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OCC reports on third quarter mortgage performance
On December 15, the OCC announced the release of OCC Mortgage Metrics Report, Third Quarter 2022, in which it reported that “97.2 percent of mortgages included in the report were current and performing at the end of the quarter, compared to 95.6 percent a year earlier.” As explained in the report, servicers initiated 9,835 new foreclosures in the third quarter of 2022—a decrease from the previous quarter but an increase from a year ago. The foreclosure volume in this reporting period is lower than pre-Covid-19 pandemic foreclosure volumes, the OCC said. Servicers also completed 16,160 mortgage modifications in the third quarter—a 42.5 percent decrease from the previous quarter. Of these modifications, 72.4 percent reduced a loan’s pre-modification monthly payment, and 93.1 percent consisted of a combination modification containing multiple actions such as interest rate reductions and term extensions. Additionally, the OCC found that during the reporting period, first-lien mortgages represented 22 percent of all outstanding residential mortgage debt (or approximately 12 million loans equaling $2.7 trillion in principal balances).
Fed issues final rule for LIBOR replacement
On December 16, the Federal Reserve Board adopted a final rule to implement the Adjustable Interest Rate Act by identifying benchmark rates based on the Secured Overnight Financing Rate (SOFR) that will replace LIBOR in certain financial contracts after June 30, 2023. The final rule ensures that LIBOR contracts adopting a benchmark rate selected by the Fed will not be interrupted or terminated following LIBOR’s replacement. Among other things, the final rule identifies: (i) SOFR-based Fed-selected benchmark replacements for LIBOR contracts that will not mature prior to the LIBOR replacement date and do not contain clear and practicable benchmark replacements; (ii) different SOFR-based Fed-selected benchmark replacements for different categories of LIBOR contracts, including overnight, one-month, three-month, six-month, and 12-month LIBOR contracts subject to the Act; and (iii) certain benchmark replacement conforming changes related to the implementation, administration, and calculation of the Fed-selected benchmark replacement. The Fed noted that in response to comments, the final rule restates safe harbor protections contained in the Act for selection or use of the replacement benchmark rate selected by the Fed, and clarifies who would be considered a “determining person” able to choose to use the replacement benchmark rate.
OCC rescinds FDCPA section of booklet
On December 15, the OCC announced that the Federal Financial Institutions Examination Council’s Task Force on Consumer Compliance adopted revised examination procedures for the FDCPA and its implementing regulation, Regulation F. Among other things, the revised interagency examination procedures incorporate the CFPB's 2020 and 2021 FDCPA that went into effect in November 2021. The announcement noted that the agency is rescinding the “Fair Debt Collection Practices Act” section of the “Other Consumer Protection Laws and Regulations” booklet of the Comptroller's Handbook. The revised interagency examination procedures address, among other things: (i) determinations of whether a bank is a debt collector under the FDCPA and Regulation F; (ii) prohibitions on certain communications with consumers in connection with debt collection; and (iii) requirements for a reasonable and simple method that consumers can use to opt out of additional communications and attempts to communicate.
DOJ settles with Alabama housing authority on discrimination allegations
On December 15, the DOJ announced the approval of a consent decree by the U.S. District Court for the Northern District of Alabama, which resolves a Fair Housing Act lawsuit against an Alabama public housing authority, as well as several related parties, accused of engaging in racial steering. According to the DOJ, the defendants allegedly maintained largely segregated housing and steered Black applicants away from several overwhelmingly white housing communities to two predominantly Black housing communities. In the DOJ’s investigation, tenants and residents reportedly highlighted “the deep psychological stigma and harm suffered by hundreds of Black families who have lived in segregated housing for generations.” Under the consent decree, the defendants must pay $275,000 in damages to 23 current or former tenants who were allegedly harmed by the race discrimination, as well as a $10,000 civil money penalty. Among other requirements, the defendants must (i) implement policies and procedures to remedy the alleged segregation and to ensure applicants are not offered housing community units based on their race or color; (ii) undergo fair housing training; and (iii) periodically submit compliance reports to the DOJ.
Chopra testifies at congressional hearings
On December 14, CFPB Director Rohit Chopra testified at a hearing titled Consumers First: Semi-Annual Report of the Consumer Financial Protection Bureau held by the House Financial Services Committee on the CFPB’s most recent semi-annual report to Congress (covered by InfoBytes here). Chopra’s prepared statement focused on: (i) the current state of the economy and household finance; (ii) promoting an open, competitive, and a decentralized market; and (iii) actions by Congress where bipartisan support is expected. Chopra also cited concerns regarding the accuracy of medical debt credit reporting and noted that the CFPB is continuing “to examine how medical debt burdens are impacting household balance sheets.”
