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Fannie Mae and Freddie Mac Update Servicing Guides
On October 11, Fannie Mae and Freddie Mac announced updates to their respective Servicing Guides.
Fannie Mae. Servicing Guide Announcement SVC-2017-09 highlights recent updates to the Servicing Guide, including topics related to the management of electronic transactions such as: (i) confirmation that sellers and servicers may originate, service, and modify loans using electronic records (electronic promissory notes require special approval); (ii) streamlined language clarifying requirements for the accuracy of information in electronic records; (iii) specification that paper records are not required for recorded mortgages and deeds of trust; (iv) clarification that all electronic signatures must comply with ESIGN, UETA, and other applicable laws; and (v) the removal of requirements for document custodians from the Servicing Guide that were duplicative of requirements set forth in Fannie Mae’s Requirements for Document Custodians. Additional updates address changes made to the reimbursement of foreclosure sale publication costs for costs incurred on or after January 1, 2018, and specific guidance for servicers pertaining to mortgage liens (to be implemented by December 1, 2017).
Freddie Mac. Freddie Mac issued Bulletin 2017-22 announcing servicing updates concerning (i) modifications to imminent default evaluation and process requirements (jointly developed with Fannie Mae) that will take effect July 1, 2018; and (ii) provisions under the Servicemembers Civil Relief Act (SCRA) related to compliance time frames for servicers when responding to, or submitting requests for, interest rate reductions, along with updates that take effect February 1, 2018, concerning Guide Exhibit 71 used by servicers to report eligible SCRA interest rate subsidized loans. The updates also eliminate the manual property condition certificate process and modify time frame requirements for cancelling property insurance policies on real estate owned properties.
CFPB Publishes Updated TRID Small Entity Compliance Guide; ABA Submits Comments on CFPB’s Proposal to Fix TRID’s “Black Hole” Issue
On October 6, the CFPB released an updated version of its TILA-RESPA Integrated Disclosure Rule (Final Rule) small entity compliance guide. The updated guide reflects amendments issued July 7, previously discussed in a Buckley Sandler Special Alert, that the CFPB made to the Final Rule. The guide also provides a version log to outline incorporated changes.
Separately, on October 10, the American Bankers Association (ABA) issued a comment letter regarding the CFPB’s proposal to address an aspect of the Final Rule concerning a “black hole” issue that prevents creditors from resetting tolerances using the Closing Disclosure except in very limited circumstances. (See previous InfoBytes coverage here.) The proposal was issued August 11, the same day the CFPB published the Final Rule. In its letter, the ABA requested additional clarification on certain areas of the proposal, but stated that it supports the removal of the “four-business-day limit for providing Closing Disclosures for purposes of resetting tolerances” because it “is an effective and very efficient approach to addressing the ‘black hole’ problem while preserving adequate consumer protections that will avoid bait-and-switch tactics or unjustified fee increases.” Furthermore, the ABA believes, “the use of [Closing Disclosures], whether initial or corrected, as a vehicle for correcting and ‘re-baselining’ fee disclosures, is a straightforward approach to returning regulatory order and compliance clarity on this provision.”
California Governor Incorporates Federal Military Lending Act Amendments Into State Financial Code
On October 5, California Governor Jerry Brown signed into law revisions to sections of the state’s Financial Code to incorporate references to federal Military Lending Act (MLA) amendments and applicable regulations. Impacted are the state’s Banking Law, Credit Union Law, Finance Lenders Law, and Deferred Deposit Transaction Law. Specifically, SB 266 is designed to ensure that the California Department of Business Oversight’s Commissioner has the authority to enforce violations of the federal MLA rules by state-regulated lenders. The provisions also incorporate additional changes to Section 394 of the state’s Military and Veterans Code to prohibit discrimination against servicemembers (Assembly Bill No. 1710 was approved by Governor Brown on October 8). The amendments take effect January 1, 2018.
Fannie Mae Updates Servicing Guidelines for Multifamily Residences
On September 29, Fannie Mae released updates to its servicing guidelines for multifamily residences, effective October 2. Fannie Mae is updating provisions concerning Asset Management and Watchlist Management. Changes include:
- removing color descriptions that previously corresponded to defined Mortgage Loan rating classifications;
- updating the rating classification descriptions and/or characteristics to conform to regulatory definitions for Pass/Watch and Special Mention Assets; and
- requiring Servicers provide an explanation and status of the issues causing an Asset to be reported on the Servicer Watchlist.
OCC Releases Bank Supervision Operating Plan for Fiscal Year 2018
On September 28, the OCC’s Committee on Bank Supervision released its bank supervision operating plan (Plan) for fiscal year (FY) 2018. The Plan outlines the agency’s supervision priorities and specifically highlights the following supervisory focus areas: (i) cybersecurity and operational resiliency; (ii) commercial and retail credit loan underwriting, concentration risk management, and the allowance for loan and lease losses; (iii) business model sustainability and viability and strategy changes; (iv) Bank Secrecy Act/anti-money laundering compliance management; and (v) change management to address new regulatory requirements.
The annual Plan guides the development of supervisory strategies for individual national banks, federal savings associations, federal branches, and federal agencies, and service providers.
The OCC will provide updates about these priorities in its Semiannual Risk Perspective, as InfoBytes has previously covered.
