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VA reduces funding fee for certain loans
On February 14, the Department of Veterans Affairs announced a funding fee charge update for loans closed on or after April 7, 2023. According to Circular 26-23-06, funding fees are charged on VA transactions involving a home loan where a borrower does not qualify for a fee waiver. A reduced funding fee also applies to borrowers purchasing or constructing a home with a five or 10 percent down payment. The VA explained that lenders are to continue charging non-exempt veterans the current funding fee percentage for loans closed prior to April 7 (fee rates are listed here). For loans closed on or after April 7, lenders must charge the new funding fee percentage (fee rates are listed here).
Montana amends mortgage servicing laws
On February 16, the Montana governor signed HB 30, which amends certain provisions of the state’s mortgage laws. Among other things, the act outlines provisions related to financial condition requirements, model state regulatory prudential standards for nonbank mortgage servicers, risk assessments, and licensee reporting requirements. The act also permits remote work provided certain conditions are met, including that a licensee’s employees and independent contractors do not meet with the public in an unlicensed personal residence, business records are not stored at the remote locations, appropriate security measures are put in place to ensure the confidentiality of customer information, and the NMLS record reflects the designation of a properly licensed location as the mortgage loan originator’s official workstation. In addition, the act amends provisions related to the denial of a licensee’s application or renewal, and updates designated manager and branch office licensing requirements to account for the remote location allowance. The act further provides the Department of Administration (acting through the Division of Banking and Financial Institutions) with rulemaking authority for addressing the revocation or suspension of licenses for cause, investigations into alleged violations, and fees, among other things. Additional amendments address the sharing of confidential supervisory information with state and federal financial regulators. Exempt from the act’s requirements are not-for-profit servicers and housing financing agencies, while servicers solely involved in reverse mortgage servicing are exempt from certain portions of the act. Similarly, servicers with 25 or fewer loans, or servicers wholly owned and controlled by one or more state- or federally-regulated depository institutions are also exempt from certain portions of the act. A servicer that is also licensed as an escrow business may apply to waive or adjust certain financial condition requirements. The act is effective July 1.
California Dept. of Real Estate reminds licensees of fiduciary duty requirements
The California Department of Real Estate (DRE) recently reminded real estate licensees with a mortgage loan origination (MLO) endorsement of their fiduciary duty to borrowers. DRE licensees (including brokers, salespersons, and broker-associates supervised by a broker) who provide mortgage brokerage services to a borrower act as a fiduciary of that borrower, the DRE said, explaining that this “includes placing the economic interest of the borrower ahead of their own.” The Bulletin noted that California courts have held that the fiduciary relationship not only requires the broker to act in the highest good faith toward their client but also prohibits the broker from obtaining any advantage over the client by virtue of the fiduciary relationship. Licensees who violate their fiduciary duties may face DRE-disciplinary action against their real estate license and/or MLO endorsement and may also expose themselves to civil liability.
Licensees are reminded that they are required to be aware of all laws, regulations, and rules governing their activities, including the federal Loan Originator Compensation (LO Comp) Rule, which “prohibits loan originators, including brokers, from receiving compensation based on the terms of consumer mortgage transactions.” Prior to the LO Comp Rule, mortgage brokers often received commissions that varied based on the terms of the mortgage loans they obtained for their clients, and in many cases received larger commissions on loans carrying less advantageous terms (e.g., loans with a higher interest rate would result in a larger commission than the same loan with a lower interest rate). The LO Comp Rule now prohibits this practice.
The Bulletin also reminded licensees that receiving greater compensation for acting against the economic interests of a consumer would also violate a broker’s fiduciary responsibility to place the economic interest of their client ahead of their own, should the decision be motivated by a financial desire to increase compensation. Further, licensees may not steer or direct a borrower to close a loan with a particular lender in exchange for receiving a higher commission unless the transaction is the best loan for the borrower. Licensees must also disclose to a borrower the costs and expenses associated with the loan, and disclose all compensation received in the transaction. Taking any secret or undisclosed compensation, commission, or profit is also prohibited, the Bulletin said.