House Financial Services Chairwoman Maxine Waters (D-CA) praised Chopra’s leadership in her opening statement, stating that the Bureau has combated “redlining, housing discrimination, illegal evictions, and foreclosures, and has worked tirelessly to root out appraisal bias.” However, Ranking Member Patrick McHenry (R-PA) argued that the Bureau’s “lack of transparency is of grave concern.” McHenry discussed the CFPB’s six compliance bulletins, five advisory opinions, five interpretive rules, and seven circulars published this year, which he considers to have fostered “uncertainty” within the financial services industry. McHenry also warned Chopra that he can expect “much more thorough” oversight next year when Republicans take control of the House and when McHenry becomes the chair of the House Financial Services Committee.
During the hearing, Chopra acknowledged that the Bureau's Section 1071 Rulemaking “is on track to issue a final rule by March 31, 2023”—a deadline established by court order in July as a result of a stipulated settlement reached in February 2020 with a group of plaintiffs, including the California Reinvestment Coalition, related to the collection of small business lending data (covered by InfoBytes here). Chopra added that the Bureau wants to ensure it has “an implementation period that gives the smaller firms more time, and the ability to make sure it’s not duplicative with existing requirements under the Community Reinvestment Act.”
During the hearing, Republican committee members inquired about the agency’s creation and use of the term “junk fees” to describe, among other things, legal fees that banks charge for financial products and services. According to Rep. Blaine Luetkemeyer (R-MO) “there is no such word in financial services lexicon,” and the Bureau is “making up a word and then using it to go out and enforce something that doesn’t exist.” Republican committee members also inquired about the Bureau’s recent updates to its UDAAP exam manual. As previously covered by a Buckley Special Alert, in March, the CFPB announced significant revisions to its UDAAP exam manual, in particular highlighting the CFPB’s view that its broad authority under UDAAP allows it to address discriminatory conduct in the offering of any financial product or service. Rep. Andy Barr (R-KY) commented that “this is not interpretive guidance,” and said Chopra is “trying to change the law.”
Chopra reiterated the Bureau’s priorities in his December 15 testimony before the Senate Banking Committee. During the hearing, Ranking Member Sherrod Brown (D-OH) noted that Republican lawmakers proposed legislation to subject the CFPB to appropriations and to change the CFPB's single-director structure to a commission. Chopra was also questioned by Ranking Member Patrick Toomey (R-PA) who raised concerns regarding the Bureau’s “overreach and pursuit of a politicized agenda.” He further argued that “the Dodd-Frank Act exempted the CFPB from appropriations,” and “empowers the CFPB to simply take funds from the Fed, which is itself also not subject to appropriation, thereby doubly insulating the CFPB from any congressional control.” Other topics discussed during the hearing included, among other things, military lending, credit cards, and overdraft fees.
FHA announces pandemic assistance on reverse mortgages
On December 15, FHA published Mortgagee Letter 2022-23, COVID-19 Home Equity Conversion Mortgage (HECM) Property Charge Repayment Plan, which provides requirements for a new property charge repayment plan option for senior homeowners with HECMs who have gotten behind on their property charge payments as a result of the Covid-19 pandemic. The eligibility policies of the new repayment plan include, among other things:
- Making the plan available to borrowers who have applied for Homeowner Assistance Fund (HAF) assistance, if the HAF funds combined with the borrower’s ability to repay will satisfy the servicer’s advances for the delinquent property charges;
- Permitting the Covid-19 HECM Repayment Plan regardless of whether the borrower has been unsuccessful on a prior repayment plan and whether the borrower owes over $5,000 in property charge advances; and
- Requiring a verbal attestation from the borrower that they have been impacted by Covid-19.
Additionally, borrowers may receive a repayment plan regardless of the dollar amount of property charge payments owed. Further, servicers can offer homeowners a repayment plan of up to five full years (60 months) regardless of whether a prior repayment plan has been used.
Mortgage lender agrees to pay $38.5 million to settle False Claims Act underwriting allegations
On December 14, the DOJ announced a $38.5 million settlement with a mortgage lender to resolve alleged False Claims Act (FCA) violations related to its origination and underwriting of mortgages insured by the Federal Housing Administration (FHA). According to the DOJ, a former underwriter filed a lawsuit under the FCA’s whistleblower provisions alleging the lender engaged in an underwriting process that allowed employees to disregard FHA rules and falsely certify compliance with underwriting requirements. These actions, the underwriter claimed, resulted in the government later paying insurance claims on loans that were improperly underwritten. Under the terms of the settlement, the lender will pay $38.5 million to the U.S., with the whistleblower receiving more than $11.5 million. Notably, not only did the DOJ not exercise its right to join the case and take over its prosecution, but also had sought unsuccessfully to have the case dismissed. The Supreme Court heard oral argument in United States, ex rel. Polansky v. Executive Health Resources, Inc. regarding whether and when the government has authority to force such a dismissal of a False Claims Act brought by a whistleblower.