AG Coalition Urges Department of Education to Reconsider Termination of MOUs With CFPB
On September 26, Pennsylvania Attorney General Josh Shapiro, along with 18 other state attorneys general (state AGs) and the Executive Director of the Hawaii Office of Consumer Protection, issued a letter to U.S. Department of Education (Department) Secretary Betsy DeVos in reaction to the Department’s August 31 letter to the CFPB, which terminated two Memoranda of Understanding (MOUs) that previously permitted the sharing of information in connection with the oversight of federal student loans. (See previous InfoBytes coverage regarding the MOUs here.) The letter to Secretary DeVos urges the Department to reconsider the termination of the MOUs and offers support for the work the CFPB has done—often in partnership with the Department and state AGs—to protect the millions of students and families that are repaying student loans. The State AGs contend the Department “falsely asserted it has exclusive jurisdiction over companies that service federal student loans when, in fact, student loan servicers are under the jurisdiction of the CFPB, [FTC], [DOJ], [state AGs] and other law enforcement agencies.” The state AGs further claim that the termination of the MOUs removes “critical protections” that were in place to “streamline the supervision of student loan servicers” and assist borrowers trying to resolve complaints related to their student loans. The letter cites several actions initiated by state AGs against the Department for allegedly abandoning its responsibility to protect student loan borrowers over the past seven months, including the Department’s decision to delay the Borrower Defense Rule and roll back the Borrower Defense and Gainful Employment Rules.
Massachusetts AG Takes Action Against Auto Dealer for Deceptive Marketing and Sales Tactics
On September 26, Massachusetts Attorney General Maura Healey announced a lawsuit against a large auto dealership and its in-house lender for allegedly misleading consumers into purchasing unfavorable sale packages. According to the Commonwealth’s complaint, filed in the Suffolk County Superior Court, the auto dealer purportedly (i) sold consumers cars priced at more than double their retail value; (ii) extended loans to consumers with an APR of 20 percent, regardless of credit qualifications; and (iii) combined these sales with an expensive and limited service contract. The complaint further alleges that because of these sales practices and a faulty underwriting process, more than half of the auto dealer’s sales fail or end in repossession. The complaint seeks injunctive relief, restitution, civil penalties, and attorney fees.
District Court Fines Mortgage Brokers More Than $298 Million for Alleged FCA/FIRREA Violations
On September 14, a federal judge in the U.S. District Court for the Southern District of Texas ruled after a five-week jury trial that defendants, who allegedly submitted fraudulent insurance claims after acquiring risky loans, were liable for treble damages and the maximum civil penalties allowed under the False Claims Act (FCA) and the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). According to the court, the evidence presented at trial demonstrated that the damages suffered by the U.S. were a “foreseeable consequence” of the defendants’ misconduct and that such misconduct was part of an “prolonged, consistent enterprise of defrauding the [U.S.],” warranting a higher level of penalties. The jury found that one of the defendants along with its CEO “submitted or caused to be submitted 103 insurance claims” while misrepresenting that its branches were registered by HUD, causing the Federal Housing Administration (FHA) to sustain damages in excess of $7 million. A separate mortgage broker defendant was found to have submitted or caused to be submitted 1,192 insurance claims causing over $256 million in damages to the FHA due to the “reckless” underwriting of loan applications, in violation of FCA. The court rejected the defendants’ request for lenient civil penalties, finding the defendants’ behavior to be “custom-designed to flout the very program that relied upon [defendants’] diligence and compliance” and demonstrating “a patent unwillingness to accept responsibility for their actions.” The FIRREA penalties resulted from defendants submitting false annual certifications to HUD that were intended “to serve as a separate and independent quality check on the [defendant’s] branches,” but instead led to injury in the form of borrowers entering into default or foreclosures, as well as elevated mortgage insurance premiums.
The judge imposed over $291 million in FCA treble damages and penalties against the three defendants. Additionally, each defendant was fined $2.2 million in FIRREA penalties for actions that “were neither isolated or relatively benign . . . [but] were reckless, egregious, and widely injurious.”
CFPB Files Complaint Against Company that Allegedly Made False Loan Offers
On September 19, the CFPB announced it had filed a complaint in the U.S. District Court for the Southern District of New York against a New Jersey-based company and two associated individuals (defendants) that allegedly offered loans to consumers who were awaiting payouts from legal settlements or statutory- or victim-compensation funds. According to the complaint, the company engaged in deceptive acts and practices in violation of the Consumer Financial Protection Act by purportedly representing itself as a direct lender, when in actuality it did not provide loans to consumers, but instead brokered transactions while charging a commission for the service. Among other things, the defendants allegedly (i) misrepresented the annual percentage rates (APR) on the advances given to consumers, often representing that interest rates were as small as one to two percent when the actual APR was much higher; (ii) falsely claimed that it had offices in all 50 states and employed a staff of accounting, financial, and legal professionals; and (iii) misled consumers by stating in their marketing materials that consumers could receive loan proceeds within one hour, when the process took longer.
According to the proposed final judgment and order, which must be approved by the district court, the defendants shall be banned from offering these types of loans or advances to consumers in the future. In addition, the company and the owner—who was responsible for decision-making and operations—are jointly liable for a $60,000 civil money penalty to the CFPB. The second individual—who was responsible for recruiting consumers through marketing materials and websites—must pay a $10,000 civil money penalty to the CFPB. The Bureau noted in the announcement that the low penalties take into account the defendants’ inability to pay greater amounts.
FHFA Releases July 2017 Refinance Report
On September 14, the Federal Housing Finance Agency (FHFA) published its Refinance Report for July 2017. As previously reported by the FHFA and other sources, interest rates continued to increase for 30-year fixed-rate mortgages in July (from 3.9 percent in June to 3.97 percent), while overall refinance volume decreased. Specific to the Home Affordable Refinance Program (HARP), the report found, among other things, that borrowers completed 2,305 HARP refinances in July, bringing the total HARP refinances to 3,473,109. Consistent with recent Refinance Reports, the report also notes that borrowers who refinanced through HARP had a lower delinquency rate compared to borrowers eligible for HARP who did not refinance through the program. Last month, the FHFA extended HARP until December 31, 2018.