. The Advisory Committee will provide advice and recommendations on a broad range of policy issues that have particular impact on small community banks and the local communities they serve, with a focus on rural areas.

    Lending Agency Rulemaking & Guidance FDIC Community Banks

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  • NJ Lawyer Convicted of $40.8 Million Mortgage Fraud Scheme

    Lending

    On March 8, a U.S. District Court Judge sentenced a New Jersey lawyer to a four year prison term for participating in a mortgage fraud scheme that tricked lenders into releasing $40.8 million based on fraudulent loan applications. The investigation, led by the District of New Jersey U.S. Attorney’s Office, concluded that the defendant and his co-conspirators created false documents to help “straw buyers”—“people with good credit scores but lacking the financial resources to qualify for mortgage loans”—appear more creditworthy so they could purchase properties. The defendant then falsified mortgage loan applications and supporting documents, submitted the paperwork to mortgage lenders, and laundered a portion of the loan proceeds through accounts controlled by the defendant and co-conspirators. In addition to the prison term, the defendant was sentenced to three years of supervised release, ordered to pay restitution of over $13.1 million and required to forfeit over $2.41 million of fraudulent proceeds.

    Lending Financial Crimes Mortgage Fraud

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  • FDIC Releases March List of CRA Compliance Examinations

    Lending

    On March 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 December 2016. Monthly lists of all state nonmember banks whose evaluations have been made publicly available since July 1, 1990 can be accessed through the FDIC's website.

    Lending Consumer Finance CRA FDIC

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