FHA seeks feedback on enhancements to rehabilitation mortgage insurance program
On February 14, FHA issued a request for information (RFI) seeking input on ways the agency can enhance its Single Family 203(k) Rehabilitation Mortgage Insurance Program. Under the 203(k) Program, borrowers who are purchasing or refinancing a home may obtain FHA insurance on a mortgage that will cover the home’s current value plus rehabilitation costs. The 203(k) Program currently offers two options for borrowers: (i) the Standard 203(k) Mortgage, which is used for remodeling and major repairs, carries a minimum repair cost of $5,000, and requires the use of a 203(k) consultant; and (ii) the Limited 203(k) Mortgage, which is used for minor remodeling and non-structural repairs, has a maximum repair cost of $35,000, and does not require the use of a 203(k) consultant. FHA will use information gathered in response to the RFI “to identify barriers that limit the origination of 203(k) insured mortgages and lender participation in the program and consider opportunities to enhance the 203(k) Program to support HUD’s goal of increasing the available supply of affordable housing in underserved communities.” Comments on the RFI are due April 17.
CFPB issues HMDA reference chart for 2023
On February 9, the CFPB published the 2023 Reportable HMDA Data: A regulatory and reporting overview reference chart. The chart serves as a reference tool for data points that are required to be collected, recorded, and reported under Regulation C, as amended by HMDA rules, which were most recently issued in April 2020 (covered by InfoBytes here). The chart also provides relevant regulation and commentary sections and guidance for when to report “not applicable or exempt” as found in Section 4.2.2 of the 2022 Filing Instructions Guide. The Bureau notes that the “chart does not provide data fields or enumerations used in preparing the HMDA loan/application register (LAR).” For additional information on preparing the HMDA LAR, financial institutions should consult FFIEC guidance here.
8th Circuit affirms almost $20 million in damages and attorney’s fees in RMBS action
On February 2, the U.S. Court of Appeals for the Eighth Circuit affirmed a district court order requiring a mortgage lender to pay $5.4 million in damages and $14 million in attorney’s fees for selling mortgages that did not meet agreed-upon contractual representations and warranties to a now-defunct company that packaged and resold the loans to residential mortgage-back securities (RMBS) trusts. The now-defunct company was sued by the RMBS trusts after loans underlying the securitizations began defaulting at a high rate during the 2008 financial crisis. A liquidating trust was established to oversee wind-down measures after the company filed for bankruptcy. The liquidating trust later began suing originators for indemnification over the allegedly defective mortgages. In 2020, the district court ruled in favor of the liquidating trust and entered judgment for $5.4 million in damages, $10.6 million in attorney’s fees, $3.5 million is costs, $2 million in prejudgment interest, and $520,212 in “post-award prejudgment interest.” The district court found, among other things, that the lender had breached its client contracts, and that in doing so, contributed to the now-defunct company’s “losses, damages, or liabilities within the scope of the contractual indemnity.” The court also found the liquidating trust’s damages methodology to be reasonable and nonspeculative. The lender appealed, disagreeing with how the underlying contracts were interpreted, as well as the allocation of multi-party damages and the post-trial award of fees, costs, and interest.
On appeal, the 8th Circuit disagreed, concluding that the terms of the parties’ contract made the lender liable. The appellate court also rejected the lender’s contention that it should not be expected to pay the claims against the now-defunct company because they were extinguished in bankruptcy, and that the methodology used to calculate the damages was inaccurate. In awarding $5.4 million in indemnification damages, the appellate court held that the district court properly found that the expert’s “‘calculation of damages was reasonable and non-speculative,’ and that his methodology produced a reasonably certain measure of [the liquidating trust’s] indemnifiable damages.” The 8th Circuit further concluded that the fee award was fair and that the district court had accounted for the complexity of the case and the importance of conducting a detailed loan-by-loan analysis. The appellate court also accused the lender of relitigating already decided issues and driving up the costs. However, the 8th Circuit did order the district court to recalculate the post-judgment interest award using guidance under 28 U.S.C. § 1961(a) rather than the 10 percent prejudgment interest rate under Minnesota law.
Special Alert: CFPB’s RESPA advisory addresses online mortgage-comparison platforms
The Consumer Financial Protection Bureau (CFPB) issued guidance yesterday making clear that those who operate or participate in online mortgage-comparison shopping platforms will be closely scrutinized for compliance with the prohibition on payments for referrals to mortgage lenders. “Companies operating these digital platforms appear to shoppers as if they provide objective lender comparisons, but may illegally refer people to only those lenders paying referral fees,” the agency said. Here’s what you need to know:
What happened?
The CFPB issued an Advisory Opinion on how the Real Estate Settlement Procedures Act (RESPA) applies to online mortgage-comparison platforms. The agency said platform operators violate RESPA “when they steer shoppers to lenders by using pay-to-play tactics rather than providing shoppers with comprehensive and objective information.” Specifically, the agency said operators receive a prohibited referral fee when they use or present information in a way that steers consumers to mortgage lenders in exchange for a payment or something else of value.