CFTC, DOJ, SEC file charges in crypto fraud scheme
On December 13, the SEC filed a complaint against the former CEO/co-founder (defendant) of a collapsed crypto exchange for allegedly orchestrating a scheme to defraud equity investors. According to the SEC, from May 2019 to November 2022, the defendant raised over $1.8 billion from investors who bought an equity stake in his company in part because they believed his representations that the platform had “top-notch, sophisticated automated risk measures in place.” The complaint alleged, among other things, that the defendant orchestrated “a massive, years-long fraud” to conceal (i) the undisclosed diversion of customers’ funds to the defendant’s privately-held crypto hedge fund; (ii) the undisclosed special treatment afforded to the hedge fund on the company platform, including providing it with a virtually unlimited “line of credit” funded by the platform’s customers; and (iii) the undisclosed risk stemming from the company’s exposure to the hedge fund’s significant holdings of overvalued, illiquid assets, such as the platform-affiliated tokens. The complaint further alleged that the defendant used commingled funds at his hedge fund to make undisclosed venture investments, purchase lavish real estate purchases, and give large political donations. The SEC’s complaint charged the defendant with violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC is seeking injunctions against future securities law violations; an injunction that prohibits the defendant from participating in the issuance, purchase, offer, or sale of any securities, except for his own personal account; disgorgement of his ill-gotten gains; a civil penalty; and an officer and director bar.
The defendant was also indicted by a grand jury in the U.S. District Court for the Southern District of New York on wire fraud, commodities fraud, securities fraud, money laundering, and campaign finance charges.
The CFTC also filed a complaint against the former CEO/co-founder, in addition to the collapsed crypto exchange and the hedge fund for making material misrepresentations in connection with the sale of digital commodities in interstate commerce. Specifically, the CFTC alleged that the exchange’s executives, at the former CEO’s direction, created a number of exceptions to benefit his hedge fund, including adding features in the underlying code to permit the hedge fund to “maintain an essentially unlimited line of credit” on the trading platform through an “allow negative flag,” which allowed the hedge fund to withdraw billions of dollars in customer assets from the company. The CFTC is seeking restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act and CFTC regulations, as charged.
Later, on December 21, the SEC and CFTC filed charges (see here and here) against the former CEO of the hedge fund and the former chief technology officer of the collapsed crypto exchange for their roles in the scheme to defraud equity investors. The agencies stated that investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.
CFPB to issue $95 million in redress to victims of student loan debt relief operation
On December 13, the CFPB announced that it will distribute more than $95 million in redress to over 87,000 consumers harmed by a student loan debt relief operation. As previously covered by InfoBytes, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against the defendants for allegedly deceiving thousands of student loan borrowers and charging more than $71 million in unlawful advance fees. In the complaint filed October 21, 2019, and unsealed on October 29, 2019 in the U.S. District Court for the Central District of California, the Bureau and the states alleged that since at least 2015, the defendants have violated the CFPA, the TSR, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. The CFPB also claimed that the defendants automatically put loans in forbearance and submitted false information to loan servicers to qualify customers for lower monthly payments.
CFPB and FHFA release updated loan-level mortgage data on borrowers’ pandemic experiences
On December 13, the CFPB and FHFA published updated loan-level data from the National Survey of Mortgage Originations. (See also FHFA announcement here.) The publicly available data highlights borrowers’ experiences when obtaining a mortgage during the Covid-19 pandemic. Key highlights from the updated data include: (i) in 2020 a higher percentage (48 percent) of borrowers reported that a paperless online mortgage process was important; (ii) 21 percent of borrowers reported that their mortgage closing did not occur as originally scheduled (up from 17 percent in 2019); (iii) an increased number of borrowers reported that they were very familiar with available interest rates, with 78 percent of borrowers (up from 67 percent in 2019) stating that they were very satisfied with the interest rate that they qualified for; and (iv) borrowers who refinanced in 2020 versus 2019 were better off financially, with 76 percent of borrowers who refinanced reporting that they were not concerned about qualifying for a mortgage in 2020.
“The data released today provide a clear view of borrower sentiment about the mortgage process during the COVID pandemic in 2020,” said Saty Patrabansh, FHFA Associate Director for the Office of Data and Statistics. “This data should be helpful to analysts and policymakers in understanding the complete experience of mortgage borrowers and identifying what challenges may still exist in mortgage lending.”