Agencies remind banks of HMDA reporting changes on closed-end mortgages
On February 1, the OCC reminded banks and OCC examiners that the loan origination threshold for reporting HMDA data on closed-end mortgages has changed due to a court decision issued last year, which addressed challenges made by a group of consumer fair housing associations to changes made in 2020 by the CFPB that permanently raised coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under HMDA (covered by InfoBytes here.) Due to a court order vacating the 2020 HMDA Final Rule as to the loan volume reporting threshold for closed-end mortgage loans, the OCC explained that the loan origination threshold for reporting HMDA data on closed-end mortgage loans reverted to the threshold established by the 2015 HMDA Final Rule.
According to Bulletin 2023-5, the threshold for reporting HMDA data is now 25 closed-end mortgage loans originated in each of the two preceding calendar years rather than the 100-loan threshold set by the 2020 HMDA Final Rule. “Banks that originated at least 25 closed-end mortgage loans in each of the two preceding calendar years but fewer than 100 closed-end mortgage loans in either or both of the two preceding calendar years (referred to collectively as affected banks) may need to make adjustments to policies and procedures to comply with reporting obligations,” the OCC said. The agency added that it does not plan to assess penalties for failures to report closed-end mortgage loan data on reportable transactions conducted in 2022, 2021 or 2020 for affected banks that meet other coverage requirements under Regulation C.
The FDIC and Federal Reserve Board also issued similar guidance (see FIL-06-2023 and CA 23-1).
FHA expands Covid-19 loss mitigation options
On February 13, HUD issued Mortgagee Letter 2023-03, which makes technical corrections to Mortgagee Letter 2023-02 issued in January that expanded and enhanced loss mitigation options for borrowers struggling to make payments on FHA-insured mortgages. The enhancements extend FHA’s Covid-19 loss mitigation options to all eligible borrowers, including non-occupant borrowers, who fall behind on mortgage payments, regardless of the cause of delinquency. Mortgage servicers must use FHA’s Covid-19 recovery loss mitigation “waterfall” of options to assess all borrowers who are in default (or at risk of imminent default). The enhancements also raise the maximum partial claim amount from 25 percent of the mortgage’s unpaid principal balance to the maximum 30 percent allowed by statute to help increase home retention. Mortgage servicers can also offer loss mitigation options to borrowers who qualified for or used homeowner assistance funds who may no longer technically be delinquent but require further assistance to avoid redefault. Additionally, the enhancements provide incentive payments to mortgage servicers when Covid-19 recovery options are successfully completed.
The availability of FHA’s Covid-19 loss mitigation options are extended for 18 months beyond the April 30 mandatory effective date for servicers to remove “uncertainties associated with the timing of the end of the National Emergency,” HUD explained, adding that “FHA is temporarily suspending the use of its FHA-Home Affordable Modification (FHA-HAMP) options concurrent with [Mortgagee Letter 2023-02]” in order to simplify loss mitigation options. Mortgage servicers may begin offering these options to borrowers immediately.
FCC warns telecoms to stop carrying “mortgage scam” robocalls
On January 24, the FCC’s Enforcement Bureau announced it had ordered telecommunications companies to effectively mitigate robocall traffic originating from a Florida-based real estate brokerage firm selling mortgage scams. The FCC also sent a cease-and-desist letter to a voice service provider carrying the allegedly illegal robocall traffic. According to the FCC, several state attorneys general filed lawsuits late last year against the firm for allegedly using “misleading robocalls to ‘swindle’ and ‘scam’ residents into mortgaging their homes in exchange for small cash payments.” (See state AG press releases here, here, and here.) Additionally, last month, Senate Banking Committee Chairman Sherrod Brown (D-OH), along with Senators Tina Smith (D-MN) and Ron Wyden (D-OR) sent a letter to the FTC and the CFPB requesting a review of the firm’s use of exclusive 40-year listing agreements marketed as a “loan alternative.” (Covered by InfoBytes here.) In shutting down the robocalls, FCC Chairwoman Jessica Rosenworcel stressed that sending junk calls to financially-stressed homeowners in order to offer “deceptive products and services is unconscionable.” Enforcement Bureau Chief Loyaan A. Egal added that the voice service provider should have been applying “Know Your Customer” principles before allowing the traffic on its networks.